THIRD DIVISION Both agency instruments contained a provision
Upon issuance by the proper Court
G.R. No. 137552 June 16, 2000
ROBERTO Z. LAFORTEZA, GONZALO Z.
LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS
Z. LAFORTEZA, and LEA Z.
LAFORTEZA, petitioners,
vs.
ALONZO MACHUCA, respondent.
GONZAGA-REYES, J.:
This Petition for Review on Certiorari seeks the reversal of
the Decision of the Court of Appeals 1 in CA G.R. CV No.
147457 entitled "ALONZO MACHUCA versus ROBERTO
Z. LAFORTEZA, GONZALO Z. LAFORTEZA, LEA
ZULUETA-LAFORTEZA, MICHAEL Z. LAFORTEZA,
and DENNIS Z. LAFORTEZA".
The following facts as found by the Court of Appeals are
undisputed:
The property involved consists of a house and lot
located at No. 7757 Sherwood Street, Marcelo
Green Village, Parañaque, Metro Manila, covered
by Transfer Certificate of Title (TCT) No.
(220656) 8941 of the Registered of Deeds of
Parañaque (Exhibit "D", Plaintiff, record, pp. 331-
332). The subject property is registered in the
name of the late Francisco Q. Laforteza, although
it is conjugal in nature (Exhibit "8", Defendants,
record pp. 331-386).
On August 2, 1988, defendant Lea Zulueta-
Laforteza executed a Special Power of Attorney in
favor of defendants Roberto Z. Laforteza and
Gonzalo Z. Laforteza, Jr., appointing both as her
Attorney-in-fact authorizing them jointly to sell
the subject property and sign any document for the
settlement of the estate of the late Francisco Q.
Laforteza (Exh. "A", Plaintiff, record, pp. 323-
325).
Likewise on the same day, defendant Michael Z.
Laforteza executed a Special Power of Attorney in
favor of defendants Roberto Z. Laforteza and
Gonzalo Laforteza, Jr., likewise, granting the
same authority (Exh. "B", record, pp. 326-328)
. . . .
that in any document or paper to exercise authority
granted, the signature of both attorneys- in-fact
must be affixed.
On October 27, 1988, defendant Dennis Z.
Laforteza executed a Special Power of Attorney in
favor of defendant Roberto Z. Laforteza for the
purpose of selling the subject property (Exh. "C",
Plaintiff, record, pp. 329-330). A year later, on
October 30, 1989, Dennis Z. Laforteza executed
another Special Power of Attorney in favor of
defendants Roberto Z. Laforteza and Gonzalo
Laforteza, Jr. naming both attorneys-in-fact for the
purpose of selling the subject property and signing
any document for the settlement of the estate of the
late Francisco Q. Laforteza. The subsequent
agency instrument (Exh, "2", record, pp. 371-373)
contained similar provisions that both attorneys-
in-fact should sign any document or paper
executed in the exercise of their
authority.1âwphi1.nêt
In the exercise of the above authority, on January
20, 1989, the heirs of the late Francisco Q.
Laforteza represented by Roberto Z. Laforteza and
Gonzalo Z. Laforteza, Jr. entered into a
Memorandum of Agreement (Contract to Sell)
with the plaintiff 2 over the subject property for the
sum of SIX HUNDRED THIRTY THOUSAND
PESOS (P630,000.00) payable as follows:
(a) P30,000.00 as earnest money, to be
forfeited in favor of the defendants if the
sale is not effected due to the fault of the
plaintiff;
(b) P600,000.00 upon issuance of the
new certificate of title in the name of the
late Francisco Q. Laforteza and upon
execution of an extra-judicial settlement
of the decedent's estate with sale in favor
of the plaintiff (Par. 2, Exh. "E", record,
pp. 335-336).
Significantly, the fourth paragraph of the
Memorandum of Agreement (Contract to Sell)
dated January 20, 1989 (Exh. "E", supra.)
contained a provision as follows:
of the new title, the BUYER-LESSEE
shall be notified in writing and said
BUYER-LESSEE shall have thirty (30)
days to produce the balance of
P600,000.00 which shall be paid to the
SELLER-LESSORS upon the execution
of the Extrajudicial Settlement with
sale.
On January 20, 1989, plaintiff paid the earnest
money of THIRTY THOUSAND PESOS
(P30,000.00), plus rentals for the subject property
(Exh. "F", Plaintiff, record, p. 339).
On September 18, 1998 3 , defendant heirs,
through their counsel wrote a letter (Exh. 1,
Defendants, record, p. 370) to the plaintiff
furnishing the latter a copy of the reconstituted
title to the subject property, advising him that he
had thirty (3) days to produce the balance of SIX
HUNDRED PESOS (sic) (P600,000.00) under the
Memorandum of Agreement which plaintiff
received on the same date.
On October 18, 1989, plaintiff sent the defendant
heirs a letter requesting for an extension of the
THIRTY (30) DAYS deadline up to November
15, 1989 within which to produce the balance of
SIX HUNDRED THOUSAND PESOS
(P600,000.00) (Exh. "G", Plaintiff, record, pp.
341-342). Defendant Roberto Z. Laforteza,
assisted by his counsel Atty. Romeo L. Gutierrez,
signed his conformity to the plaintiff's letter
request (Exh. "G-1 and "G-2", Plaintiff, record, p.
342). The extension, however, does not appear to
have been approved by Gonzalo Z. Laforteza, the
second attorney-in-fact as his conformity does not
appear to have been secured.
On November 15, 1989, plaintiff informed the
defendant heirs, through defendant Roberto Z.
Laforteza, that he already had the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00)
covered by United Coconut Planters Bank
Manager's Check No. 000814 dated November 15,
1989 (TSN, August 25, 1992, p. 11; Exhs. "H",
record, pp. 343-344; "M", records p. 350; and "N",
record, p. 351). However, the defendants, refused
to accept the balance (TSN, August 24, 1992, p.
14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-
1", Plaintiff, record, p. 351). Defendant Roberto Z.
Laforteza had told him that the subject property
was no longer for sale (TSN, October 20, 1992, p.
19; Exh. "J", record, p. 347).
On November 20, 1998 4 , defendants informed
plaintiff that they were canceling the
Memorandum of Agreement (Contract to Sell) in
view of the plaintiff's failure to comply with his
contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to tender
payment of the balance of SIX HUNDRED
THOUSAND PESOS (P600,000.00). Defendants,
however, insisted on the rescission of the
Memorandum of Agreement. Thereafter, plaintiff
filed the instant action for specific performance.
The lower court rendered judgment on July 6,
1994 in favor of the plaintiff, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby
rendered in favor of plaintiff Alonzo
Machuca and against the defendant heirs
of the late Francisco Q. Laforteza,
ordering the said defendants.
(a) To accept the balance of
P600,000.00 as full payment
of the consideration for the
purchase of the house and lot
located at No. 7757 Sherwood
Street, Marcelo Green
Village, Parañaque, Metro
Manila, covered by Transfer
Certificate of Title No.
(220656) 8941 of the Registry
of Deeds of Rizal Parañaque,
Branch;
(b) To execute a registrable
deed of absolute sale over the
subject property in favor of
the plaintiff;
(c) Jointly and severally to
pay the plaintiff the sum of
P20,000.00 as attorney's fees
plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75). 5
Petitioners appealed to the Court of Appeals,
which affirmed with modification the decision of
the lower court; the dispositive portion of the
Decision reads:
WHEREFORE, the questioned decision
of the lower court is hereby AFFIRMED
with the MODIFICATION that
defendant heirs Lea Zulueta-Laforteza,
Michael Z. Laforteza, Dennis Z.
Laforteza and Roberto Z. Laforteza
including Gonzalo Z. Laforteza, Jr. are
hereby ordered to pay jointly and
severally the sum of FIFTY
THOUSAND PESOS (P50,000.00) as
moral damages.
SO ORDERED. 6
Motion for Reconsideration was denied but the
Decision was modified so as to absolve Gonzalo
Z. Laforteza, Jr. from liability for the payment of
moral damages. 7 Hence this petition wherein the
petitioners raise the following issues:
I. WHETHER THE TRIAL AND
APPELLATE COURTS CORRECTLY
CONSTRUED THE MEMORANDUM
OF AGREEMENT AS IMPOSING
RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A
QUO CORRECTLY RULED THAT
RESCISSION WILL NOT LIE IN THE
INSTANT CASE.
III. WHETHER THE RESPONDENT
IS UNDER ESTOPPEL FROM
RAISING THE ALLEGED DEFECT
IN THE SPECIAL POWER OF
ATTORNEY DATED 30 OCTOBER
1989 EXECUTED BY DENNIS
LAFORTEZA.
IV. SUPPOSING EX GRATIA
ARGUMENTI THE MEMORANDUM
OF AGREEMENT IMPOSES
RECIPROCAL OBLIGATIONS,
WHETHER THE PETITIONERS
MAY BE COMPELLED TO SELL
THE SUBJECT PROPERTY WHEN
THE RESPONDENT FAILED TO
MAKE A JUDICIAL
CONSIGNATION OF THE
PURCHASE PRICE?
V. WHETHER THE PETITIONERS
ARE IN BAD FAITH SO TO AS
MAKE THEM LIABLE FOR MORAL
DAMAGES? 8
The petitioners contend that the Memorandum of
Agreement is merely a lease agreement with
"option to purchase". As it was merely an option,
it only gave the respondent a right to purchase the
subject property within a limited period without
imposing upon them any obligation to purchase it.
Since the respondent's tender of payment was
made after the lapse of the option agreement, his
tender did not give rise to the perfection of a
contract of sale.
It is further maintained by the petitioners that the
Court of Appeals erred in ruling that rescission of
the contract was already out of the question.
Rescission implies that a contract of sale was
perfected unlike the Memorandum of Agreement
in question which as previously stated is allegedly
only an option contract.
Petitioner adds that at most, the Memorandum of
Agreement (Contract to Sell) is a mere contract to
sell, as indicated in its title. The obligation of the
petitioners to sell the property to the respondent
was conditioned upon the issuance of a new
certificate of title and the execution of the
extrajudicial partition with sale and payment of the
P600,000.00. This is why possession of the subject
property was not delivered to the respondent as the
owner of the property but only as the lessee
thereof. And the failure of the respondent to pay
the purchase price in full prevented the petitioners'
obligation to convey title from acquiring
obligatory force.
Petitioners also allege that assuming for the sake
of argument that a contract of sale was indeed
perfected, the Court of Appeals still erred in
holding that respondent's failure to pay the
purchase price of P600,000.00 was only a "slight
or casual breach".
The petitioners also claim that the Court of
Appeals erred in ruling that they were not ready to
comply with their obligation to execute the
extrajudicial settlement. The Power of Attorney to
execute a Deed of Sale made by Dennis Z.
Laforteza was sufficient and necessarily included
the power to execute an extrajudicial settlement.
At any rate, the respondent is estopped from
claiming that the petitioners were not ready to
comply with their obligation for he acknowledged
the petitioners' ability to do so when he requested
for an extension of time within which to pay the
purchase price. Had he truly believed that the
petitioners were not ready, he would not have
needed to ask for said extension.
Finally, the petitioners allege that the respondent's
uncorroborated testimony that third persons
offered a higher price for the property is hearsay
and should not be given any evidentiary weight.
Thus, the order of the lower court awarding moral
damages was without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows
that the transaction between the petitioners and the
respondent was one of sale and lease. The terms of
the agreement read:
1. For and in consideration of the sum of
PESOS: SIX HUNDRED THIRTY
THOUSAND (P630,000.00) payable in
a manner herein below indicated,
SELLER-LESSOR hereby agree to sell
unto BUYER-LESSEE the property
described in the first WHEREAS of this
Agreement within six (6) months from
the execution date hereof, or upon
issuance by the Court of a new owner's
certificate of title and the execution of
extrajudicial partition with sale of the
estate of Francisco Laforteza, whichever
is earlier;
2. The above-mentioned sum of PESOS:
SIX HUNDRED THIRTY
THOUSAND (P630,000.00) shall be
paid in the following manner:
P30,000.00 — as earnest
money and as consideration
for this Agreement, which
amount shall be forfeited in
favor of SELLER-LESSORS
if the sale is not effected
because of the fault or option
of BUYER-LESSEE;
P600,000.00 — upon the
issuance of the new certificate
of title in the name of the late
Francisco Laforteza and upon
the execution of an
Extrajudicial Settlement of
his estate with sale in favor of
BUYER-LESSEE free from
lien or any encumbrances.
3. Parties reasonably estimate that the
issuance of a new title in place of the lost
one, as well as the execution of
extrajudicial settlement of estate with
sale to herein BUYER-LESSEE will be
completed within six (6) months from
the execution of this Agreement. It is
therefore agreed that during the six
months period, BUYER-LESSEE will
be leasing the subject property for six
months period at the monthly rate of
PESOS: THREE THOUSAND FIVE
HUNDRED
(P3,500.00). Provided however, that if
the issuance of new title and the
execution of Extrajudicial Partition is
completed prior to the expiration of the
six months period, BUYER-LESSEE
shall only be liable for rentals for the
corresponding period commencing from
his occupancy of the premises to the
execution and completion of the
Extrajudicial Settlement of the estate,
provided further that if after the
expiration of six (6) months, the lost title
is not yet replaced and the extra judicial
partition is not executed, BUYER-
LESSEE shall no longer be required to
pay rentals and shall continue to occupy,
and use the premises until subject
condition is complied by SELLER-
LESSOR;
4. It is hereby agreed that within
reasonable time from the execution of
this Agreement and the payment by
BUYER-LESSEE of the amount of
P30,000.00 as herein above provided,
SELLER-LESSORS shall immediately
file the corresponding petition for the
issuance of a new title in lieu of the lost
one in the proper Courts. Upon issuance
by the proper Courts of the new title, the
BUYER-LESSEE shall have thirty (30)
days to produce the balance of
P600,000.00 which shall be paid to the
SELLER-LESSORS upon the execution
of the Extrajudicial Settlement with
sale. 9
A contract of sale is a consensual contract and is
perfected at the moment there is a meeting of the
minds upon the thing which is the object of the
contract and upon the price. 10 From that moment
the parties may reciprocally demand performance
subject to the provisions of the law governing the
form of contracts. 11 The elements of a valid
contract of sale under Article 1458 of the Civil
Code are (1) consent or meeting of the minds; (2)
determinate subject matter and (3) price certain
money or its equivalent. 12
In the case at bench, there was a perfected
agreement between the petitioners and the
respondent whereby the petitioners obligated
themselves to transfer the ownership of and
deliver the house and lot located at 7757 Sherwood
St., Marcelo Green Village, Parañaque and the
respondent to pay the price amounting to six
hundred thousand pesos (P600,000.00). All the
elements of a contract of sale were thus present.
However, the balance of the purchase price was to
be paid only upon the issuance of the new
certificate of title in lieu of the one in the name of
the late Francisco Laforteza and upon the
execution of an extrajudicial settlement of his
estate. Prior to the issuance of the "reconstituted"
title, the respondent was already placed in
possession of the house and lot as lessee thereof
for six months at a monthly rate of three thousand
five hundred pesos (P3,500.00). It was stipulated
that should the issuance of the new title and the
execution of the extrajudicial settlement be
completed prior to expiration of the six-month
period, the respondent would be liable only for the
rentals pertaining to the period commencing from
the date of the execution of the agreement up to
the execution of the extrajudicial settlement. It was
also expressly stipulated that if after the expiration
of the six month period, the lost title was not yet
replaced and the extrajudicial partition was not yet
executed, the respondent would no longer be
required to pay rentals and would continue to
occupy and use the premises until the subject
condition was complied with the petitioners.
The six-month period during which the respondent
would be in possession of the property as lessee,
was clearly not a period within which to exercise
an option. An option is a contract granting a
privilege to buy or sell within an agreed time and
at a determined price. An option contract is a
separate and distinct contract from that which the
parties may enter into upon the consummation of
the option. 13 An option must be supported by
consideration.14 An option contract is governed by
the second paragraph of Article 1479 of the Civil
Code 15 , which reads:
Art. 1479. . . .
An accepted unilateral promise to buy or
to sell a determinate thing for a price
certain is binding upon the promissor if
the promise is supported by a
consideration distinct from the price.
In the present case, the six-month period merely
delayed the demandability of the contract of sale
and did not determine its perfection for after the
expiration of the six-month period, there was an
absolute obligation on the part of the petitioners
and the respondent to comply with the terms of the
sale. The parties made a "reasonable estimate" that
the reconstitution the lost title of the house and lot
would take approximately six months and thus
presumed that after six months, both parties would
be able to comply with what was reciprocally
incumbent upon them. The fact that after the
expiration of the six-month period, the respondent
would retain possession of the house and lot
without need of paying rentals for the use therefor,
clearly indicated that the parties contemplated that
ownership over the property would already be
transferred by that time.
The issuance of the new certificate of title in the name of the
late Francisco Laforteza and the execution of an extrajudicial
settlement of his estate was not a condition which
determined the perfection of the contract of sale. Petitioners'
contention that since the condition was not met, they no
longer had an obligation to proceed with the sale of the house
and lot is unconvincing. The petitioners fail to distinguish
between a condition imposed upon the perfection of the
contract and a condition imposed on the performance of an
obligation. Failure to comply with the first condition results
in the failure of a contract, while the failure to comply with
the second condition only gives the other party the option
either to refuse to proceed with the sale or to waive the
condition. Thus, Art. 1545 of the Civil Code states:
Art. 1545. Where the obligation of either party to
a contract of sale is subject to any condition which
is not performed, such party may refuse to proceed
with the contract or he may waive performance of
the condition. If the other party has promised that
the condition should happen or be performed, such
first mentioned party may also treat the
nonperformance of the condition as a breach of
warranty.
Where the ownership in the things has not passed,
the buyer may treat the fulfillment by the seller of
his obligation to deliver the same as described and
as warranted expressly or by implication in the
contract of sale as a condition of the obligation of
the buyer to perform his promise to accept and pay
for the thing. 16
In the case at bar, there was already a perfected contract. The
condition was imposed only on the performance of the
obligations contained therein. Considering however that the
title was eventually "reconstituted" and that the petitioners
admit their ability to execute the extrajudicial settlement of
their father's estate, the respondent had a right to demand
fulfillment of the petitioners' obligation to deliver and
transfer ownership of the house and lot.
What further militates against petitioners' argument that they
did not enter into a contract or sale is the fact that the
respondent paid thirty thousand pesos (P30,000.00) as
earnest money. Earnest money is something of value to show
that the buyer was really in earnest, and given to the seller to
bind the bargain.17 Whenever earnest money is given in a
contract of sale, it is considered as part of the purchase price
and proof of the perfection of the contract. 18
We do not subscribe to the petitioners' view that the
Memorandum Agreement was a contract to sell. There is
nothing contained in the Memorandum Agreement from
which it can reasonably be deduced that the parties intended
to enter into a contract to sell, i.e. one whereby the
prospective seller would explicitly reserve the transfer of
title to the prospective buyer, meaning, the prospective seller
does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the full payment
of the price, such payment being a positive suspensive
condition, the failure of which is not considered a breach,
casual or serious, but simply an event which prevented the
obligation from acquiring any obligatory force. 19 There is
clearly no express reservation of title made by the petitioners
over the property, or any provision which would impose
non-payment of the price as a condition for the contract's
entering into force. Although the memorandum agreement
was also denominated as a "Contract to Sell", we hold that
the parties contemplated a contract of sale. A deed of sale is
absolute in nature although denominated a conditional sale
in the absence of a stipulation reserving title in the
petitioners until full payment of the purchase price. 20 In such
cases, ownership of the thing sold passes to the vendee upon
actual or constructive delivery thereof. 21 The mere fact that
the obligation of the respondent to pay the balance of the
purchase price was made subject to the condition that the
petitioners first deliver the reconstituted title of the house
and lot does not make the contract a contract to sell for such
condition is not inconsistent with a contract of sale. 22
The next issue to be addressed is whether the failure of the
respondent to pay the balance of the purchase price within
the period allowed is fatal to his right to enforce the
agreement.
We rule in the negative.
Admittedly, the failure of the respondent to pay the balance
of the purchase price was a breach of the contract and was a
ground for rescission thereof. The extension of thirty (30)
days allegedly granted to the respondent by Roberto Z.
Laforteza (assisted by his counsel Attorney Romeo
Gutierrez) was correctly found by the Court of Appeals to be
ineffective inasmuch as the signature of Gonzalo Z.
Laforteza did not appear thereon as required by the Special
Powers of Attorney. 23 However, the evidence reveals that
after the expiration of the six-month period provided for in
the contract, the petitioners were not ready to comply with
what was incumbent upon them, i.e. the delivery of the
reconstituted title of the house and lot. It was only on
September 18, 1989 or nearly eight months after the
execution of the Memorandum of Agreement when the
petitioners informed the respondent that they already had a
copy of the reconstituted title and demanded the payment of
the balance of the purchase price. The respondent could not
therefore be considered in delay for in reciprocal obligations,
neither party incurs in delay if the other party does not
comply or is not ready to comply in a proper manner with
what was incumbent upon him. 24
Even assuming for the sake of argument that the petitioners
were ready to comply with their obligation, we find that
rescission of the contract will still not prosper. The rescission
of a sale of an immovable property is specifically governed
by Article 1592 of the New Civil Code, which reads:
In the sale of immovable property, even though it
may have been stipulated that upon failure to pay
the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as
long as no demand for rescission of the contract
has been made upon him either judicially or by a
notarial act. After the demand, the court may not
grant him a new term. 25
It is not disputed that the petitioners did not make a judicial
or notarial demand for rescission.1avvphi1 The November
20, 1989 letter of the petitioners informing the respondent of
the automatic rescission of the agreement did not amount to
a demand for rescission, as it was not notarized. 26 It was also
made five days after the respondent's attempt to make the
payment of the purchase price. This offer to pay prior to the
demand for rescission is sufficient to defeat the petitioners'
right under article 1592 of the Civil Code. 27 Besides, the
Memorandum Agreement between the parties did not
contain a clause expressly authorizing the automatic
cancellation of the contract without court intervention in the
event that the terms thereof were violated. A seller cannot
unilaterally and extrajudicially rescind a contract or sale
where there is no express stipulation authorizing him to
extrajudicially rescind. 28 Neither was there a judicial
demand for the rescission thereof. Thus, when the No pronouncement as to costs.
respondent filed his complaint for specific performance, the
agreement was still in force inasmuch as the contract was not SO ORDERED.
yet rescinded. At any rate, considering that the six-month
period was merely an approximation of the time if would
take to reconstitute the lost title and was not a condition Melo, Panganiban and Purisima, JJ., concur.
imposed on the perfection of the contract and considering Vitug, J., abroad on official business.
further that the delay in payment was only thirty days which
was caused by the respondents justified but mistaken belief
that an extension to pay was granted to him, we agree with
the Court of Appeals that the delay of one month in payment
was a mere casual breach that would not entitle the
respondents to rescind the contract. Rescission of a contract
will not be permitted for a slight or casual breach, but only
such substantial and fundamental breach as would defeat the
very object of the parties in making the agreemant. 29
Petitioners' insistence that the respondent should have
consignated the amount is not determinative of whether
respondent's action for specific performance will lie.
Petitioners themselves point out that the effect of
cansignation is to extinguish the obligation. It releases the
debtor from responsibility therefor. 30 The failure of the
respondent to consignate the P600,000.00 is not tantamount
to a breach of the contract for by the fact of tendering
payment, he was willing and able to comply with his
obligation.
The Court of Appeals correctly found the
petitioners guilty of bad faith and awarded moral
damages to the respondent. As found by the said
Court, the petitioners refused to comply with, their
obligation for the reason that they were offered a
higher price therefor and the respondent was even
offered P100,000.00 by the petitioners' lawyer,
Attorney Gutierrez, to relinquish his rights over
the property. The award of moral damages is in
accordance with Article 1191 31 of the Civil Code
pursuant to Article 2220 which provides that
moral damages may be awarded in case of breach
of contract where the defendant acted in bad faith.
The amount awarded depends on the discretion of
the court based on the circumstances of each
case. 32 Under the circumstances, the award given
by the Court of Appeals amounting to P50,000.00
appears to us to be fair and reasonable.
ACCORDINGLY, the decision of the Court of Appeals in
CA G.R. CV No. 47457 is AFFIRMED and the instant
petition is hereby DENIED.
 Republic of the Philippines
SUPREME COURT
SECOND DIVISION
G.R. No. 162822 August 25, 2005
JAIME GUINHAWA, Petitioners,
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
CALLEJO, SR., J.:
Jaime Guinhawa was engaged in the business of selling
brand new motor vehicles, including Mitsubishi vans, under
the business name of Guinrox Motor Sales. His office and
display room for cars were located along Panganiban
Avenue, Naga City. He employed Gil Azotea as his sales
manager.
On March 17, 1995, Guinhawa purchased a brand new
Mitsubishi L-300 Versa Van with Motor No. 4D56A-C8929
and Serial No. L069WQZJL-07970 from the Union Motors
Corporation (UMC) in Paco, Manila. The van bore Plate No.
DLK 406. Guinhawa’s driver, Leopoldo Olayan, drove the
van from Manila to Naga City. However, while the van was
traveling along the highway in Labo, Daet, Camarines Norte,
Olayan suffered a heart attack. The van went out of control,
traversed the highway onto the opposite lane, and was
ditched into the canal parallel to the highway.1 The van was
damaged, and the left front tire had to be replaced.
The incident was reported to the local police authorities and
was recorded in the police blotter.2 The van was repaired and
later offered for sale in Guinhawa’s showroom.3
Sometime in October 1995, the spouses Ralph and Josephine
Silo wanted to buy a new van for their garment business;
they purchased items in Manila and sold them in Naga
City.4 They went to Guinhawa’s office, and were shown the
L-300 Versa Van which was on display. The couple
inspected its interior portion and found it beautiful. They no
longer inspected the under chassis since they presumed that
the vehicle was brand new.5 Unaware that the van had been
damaged and repaired on account of the accident in Daet, the
couple decided to purchase the van for ₱591,000.00. Azotea
suggested that the couple make a downpayment of
₱118,200.00, and pay the balance of the purchase price by
installments via a loan from the United Coconut Planters
Bank (UCPB), Naga Branch, with the L-300 Versa Van as
collateral. Azotea offered to make the necessary
arrangements with the UCPB for the consummation of the
loan transaction. The couple agreed. On November 10, 1995,
the spouses executed a Promissory Note6 for the amount of
₱692,676.00 as payment of the balance on the purchase
price, and as evidence of the chattel mortgage over the van
in favor of UCPB.
On October 11, 1995, the couple arrived in Guinhawa’s
office to take delivery of the van. Guinhawa executed the
deed of sale, and the couple paid the ₱161,470.00
downpayment, for which they were issued Receipt No.
0309.7 They were furnished a Service Manual8 which
contained the warranty terms and conditions. Azotea
instructed the couple on how to start the van and to operate
its radio. Ralph Silo no longer conducted a test drive; he and
his wife assumed that there were no defects in the van as it
was brand new.9
On October 12, 1995, Josephine Silo, accompanied by
Glenda Pingol, went to Manila on board the L-300 Versa
Van, with Glenda’s husband, Bayani Pingol III, as the driver.
Their trip to Manila was uneventful. However, on the return
trip to Naga from Manila on October 15 or 16, 1995, Bayani
Pingol heard a squeaking sound which seemed to be coming
from underneath the van. They were in Calauag, Quezon,
where there were no humps along the road.10 Pingol stopped
the van in Daet, Camarines Norte, and examined the van
underneath, but found no abnormalities or defects.11 But as
he drove the van to Naga City, the squeaking sound
persisted.
Believing that the van merely needed grease, Pingol stopped
at a Shell gasoline station where it was examined. The
mechanic discovered that some parts underneath the van had
been welded. When Pingol complained to Guinhawa, the
latter told him that the defects were mere factory defects. As
the defects persisted, the spouses Silo requested that
Guinhawa change the van with two Charade-Daihatsu
vehicles within a week or two, with the additional costs to
be taken from their downpayment. Meanwhile, the couple
stopped paying the monthly amortization on their loan,
pending the replacement of the van. Guinhawa initially
agreed to the couple’s proposal, but later changed his mind
and told them that he had to sell the van first. The spouses
then brought the vehicle to the Rx Auto Clinic in Naga City
for examination. Jesus Rex Raquitico, Jr., the mechanic,
examined the van and discovered that it was the left front
stabilizer that was producing the annoying sound, and that it
had been repaired.12 Raquitico prepared a Job Order
containing the following notations and recommendations:
1. CHECK UP SUSPENSION (FRONT)
2. REPLACE THE ROD END
3. REPLACE BUSHING
NOTE: FRONT STEP BOARD HAS BEEN ALREADY
DAMAGED AND REPAIRED.
NOTE: FRONT LEFT SUSPENSION MOUNTING IS
NOT ON SPECIFIED ALIGNMENT/MEASUREMENT13
Josephine Silo filed a complaint for the rescission of the sale
and the refund of their money before the Department of
Trade and Industry (DTI). During the confrontation between
her and Guinhawa, Josephine learned that Guinhawa had
bought the van from UMC before it was sold to them, and
after it was damaged in Daet. Subsequently, the spouses Silo
withdrew their complaint from the DTI.
On February 14, 1996, Josephine Silo filed a criminal
complaint for violation of paragraph 1, Article 318 of the
Revised Penal Code against Guinhawa in the Office of the
City Prosecutor of Naga City. After the requisite
investigation, an Information was filed against Guinhawa in
the Municipal Trial Court (MTC) of Naga City. The
inculpatory portion reads:
The undersigned Assistant Prosecutor of Naga City accuses
Jaime Guinhawa of the crime of OTHER DECEITS defined
and penalized under Art. 318, par. 1 of the Revised Penal
Code, committed as follows:
"That on or about October 11, 1995, in the City of Naga,
Philippines, and within the jurisdiction of this Honorable
Court, the said accused, being a motor vehicle dealer using
the trade name of Guinhawa Motor Sales at Panganiban
Avenue, Naga City, and a dealer of brand new cars, by
means of false pretenses and fraudulent acts, did then and
there willfully, unlawfully and feloniously defraud private
complainant, JOSEPHINE P. SILO, as follows: said accused
by means of false manifestations and fraudulent
representations, sold to said private complainant, as brand
new, an automobile with trade name L-300 Versa Van
colored beige and the latter paid for the same in the amount
of ₱591,000.00, when, in truth and in fact, the same was not
brand new because it was discovered less than a month after
it was sold to said Josephine P. Silo that said L-300 Versa
Van had defects in the underchassis and stepboard and
repairs had already been done thereat even before said sale,
as was found upon check-up by an auto mechanic; that
private complainant returned said L-300 Versa Van to the
accused and demanded its replacement with a new one or the
return of its purchase price from said accused but despite
follow-up demands no replacement was made nor was the
purchase price returned to private complainant up to the
present to her damage and prejudice in the amount of
₱591,000.00, Philippine Currency, plus other damages that
may be proven in court."14
Guinhawa testified that he was a dealer of brand new Toyota,
Mazda, Honda and Mitsubishi cars, under the business name
Guinrox Motor Sales. He purchased Toyota cars from
Toyota Philippines, and Mitsubishi cars from UMC in Paco,
Manila.15 He bought the van from the UMC in March 1995,
but did not use it; he merely had it displayed in his showroom
in Naga City.16 He insisted that the van was a brand new unit
when he sold it to the couple.17 The spouses Silo bought the
van and took delivery only after inspecting and taking it for
a road tests.18 His sales manager, Azotea, informed him
sometime in November 1995 that the spouses Silo had
complained about the defects under the left front portion of
the van. By then, the van had a kilometer reading of 4,000
kilometers.19 He insisted that he did not make any false
statement or fraudulent misrepresentation to the couple
about the van, either before or simultaneous with its
purchase. He posited that the defects noticed by the couple
were not major ones, and could be repaired. However, the
couple refused to have the van repaired and insisted on a
refund of their payment for the van which he could not allow.
He then had the defects repaired by the UMC.20 He claimed
that the van was never involved in any accident, and denied
that his driver, Olayan, met an accident and sustained
physical injuries when he drove the van from Manila to Naga
City.21 He even denied meeting Bayani Pingol.
The accused claimed that the couple filed a
Complaint22 against him with the DTI on January 25, 1996,
only to withdraw it later.23 The couple then failed to pay the
amortizations for the van, which caused the UCPB to file a
petition for the foreclosure of the chattel mortgage and the
sale of the van at public auction.24
Azotea testified that he had been a car salesman for 16 years
and that he sold brand new vans.25 Before the couple took
delivery of the vehicle, Pingol inspected its exterior, interior,
and underside, and even drove it for the couple.26 He was
present when the van was brought to the Rx Auto Clinic,
where he noticed the dent on its front side.27 He claimed that
the van never figured in any vehicular accident in Labo,
Daet, Camarines Norte on March 17, 1995.28 In fact, he
declared, he found no police record of a vehicular accident
involving the van on the said date.29 He admitted that Olayan
was their driver, and was in charge of taking delivery of cars
purchased from the manufacturer in Manila.30
On November 6, 2001, the trial court rendered judgment
convicting Guinhawa. The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered declaring the accused, JAIME GUINHAWA,
guilty of the crime of Other Deceits defined and penalized
under Art. 318(1) of the Revised Penal Code, the prosecution
having proven the guilt of the accused beyond reasonable
doubt and hereby imposes upon him the penalty of
imprisonment from 2 months and 1 day to 4 months
of Arresto Mayor and a fine of One Hundred Eighty
Thousand Seven Hundred and Eleven Pesos (₱180,711.00)
the total amount of the actual damages caused to private
complainant.
As to the civil aspect of this case which have been deemed
instituted with this criminal case, Articles 2201 and 2202 of
the Civil Code provides:
"Art. 2201. In contracts and quasi-contracts, the damages for
which the obligor who acted in good faith is liable shall be
those that are the natural and probable consequences of the
breach of the obligation, and which the parties have foreseen
or could have reasonably foreseen at the time the obligation
was constituted.
"In case of fraud, malice or wanton attitude, the obligor shall
be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation."
"Art. 2202. In crimes and quasi-delicts, the defendant shall
be liable for all damages which are the natural and probable
consequences of the act or omission complained of. It is not
necessary that such damages have been foreseen or could
have reasonably been foreseen by the defendant."
Thus, accused is condemned to pay actual damages in the
amount of One Hundred Eighty Thousand Seven Hundred
and Eleven Pesos (Php180,711.00), which represents the
20% downpayment and other miscellaneous expenses paid
by the complainant plus the amount of Nineteen Thousand
Two Hundred Forty-One (Php19,241.00) Pesos,
representing the 1st installment payment made by the private
complainant to the bank. Accused is, likewise, ordered to
pay moral damages in the amount of One Hundred Thousand
Pesos (Php100,000.00) in view of the moral pain suffered by
the complainant; for exemplary damages in the amount of
Two Hundred Thousand Pesos (Php200,000.00) to serve as
deterrent for those businessmen similarly inclined to take
undue advantage over the public’s innocence. As for
attorney’s fees, the reasonable amount of One Hundred
Thousand Pesos (Php100,000.00) is hereby awarded.
SO ORDERED.31
The trial court declared that the accused made false pretenses
or misrepresentations that the van was a brand new one
when, in fact, it had figured in an accident in Labo, Daet,
Camarines Norte, and sustained serious damages before it
was sold to the private complainant.
Guinhawa appealed the decision to the Regional Trial Court
(RTC) of Naga City, Branch 19, in which he alleged that:
1. The lower court erred in its finding that the repair works
on the left front portion and underchassis of the van was the
result of the accident in Labo, Camarines Norte, where its
driver suffered an attack of hypertension.
2. The lower court erred in its four (4) findings of fact that
accused-appellant made misrepresentation or false pretenses
"that the van was a brand new car," which constituted deceit
as defined in Article 318, paragraph 1 of the Revised Penal
Code.
3. The lower court erred in finding accused-appellant civilly
liable to complainant Josephine Silo. But, even if there be
such liability, the action therefor has already prescribed and
the amount awarded was exhorbitant, excessive and
unconscionable.32
Guinhawa insisted that he never talked to the couple about
the sale of the van; hence, could not have made any false
pretense or misrepresentation.
On August 1, 2002, the RTC affirmed the appealed
judgment.33
Guinhawa filed a petition for review with the Court of
Appeals (CA), where he averred that:
I any notice to the public that the van was not brand new does
THE COURT A QUO ERRED IN CONVICTING
PETITIONER OF THE CRIME OF OTHER DECEITS
AND SENTENCING HIM TO SUFFER IMPRISONMENT
OF TWO MONTHS AND ONE DAY TO FOUR MONTHS
OF ARRESTO MAYOR AND TO PAY FINE IN THE
AMOUNT OF ₱180,711.00.
II
THE COURT A QUO ERRED IN ORDERING
PETITIONER TO PAY PRIVATE COMPLAINANT
₱180,711.00 AS DOWNPAYMENT, ₱19,241.00 AS
FIRST INSTALLMENT WITH UCPB NAGA,
₱100,000.00 AS MORAL DAMAGES, ₱200,000.00 AS
EXEMPLARY DAMAGES AND ₱100,000.00 AS
ATTORNEY’S FEES.34
On January 5, 2004, the CA rendered judgment affirming
with modification the decision of the RTC. The fallo of the
decision reads:
WHEREFORE, premises considered, the instant petition is
hereby partially granted insofar as the following are
concerned: a) the award of moral damages is
hereby REDUCED to ₱10,000.00 and b) the award of
attorney’s fees and exemplary damages are
hereby DELETED for lack of factual basis. In all other
respects, We affirm the decision under review.
Costs against petitioner.
SO ORDERED.35
The CA ruled that the private complainant had the right to
assume that the van was brand new because Guinhawa held
himself out as a dealer of brand new vans. According to the
appellate court, the act of displaying the van in the
showroom without notice to any would-be buyer that it was
not a brand new unit was tantamount to deceit. Thus, in
concealing the van’s true condition from the buyer,
Guinhawa committed deceit.
The appellate court denied Guinhawa’s motion for
reconsideration, prompting him to file the present petition
for review on certiorari, where he contends:
I not amount to deceit. He posits that based on the principle
THE COURT A QUO ERRED IN NOT HOLDING THAT
THE INFORMATION CHARGED AGAINST
PETITIONER DID NOT INFORM HIM OF A CHARGE
OF OTHER DECEITS.
II
THE COURT A QUO ERRED IN HOLDING THAT
PETITIONER EMPLOYED FRAUD OR DECEIT AS
DEFINED UNDER ARTICLE 318, REVISED PENAL
CODE.
III
THE COURT A QUO ERRED IN NOT CONSIDERING
THE CIRCUMSTANCES POINTING TO THE
INNOCENCE OF THE PETITIONER.36
The issues for resolution are (1) whether, under the
Information, the petitioner was charged of other deceits
under paragraph 1, Article 318 of the Revised Penal Code;
and (2) whether the respondent adduced proof beyond
reasonable doubt of the petitioner’s guilt for the crime
charged.
The petitioner asserts that based on the allegations in the
Information, he was charged with estafa through false
pretenses under paragraph 2, Article 315 of the Revised
Penal Code. Considering the allegation that the private
complainant was defrauded of ₱591,000.00, it is the RTC,
not the MTC, which has exclusive jurisdiction over the case.
The petitioner maintains that he is not estopped from
assailing this matter because the trial court’s lack of
jurisdiction can be assailed at any time, even on appeal,
which defect cannot even be cured by the evidence adduced
during the trial. The petitioner further avers that he was
convicted of other deceits under paragraph 1, Article 318 of
the Revised Penal Code, a crime for which he was not
charged; hence, he was deprived of his constitutional right
to be informed of the nature of the charge against him. And
in any case, even if he had been charged of other deceits
under paragraph 1 of Article 318, the CA erred in finding
him guilty. He insists that the private complainant merely
assumed that the van was brand new, and that he did not
make any misrepresentation to that effect. He avers that
deceit cannot be committed by concealment, the absence of
of caveat emptor, if the private complainant purchased the
van without first inspecting it, she must suffer the
consequences. Moreover, he did not attend to the private
complainant when they examined the van; thus, he could not
have deceived them.
The petitioner maintains that, absent evidence of conspiracy,
he is not criminally liable for any representation Azotea may
have made to the private complainant, that the van was brand
new. He insists that the respondent was estopped from
adducing evidence that the vehicle was involved in an
accident in Daet, Camarines Norte on March 17, 1995,
because such fact was not alleged in the Information.
In its comment on the petition, the Office of the Solicitor
General avers that, as gleaned from the material averments
of the Information, the petitioner was charged with other
deceits under paragraph 1, Article 318 of the Revised Penal
Code, a felony within the exclusive jurisdiction of the MTC.
The petitioner was correctly charged and convicted, since he
falsely claimed that the vehicle was brand new when he sold
the same to the private complainant. The petitioner’s
concealment of the fact that the van sustained serious
damages as an aftermath of the accident in Daet, Camarines
Norte constituted deceit within the meaning of paragraph 1
of Article 318.
The Information filed against the petitioner reads:
That on or about October 11, 1995, in the City of Naga,
Philippines, and within the jurisdiction of this Honorable
Court, the said accused, being a motor vehicle dealer using
the trade name of Guinhawa Motor Sales at Panganiban
Avenue, Naga City, and dealer of brand new cars, by means
of false pretenses and fraudulent acts, did then and there,
willfully, unlawfully and feloniously defraud private
complainant, JOSEPHINE P. SILO, as follows: said accused
by means of false manifestations and fraudulent
representations, sold to said private complainant, as brand
new, an automobile with trade name L-300 Versa Van
colored beige and the latter paid for the same in the amount
of ₱591,000.00, when, in truth and in fact, the same was not
brand new because it was discovered less than a month after
it was sold to said Josephine P. Silo that said L-300 Versa
Van had defects in the underchassis and stepboard and
repairs have already been done thereat even before said sale,
as was found upon check-up by an auto mechanic; that
private complainant returned said L-300 Versa Van to the
accused and demanded its replacement with a new one or the
return of its purchase price from said accused but despite
follow-up demands no replacement was made nor was the
purchase price returned to private complainant up to the
present to her damage and prejudice in the amount of
₱591,000.00, Philippine Currency, plus other damages that
may be proven in court.
CONTRARY TO LAW.37
Section 6, Rule 110 of the Rules of Criminal Procedure
requires that the Information must allege the acts or
omissions complained of as constituting the offense:
SEC. 6. Sufficiency of complaint or information. – A
complaint or information is sufficient if it states the name of
the accused; the designation of the offense given by the
statute; the acts or omissions complained of as constituting
the offense; the name of the offended party; the approximate
date of the commission of the offense; and the place where
the offense was committed.
When an offense is committed by more than one person, all
of them shall be included in the complaint or information.
The real nature of the offense charged is to be ascertained by
the facts alleged in the body of the Information and the
punishment provided by law, not by the designation or title
or caption given by the Prosecutor in the Information.38 The
Information must allege clearly and accurately the elements
of the crime charged.39
As can be gleaned from its averments, the Information
alleged the essential elements of the crime under paragraph
1, Article 318 of the Revised Penal Code.
The false or fraudulent representation by a seller that what
he offers for sale is brand new (when, in fact, it is not) is one
of those deceitful acts envisaged in paragraph 1, Article 318
of the Revised Penal Code. The provision reads:
Art. 318. Other deceits. – The penalty of arresto mayor and
a fine of not less than the amount of the damage caused and
not more than twice such amount shall be imposed upon any
person who shall defraud or damage another by any other
deceit not mentioned in the preceding articles of this chapter.
This provision was taken from Article 554 of the Spanish
Penal Code which provides:
El que defraudare o perjudicare a otro, usando de cualquier
engaño que no se halle expresado en los artículos anteriores
de esta sección, será castigado con una multa del tanto al
duplo del perjuicio que irrogare; y en caso de reincidencia,
con la del duplo y arresto mayor en su grado medio al
máximo.
For one to be liable for "other deceits" under the law, it is
required that the prosecution must prove the following
essential elements: (a) false pretense, fraudulent act or
pretense other than those in the preceding articles;
(b) such false pretense, fraudulent act or pretense must be
made or executed prior to or simultaneously with the
commission of the fraud; and (c) as a result, the offended
party suffered damage or prejudice.40 It is essential that such
false statement or fraudulent representation constitutes the
very cause or the only motive for the private complainant to
part with her property.
The provision includes any kind of conceivable deceit other
than those enumerated in Articles 315 to 317 of the Revised
Penal Code.41 It is intended as the catchall provision for that
purpose with its broad scope and intendment.42
Thus, the petitioner’s reliance on paragraph 2(a), Article 315
of the Revised Penal Code is misplaced. The said provision
reads:
2. By means of any of the following false pretenses or
fraudulent acts executed prior to or simultaneously with the
commission of the fraud:
(a) By using fictitious name, or falsely pretending to possess
power, influence, qualifications, property, credit, agency,
business or imaginary transactions; or by means of other
similar deceits.
The fraudulent representation of the seller, in this case, that
the van to be sold is brand new, is not the deceit
contemplated in the law. Under the principle of ejusdem
generis, where a statement ascribes things of a particular
class or kind accompanied by words of a generic character,
the generic words will usually be limited to things of a
similar nature with those particularly enumerated unless
there be something in the context to the contrary.43
Jurisdiction is conferred by the Constitution or by law. It
cannot be conferred by the will of the parties, nor diminished
or waived by them. The jurisdiction of the court is
determined by the averments of the complaint or
Information, in relation to the law prevailing at the time of
the filing of the criminal complaint or Information, and the
penalty provided by law for the crime charged at the time of
its commission.
Section 32 of Batas Pambansa Blg. 129, as amended by
Republic Act No. 7691, provides that the MTC has exclusive
jurisdiction over offenses punishable with imprisonment not
exceeding six years, irrespective of the amount of the fine:
Sec. 32. Jurisdiction of Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts
in Criminal Cases. – Except in cases falling within the
exclusive original jurisdiction of Regional Trial Courts and
of the Sandiganbayan, the Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial Courts
shall exercise:
(1) Exclusive original jurisdiction over all violations of city
or municipal ordinances committed within their respective
territorial jurisdiction; and
(2) Exclusive original jurisdiction over all offenses
punishable with imprisonment not exceeding six (6) years
irrespective of the amount of fine, and regardless of other
imposable accessory or other penalties, including the civil
liability arising from such offenses or predicated thereon,
irrespective of kind, nature, value or amount
thereof: Provided, however, That in offenses involving
damage to property through criminal negligence, they shall
have exclusive original jurisdiction thereof.
Since the felony of other deceits is punishable by arresto
mayor, the MTC had exclusive jurisdiction over the offense
lodged against the petitioner.
On the merits of the petition, the Court agrees with the
petitioner’s contention that there is no evidence on record
that he made direct and positive representations or assertions
to the private complainant that the van was brand new. The
record shows that the private complainant and her husband
Ralph Silo were, in fact, attended to by Azotea. However, it
bears stressing that the representation may be in the form of
words, or conduct resorted to by an individual to serve as an
advantage over another. Indeed, as declared by the CA based
on the evidence on record:
Petitioner cannot barefacedly claim that he made no personal
representation that the herein subject van was brand new for
the simple reason that nowhere in the records did he ever
refute the allegation in the complaint, which held him out as
a dealer of brand new cars. It has thus become admitted that
the petitioner was dealing with brand new vehicles – a fact
which, up to now, petitioner has not categorically denied.
Therefore, when private complainant went to petitioner’s
showroom, the former had every right to assume that she was
being sold brand new vehicles there being nothing to
indicate otherwise. But as it turned out, not only did private
complainant get a defective and used van, the vehicle had
also earlier figured in a road accident when driven by no less
than petitioner’s own driver.44
Indeed, the petitioner and Azotea obdurately insisted in the
trial court that the van was brand new, and that it had never
figured in vehicular accident. This representation was
accentuated by the fact that the petitioner gave the Service
Manual to the private complainant, which manual
contained the warranty terms and conditions, signifying that
the van was "brand new." Believing this good faith, the
private complainant decided to purchase the van for her buy-
and-sell and garment business, and even made a
downpayment of the purchase price.
As supported by the evidence on record, the van was
defective when the petitioner sold it to the private
complainant. It had ditched onto the shoulder of the highway
in Daet, Camarines Norte on its way from Manila to Naga
City. The van was damaged and had to be repaired; the rod
end and bushing had to be replaced, while the left front
stabilizer which gave out a persistent annoying sound was
repaired. Some parts underneath the van were even welded
together. Azotea and the petitioner deliberately concealed
these facts from the private complainant when she bought
the van, obviously so as not to derail the sale and the profit
from the transaction.
The CA is correct in ruling that fraud or deceit may be
committed by omission. As the Court held in People v.
Balasa:45
Fraud, in its general sense, is deemed to comprise anything
calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty,
trust, or confidence justly reposed, resulting in damage to
another, or by which an undue and unconscientious
advantage is taken of another. It is a generic term embracing
all multifarious means which human ingenuity can device,
and which are resorted to by one individual to secure an
advantage over another by false suggestions or by
suppression of truth and includes all surprise, trick, cunning,
dissembling and any unfair way by which another is
cheated. On the other hand, deceit is the false representation
of a matter of fact whether by words or conduct, by false or
misleading allegations, or by concealment of that which
should have been disclosed which deceives or is intended to
deceive another so that he shall act upon it to his legal
injury.46
It is true that mere silence is not in itself concealment.
Concealment which the law denounces as fraudulent implies
a purpose or design to hide facts which the other party sought
to know.47 Failure to reveal a fact which the seller is, in good
faith, bound to disclose may generally be classified as a
deceptive act due to its inherent capacity to
deceive.48 Suppression of a material fact which a party is
bound in good faith to disclose is equivalent to a false
representation.49 Moreover, a representation is not confined
to words or positive assertions; it may consist as well of
deeds, acts or artifacts of a nature calculated to mislead
another and thus allow the fraud-feasor to obtain an undue
advantage.50
Fraudulent nondisclosure and fraudulent concealment are of
the same genre. Fraudulent concealment presupposes a duty
to disclose the truth and that disclosure was not made when
opportunity to speak and inform was presented, and that the
party to whom the duty of disclosure, as to a material fact
was due, was induced thereby to act to his injury.51
Article 1389 of the New Civil Code provides that failure to
disclose facts when there is a duty to reveal them constitutes
fraud. In a contract of sale, a buyer and seller do not deal
from equal bargaining positions when the latter has
knowledge, a material fact which, if communicated to the
buyer, would render the grounds unacceptable or, at least,
substantially less desirable.52 If, in a contract of sale, the
vendor knowingly allowed the vendee to be deceived as to
the thing sold in a material matter by failing to disclose an
intrinsic circumstance that is vital to the contract, knowing
that the vendee is acting upon the presumption that no such
fact exists, deceit is accomplished by the suppression of the
truth.53
In the present case, the petitioner and Azotea knew that the
van had figured in an accident, was damaged and had to be
repaired. Nevertheless, the van was placed in the showroom,
thus making it appear to the public that it was a brand new
unit. The petitioner was mandated to reveal the foregoing
facts to the private complainant. But the petitioner and
Azotea even obdurately declared when they testified in the
court a quo that the vehicle did not figure in an accident, nor
had it been repaired; they maintained that the van was brand
new, knowing that the private complainant was going to use
it for her garment business. Thus, the private complainant
bought the van, believing it was brand new.
Significantly, even when the petitioner was apprised that the
private complainant had discovered the van’s defects, the
petitioner agreed to replace the van, but changed his mind
and insisted that it must be first sold.
The petitioner is not relieved of his criminal liability for
deceitful concealment of material facts, even if the private
complainant made a visual inspection of the van’s interior
and exterior before she agreed to buy it and
failed to inspect its under chassis. Case law has it that where
the vendee made only a partial investigation and relies, in
part, upon the representation of the vendee, and is deceived
by such representation to his injury, he may maintain an
action for such deceit.54 The seller cannot be heard to say that
the vendee should not have relied upon the fraudulent
concealment; that negligence, on the part of the vendee,
should not be a defense in order to prevent the vendor from
unjustifiably escaping with the fruits of the fraud.
In one case,55 the defendant who repainted an automobile,
worked it over to resemble a new one and delivered it to the
plaintiff was found to have warranted and represented that
the automobile being sold was new. This was found to be "a
false representation of an existing fact; and, if it was material
and induced the plaintiff to accept something entirely
different from that which he had contracted for, it clearly
was a fraud which, upon its discovery and a tender of the
property back to the seller, [it] entitled the plaintiff to rescind
the trade and recover the purchase money."56
On the petitioner’s insistence that the private complainant
was proscribed from charging him with estafa based on the
principle of caveat emptor, case law has it that this rule only
requires the purchaser to exercise such care and attention as
is usually exercised by ordinarily prudent men in like
business affairs, and only applies to defects which are open
and patent to the service of one exercising such care.57 In an
avuncular case, it was held that:
… The rule of caveat emptor, like the rule of sweet charity,
has often been invoked to cover a multitude of sins; but we
think its protecting mantle has never been stretched to this
extent. It can only be applied where it is shown or conceded
that the parties to the contract stand on equal footing and
have equal knowledge or equal means of knowledge and
there is no relation of trust or confidence between them. But,
where one party undertakes to sell to another property
situated at a distance and of which he has or claims to have
personal knowledge and of which the buyer knows nothing
except as he is informed by the seller, the buyer may
rightfully rely on the truth of the seller’s representations as
to its kind, quality, and value made in the course of
negotiation for the purpose of inducing the purchase. If, in
such case, the representations prove to be false, neither law
nor equity will permit the seller to escape responsibility by
the plea that the buyer ought not to have believed him or
ought to have applied to other sources to ascertain the facts.
…58
It bears stressing that Azotea and the petitioner had every
opportunity to reveal to the private complainant that the van
was defective. They resolved to maintain their silence, to the
prejudice of the private complainant, who was a garment
merchant and who had no special knowledge of parts of
motor vehicles. Based on the surrounding circumstances, she
relied on her belief that the van was brand new. In fine, she
was the innocent victim of the petitioner’s fraudulent
nondisclosure or concealment.
The petitioner cannot pin criminal liability for his fraudulent
omission on his general manager, Azotea. The two are
equally liable for their collective fraudulent silence. Case
law has it that wherever the doing of a
certain act or the transaction of a given affair, or the
performance of certain business is confided to an agent, the
authority to so act will, in accordance with a general rule
often referred to, carry with it by implication the authority to
do all of the collateral acts which are the natural and ordinary
incidents of the main act or business authorized.59
The MTC sentenced the petitioner to suffer imprisonment of
from two months and one day, as minimum, to four months
of arresto mayor, as maximum. The CA affirmed the penalty
imposed by the trial court. This is erroneous. Section 2 of
Act 4103, as amended, otherwise known as the
Indeterminate Sentence Law, provides that the law will not
apply if the maximum term of imprisonment does not exceed
one year:
SEC. 2. This Act shall not apply to persons convicted of
offenses punished with death penalty or life-imprisonment;
to those convicted of treason, conspiracy or proposal to
commit treason; to those convicted of misprision of treason,
rebellion, sedition or espionage; to those convicted of piracy;
to those who are habitual delinquents; to those who shall
have escaped from confinement or evaded sentence; to those
who having been granted conditional pardon by the Chief
Executive shall have violated the terms thereof; to those
whose maximum term of imprisonment does not exceed one
year, not to those already sentenced by final judgment at the
time of approval of this Act, except as provided in Section 5
hereof. (As amended by Act No. 4225.)
In this case, the maximum term of imprisonment imposed on
the petitioner was four months and one day of arresto
mayor. Hence, the MTC was proscribed from imposing an
indeterminate penalty on the petitioner. An indeterminate
penalty may be imposed if the minimum of the penalty is
one year or less, and the maximum exceeds one year. For
example, the trial court may impose an indeterminate
penalty of six months of arresto mayor, as minimum, to two
years and four months of prision correccional, as maximum,
since the maximum term of imprisonment it imposed
exceeds one year. If the trial court opts to impose a penalty
of imprisonment of one year or less, it should not impose an
indeterminate penalty, but a straight penalty of one year or
less instead. Thus, the petitioner may be sentenced to a
straight penalty of one year, or a straight penalty of less than
one year, i.e., ten months or eleven months. We believe that
considering the attendant circumstances, a straight penalty
of imprisonment of six months is reasonable.
Conformably with Article 39 in relation to paragraph 3,
Article 38 of the Revised Penal Code, the petitioner shall
suffer subsidiary imprisonment if he has no property with
which to pay the penalty of fine.
IN LIGHT OF ALL THE FOREGOING, the petition
is DENIED. The assailed Decision and Resolution
are AFFIRMED WITH MODIFICATION. Considering
the surrounding circumstances of the case, the petitioner is
hereby sentenced to suffer a straight penalty of six (6)
months imprisonment. The petitioner shall suffer subsidiary
imprisonment in case of insolvency.
Costs against the petitioner.
SO ORDERED.
 SECOND DIVISION
21420 June 26, 1993 6,990.00 Septemb
BTS0627
-do- er 11, 48,440.00
G.R. No. 152219 October 25, 2004 21437 June 28, 1993 41,510.00 63
1993

21722 July 12, 1993 45,185.00 Septemb

NUTRIMIX FEEDS CORPORATION, petitioner, BTS0627
vs. -do- er 18, 49,460.00
22048 July 26, 1993 44,540.00 66
COURT OF APPEALS and SPOUSES EFREN AND 1993
MAURA EVANGELISTA, respondents. 22054 July 27, 1993 45,246.00
₱490,520.0
DECISION August 2, Total: 0
22186 84,900.00
1993 ========
CALLEJO, SR., J.: ==
Total: ₱275,631.00
For review on certiorari is the Decision1 of the Court of =========== When the above-mentioned checks were deposited at the
Appeals in CA-G.R. CV No. 59615 modifying, on appeal, petitioner’s depository bank, the same were, consequently,
the Joint Decision2 of the Regional Trial Court of Malolos, dishonored because respondent Maura Evangelista had
Bulacan, Branch 9, in Civil Case No. 1026-M-933 for sum respondents incurred an aggregate unsettled account with the
already closed her account. The petitioner made several
of money and damages with prayer for issuance of writ of petitioner in the amount of ₱766,151.00. The breakdown of
demands for the respondents to settle their unpaid obligation,
preliminary attachment, and Civil Case No. 49-M-944 for the unpaid obligation is as follows:
but the latter failed and refused to pay their remaining
damages. The trial court dismissed the complaint of the balance with the petitioner.
respondents, ordering them to pay the petitioner the unpaid
value of the assorted animal feeds delivered to the former by Check Due
Bank Amount
the latter, with legal interest thereon from the filing of the Number Date On December 15, 1993, the petitioner filed with the
complaint, including attorney’s fees. Regional Trial Court of Malolos, Bulacan, a complaint,
United docketed as Civil Case No. 1026-M-93, against the
Cocon respondents for sum of money and damages with a prayer
BTS0520 July 30,
The Factual Antecedents ut ₱ 47,760.00 for issuance of writ of preliminary attachment. In their
84 1993
Planter answer with counterclaim, the respondents admitted their
On April 5, 1993, the Spouses Efren and Maura Evangelista, s Bank unpaid obligation but impugned their liability to the
the respondents herein, started to directly procure various petitioner. They asserted that the nine checks issued by
kinds of animal feeds from petitioner Nutrimix Feeds BTS0520 July 30, respondent Maura Evangelista were made to guarantee the
-do- 131,340.00
Corporation. The petitioner gave the respondents a credit 87 1993 payment of the purchases, which was previously determined
period of thirty to forty-five days to postdate checks to be to be procured from the expected proceeds in the sale of their
BTS0520 July 30, broilers and hogs. They contended that inasmuch as the
issued in payment for the delivery of the feeds. The -do- 59,700.00
91 1993 sudden and massive death of their animals was caused by the
accommodation was made apparently because of the
company president’s close friendship with Eugenio BTS0627 August
contaminated products of the petitioner, the nonpayment of
Evangelista, the brother of respondent Efren Evangelista. -do- 47,860.00 their obligation was based on a just and legal ground.
21 4, 1993
The various animal feeds were paid and covered by checks
with due dates from July 1993 to September 1993. Initially, BTS0627 August On January 19, 1994, the respondents also lodged a
the respondents were good paying customers. In some -do- 43,780.00
20 5, 1993 complaint for damages against the petitioner, docketed as
instances, however, they failed to issue checks despite the Civil Case No. 49-M-94, for the untimely and unforeseen
deliveries of animal feeds which were appropriately covered BTS0627 August death of their animals supposedly effected by the adulterated
by sales invoices. Consequently, the -do- 15,000.00
74 6, 1993 animal feeds the petitioner sold to them. Within the period
to file an answer, the petitioner moved to dismiss the
Septemb respondents’ complaint on the ground of litis pendentia. The
Sales BTS0627
-do- er 11, 47,180.00 trial court denied the same in a Resolution5 dated April 26,
Invoice Date Amount 48
1993 1994, and ordered the consolidation of the case with Civil
Number Case No. 1026-M-93. On May 13, 1994, the petitioner filed
its Answer with Counterclaim, alleging that the death of the
21334 June 23, 1993 ₱ 7,260.00
respondents’ animals was due to the widespread pestilence
in their farm. The petitioner, likewise, maintained that it
received information that the respondents were in an
unstable financial condition and even sold their animals to
settle their obligations from other enraged and insistent
creditors. It, moreover, theorized that it was the respondents
who mixed poison to its feeds to make it appear that the feeds
were contaminated.
A joint trial thereafter ensued.
During the hearing, the petitioner presented Rufino Arenas,
Nutrimix Assistant Manager, as its lone witness. He testified
that on the first week of August 1993, Nutrimix President
Efren Bartolome met the respondents to discuss the possible
settlement of their unpaid account. The said respondents still
pleaded to the petitioner to continue to supply them with
animal feeds because their livestock were supposedly
suffering from a disease.6
For her part, respondent Maura Evangelista testified that as
direct buyers of animal feeds from the petitioner, Mr.
Bartolome, the company president, gave them a discount of
₱12.00 per bag and a credit term of forty-five to seventy-five
days.7 For the operation of the respondents’ poultry and
piggery farm, the assorted animal feeds sold by the petitioner
were delivered in their residence and stored in an adjacent
bodega made of concrete wall and galvanized iron sheet
roofing with monolithic flooring.8
It appears that in the morning of July 26, 1993, three various
kinds of animal feeds, numbering 130 bags, were delivered
to the residence of the respondents in Sta. Rosa, Marilao,
Bulacan. The deliveries came at about 10:00 a.m. and were
fed to the animals at approximately 1:30 p.m. at the
respondents’ farm in Balasing, Sta. Maria, Bulacan. At about
8:30 p.m., respondent Maura Evangelista received a radio
message from a worker in her farm, warning her that the
chickens were dying at rapid intervals. When the
respondents arrived at their farm, they witnessed the death
of 18,000 broilers, averaging 1.7 kilos in weight,
approximately forty-one to forty-five days old. The broilers
then had a prevailing market price of ₱46.00 per kilo.9
On July 27, 1993, the respondents received another delivery
of 160 bags of animal feeds from the petitioner, some of
which were distributed to the contract growers of the
respondents. At that time, respondent Maura Evangelista
requested the representative of the petitioner to notify Mr.
Bartolome of the fact that their broilers died after having
been fed with the animal feeds delivered by the petitioner the
previous day. She, likewise, asked that a technician or
veterinarian be sent to oversee the untoward occurrence.
Nevertheless, the various feeds delivered on that day were
still fed to the animals. On July 27, 1993, the witness
recounted that all of the chickens and hogs died.10 Efren
Evangelista suffered from a heart attack and was
hospitalized as a consequence of the massive death of their
animals in the farm. On August 2, 1993, another set of
animal feeds were delivered to the respondents, but the same
were not returned as the latter were not yet cognizant of the
fact that the cause of the death of their animals was the
polluted feeds of the petitioner.11
When respondent Maura Evangelista eventually met with
Mr. Bartolome on an undisclosed date, she attributed the
improbable incident to the animal feeds supplied by the
petitioner, and asked Mr. Bartolome for indemnity for the
massive death of her livestock. Mr. Bartolome disavowed
liability thereon and, thereafter, filed a case against the
respondents.12
After the meeting with Mr. Bartolome, respondent Maura
Evangelista requested Dr. Rolando Sanchez, a veterinarian,
to conduct an inspection in the respondents’ poultry. On
October 20, 1993, the respondents took ample amounts
remaining from the feeds sold by the petitioner and furnished
the same to various government agencies for laboratory
examination.
Dr. Juliana G. Garcia, a doctor of veterinary medicine and
the Supervising Agriculturist of the Bureau of Animal
Industry, testified that on October 20, 1993, sample feeds for
chickens contained in a pail were presented to her for
examination by respondent Efren Evangelista and a certain
veterinarian.13 The Clinical Laboratory Report revealed that
the feeds were negative of salmonella14 and that the very
high aflatoxin level15 found therein would not cause
instantaneous death if taken orally by birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren
at the Bureau of Animal Industry, testified that sometime in
October 1993, Efren sought for his advice regarding the
death of the respondents’ chickens. He suggested that the
remaining feeds from their warehouse be brought to a
laboratory for examination. The witness claimed that the
feeds brought to the laboratory came from one bag of sealed
Nutrimix feeds which was covered with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist Research
Specialist of the Philippine Nuclear Research Institute,
informed the trial court that respondent Maura Evangelista
and Dr. Garcia brought sample feeds and four live and
healthy chickens to him for laboratory examination. In his
Cytogenetic Analysis,16 Dr. Medina reported that he divided
the chickens into two categories, which he separately fed at
6:00 a.m. with the animal feeds of a different commercial
brand and with the sample feeds supposedly supplied by the
petitioner. At noon of the same day, one of the chickens
which had been fed with the Nutrimix feeds died, and a
second chicken died at 5:45 p.m. of the same day. Samples
of blood and bone marrow were taken for chromosome
analysis, which showed pulverized chromosomes both from
bone marrow and blood chromosomes. On cross-
examination, the witness admitted that the feeds brought to
him were merely placed in a small unmarked plastic bag and
that he had no way of ascertaining whether the feeds were
indeed manufactured by the petitioner.
Another witness for the respondents, Aida Viloria Magsipoc,
Forensic Chemist III of the Forensic Chemist Division of the
National Bureau of Investigation, affirmed that she
performed a chemical analysis17 of the animal feeds,
submitted to her by respondent Maura Evangelista and Dr.
Garcia in a sealed plastic bag, to determine the presence of
poison in the said specimen. The witness verified that the
sample feeds yielded positive results to the tests for
COUMATETRALYL Compound,18 the active component
of RACUMIN, a brand name for a commercially known rat
poison.19 According to the witness, the presence of the
compound in the chicken feeds would be fatal to internal
organs of the chickens, as it would give a delayed blood
clotting effect and eventually lead to internal hemorrhage,
culminating in their inevitable death.
Paz Austria, the Chief of the Pesticide Analytical Section of
the Bureau of Plants Industry, conducted a laboratory
examination to determine the presence of pesticide residue
in the animal feeds submitted by respondent Maura
Evangelista and Dr. Garcia. The tests disclosed that no
pesticide residue was detected in the samples received20 but
it was discovered that the animal feeds were positive for
Warfarin, a rodenticide (anticoagulant), which is the
chemical family of Coumarin.21
After due consideration of the evidence presented, the trial
court ruled in favor of the petitioner. The dispositive portion
of the decision reads:
 WHEREFORE, in light of the evidence on record
and the laws/jurisprudence applicable thereon,
judgment is hereby rendered:
1) in Civil Case No. 1026-M-93,
ordering defendant spouses Efren and
Maura Evangelista to pay unto plaintiff
Nutrimix Feeds Corporation the amount
of ₱766,151.00 representing the unpaid
value of assorted animal feeds delivered
by the latter to and received by the
former, with legal interest thereon from
the filing of the complaint on December
15, 1993 until the same shall have been
paid in full, and the amount of
₱50,000.00 as attorney’s fees. Costs
against the aforenamed defendants; and
2) dismissing the complaint as well as
counterclaims in Civil Case No. 49-M-
94 for inadequacy of evidence to sustain
the same. No pronouncement as to costs.
SO ORDERED.22
In finding for the petitioner, the trial court ratiocinated as
follows:
On the strength of the foregoing disquisition, the
Court cannot sustain the Evangelistas’ contention
that Nutrimix is liable under Articles 1561 and
1566 of the Civil Code governing "hidden defects"
of commodities sold. As already explained, the
Court is predisposed to believe that the subject
feeds were contaminated sometime between their
storage at the bodega of the Evangelistas and their
consumption by the poultry and hogs fed
therewith, and that the contamination was
perpetrated by unidentified or unidentifiable ill-
meaning mischief-maker(s) over whom Nutrimix
had no control in whichever way.
All told, the Court finds and so holds that for
inadequacy of proof to the contrary, Nutrimix was
not responsible at all for the contamination or
poisoning of the feeds supplied by it to the
Evangelistas which precipitated the mass death of
the latter’s chickens and hogs. By no means and
under no circumstance, therefore, may Nutrimix
be held liable for the sundry damages prayed for
by the Evangelistas in their complaint in Civil
Case No. 49-M-94 and answer in Civil Case No.
1026-M-93. In fine, Civil Case No. 49-M-94
deserves dismissal.
Parenthetically, vis-à-vis the fulminations of the
Evangelistas in this specific regard, the Court does
not perceive any act or omission on the part of
Nutrimix constitutive of "abuse of rights" as
would render said corporation liable for damages
under Arts. 19 and 21 of the Civil Code. The
alleged "callous attitude and lack of concern of
Nutrimix" have not been established with more
definitiveness.
As regards Civil Case No. 1026-M-93, on the
other hand, the Court is perfectly convinced that
the deliveries of animal feeds by Nutrimix to the
Evangelistas constituted a simple contract of sale,
albeit on a continuing basis and on terms or
installment payments.23
Undaunted, the respondents sought a review of the trial
court’s decision to the Court of Appeals (CA), principally
arguing that the trial court erred in holding that they failed to
prove that their broilers and hogs died as a result of
consuming the petitioner’s feeds.
On February 12, 2002, the CA modified the decision of the
trial court. The fallo of the decision reads:
WHEREFORE, premises considered, the
appealed decision is hereby MODIFIED such that
the complaint in Civil Case No. 1026-M-93 is
dismissed for lack of merit.
So ordered.24
In dismissing the complaint in Civil Case No. 1026-M-93,
the CA ruled that the respondents were not obligated to pay
their outstanding obligation to the petitioner in view of its
breach of warranty against hidden defects. The CA gave
much credence to the testimony of Dr. Rodrigo Diaz, who
attested that the sample feeds distributed to the various
governmental agencies for laboratory examination were
taken from a sealed sack bearing the brand name Nutrimix.
The CA further argued that the declarations of Dr. Diaz were
not effectively impugned during cross-examination, nor was
there any contrary evidence adduced to destroy his damning
allegations.
On March 7, 2002, the petitioner filed with this Court the
instant petition for review on the sole ground that –
THE HONORABLE COURT OF APPEALS
ERRED IN CONCLUDING THAT THE
CLAIMS OF HEREIN PETITIONER FOR
COLLECTION OF SUM OF MONEY AGAINST
PRIVATE RESPONDENTS MUST BE DENIED
BECAUSE OF HIDDEN DEFECTS.
The Present Petition
The petitioner resolutely avers that the testimony of Dr. Diaz
can hardly be considered as conclusive evidence of hidden
defects that can be attributed to the petitioner.
Parenthetically, the petitioner asserts, assuming that the
sample feeds were taken from a sealed sack bearing the
brand name Nutrimix, it cannot decisively be presumed that
these were the same feeds brought to the respondents’ farm
and given to their chickens and hogs for consumption.
It is the contention of the respondents that the appellate court
correctly ordered the dismissal of the complaint in Civil
Case No. 1026-M-93. They further add that there was
sufficient basis for the CA to hold the petitioner guilty of
breach of warranty thereby releasing the respondents from
paying their outstanding obligation.
The Ruling of the Court
Oft repeated is the rule that the Supreme Court reviews only
errors of law in petitions for review on certiorari under Rule
45. However, this rule is not absolute. The Court may review
the factual findings of the CA should they be contrary to
those of the trial court. Conformably, this Court may review
findings of facts when the judgment of the CA is premised
on a misapprehension of facts.25
The threshold issue is whether or not there is sufficient
evidence to hold the petitioner guilty of breach of warranty
due to hidden defects.
The petition is meritorious.
The provisions on warranty against hidden defects are found
in Articles 1561 and 1566 of the New Civil Code of the
Philippines, which read as follows:
Art. 1561. The vendor shall be responsible for
warranty against 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.
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.
A hidden defect is one which is unknown or could not have
been known to the vendee.26 Under the law, the requisites to
recover on account of hidden defects are as follows:
(a) the defect must be hidden;
(b) the defect must exist at the time the sale was
made;
(c) the defect must ordinarily have been excluded
from the contract;
(d) the defect, must be important (renders thing
UNFIT or considerably decreases FITNESS);
(e) the action must be instituted within the statute
of limitations.27
In the sale of animal feeds, there is an implied warranty that
it is reasonably fit and suitable to be used for the purpose
which both parties contemplated.28 To be able to prove
liability on the basis of breach of implied warranty, three
things must be established by the respondents. The first is
that they sustained injury because of the product; the second
is that the injury occurred because the product was defective
or unreasonably unsafe; and finally, the defect existed when
the product left the hands of the petitioner.29 A manufacturer
or seller of a product cannot be held liable for any damage
allegedly caused by the product in the absence of any proof
that the product in question was defective.30 The defect must
be present upon the delivery or manufacture of the
product;31 or when the product left the seller’s or
manufacturer’s control;32 or when the product was sold to
the purchaser;33 or the product must have reached the user or
consumer without substantial change in the condition it was
sold. Tracing the defect to the petitioner requires some
evidence that there was no tampering with, or changing of
the animal feeds. The nature of the animal feeds makes it
necessarily difficult for the respondents to prove that the
defect was existing when the product left the premises of the
petitioner.
A review of the facts of the case would reveal that the
petitioner delivered the animal feeds, allegedly containing
rat poison, on July 26, 1993; but it is astonishing that the
respondents had the animal feeds examined only on October
20, 1993, or barely three months after their broilers and hogs
had died. On cross-examination, respondent Maura
Evangelista testified in this manner:
Atty. Cruz:
Q Madam Witness, you said in the last hearing that
believing that the 250 bags of feeds delivered to
(sic) the Nutrimix Feeds Corporation on August 2,
1993 were poison (sic), allegedly your husband
Efren Evangelista burned the same with the
chicken[s], is that right?
A Yes, Sir. Some, Sir.
Q And is it not a fact, Madam Witness, that you
did not, as according to you, used (sic) any of these
deliveries made on August 2, 1993?
A We were able to feed (sic) some of those
deliveries because we did not know yet during that
time that it is the cause of the death of our chicks
(sic), Sir.
Q But according to you, the previous deliveries
were not used by you because you believe (sic)
that they were poison (sic)?
A Which previous deliveries, Sir[?]
Q Those delivered on July 26 and 22 (sic), 1993?
A Those were fed to the chickens, Sir. This is the
cause of the death of the chickens.
Q And you stated that this last delivery on August
2 were poison (sic) also and you did not use them,
is that right?
Atty. Roxas:
That is misleading.
Atty. Cruz:
She stated that.
Atty. Roxas:
She said some were fed because they did not know
yet of the poisoning.
Court:
And when the chickens died, they stopped
naturally feeding it to the chickens.
Atty. Cruz:
Q You mean to say, Madam Witness, that although
you believe (sic) that the chickens were allegedly
poisoned, you used the same for feeding your
animals?
A We did not know yet during that time that the
feeds contained poison, only during that time
when we learned about the same after the analysis.
 Q Therefore you have known only of the alleged
poison in the Nutrimix Feeds only after you have
caused the analysis of the same?
A Yes, Sir.
Q When was that, Madam Witness?
A I cannot be sure about the exact time but it is
within the months of October to November, Sir.
Q So, before this analysis of about October and
November, you were not aware that the feeds of
Nutrimix Feeds Corporation were, according to
you, with poison?
A We did not know yet that it contained poison but
we were sure that the feeds were the cause of the
death of our animals.34
We find it difficult to believe that the feeds delivered on July
26 and 27, 1993 and fed to the broilers and hogs contained
poison at the time they reached the respondents. A difference
of approximately three months enfeebles the respondents’
theory that the petitioner is guilty of breach of warranty by
virtue of hidden defects. In a span of three months, the feeds
could have already been contaminated by outside factors and
subjected to many conditions unquestionably beyond the
control of the petitioner. In fact, Dr. Garcia, one of the
witnesses for the respondents, testified that the animal feeds
submitted to her for laboratory examination contained very
high level of aflatoxin, possibly caused by mold (aspergillus
flavus).35 We agree with the contention of the petitioner that
there is no evidence on record to prove that the animal feeds
taken to the various governmental agencies for laboratory
examination were the same animal feeds given to the
respondents’ broilers and hogs for their consumption.
Moreover, Dr. Diaz even admitted that the feeds that were
submitted for analysis came from a sealed bag. There is
simply no evidence to show that the feeds given to the
animals on July 26 and 27, 1993 were identical to those
submitted to the expert witnesses in October 1993.
It bears stressing, too, that the chickens brought to the
Philippine Nuclear Research Institute for laboratory tests
were healthy animals, and were not the ones that were
ostensibly poisoned. There was even no attempt to have the
dead fowls examined. Neither was there any analysis of the
stomach of the dead chickens to determine whether the
petitioner’s feeds really caused their sudden death. Mere
sickness and death of the chickens is not satisfactory
evidence in itself to establish a prima facie case of breach of
warranty.36
Likewise, there was evidence tending to show that the
respondents combined different kinds of animal feeds and
that the mixture was given to the animals. Respondent Maura
Evangelista testified that it was common practice among
chicken and hog raisers to mix animal feeds. The testimonies
of respondent Maura Evangelista may be thus summarized:
Cross-Examination
Atty. Cruz:
Q Because, Madam Witness, you ordered chicken
booster mash from Nutrimix Feeds Corporation
because in July 1993 you were taking care of many
chickens, as a matter of fact, majority of the
chickens you were taking care [of] were chicks
and not chickens which are marketable?
A What I can remember was that I ordered chicken
booster mash on that month of July 1993 because
we have some chicks which have to be fed with
chicken booster mash and I now remember that on
the particular month of July 1993 we ordered
several bags of chicken booster mash for the
consumption also of our chicken in our other
poultry and at the same time they were also used
to be mixed with the feeds that were given to the
hogs.
Q You mean to say [that], as a practice, you are
mixing chicken booster mash which is specifically
made for chick feeds you are feeding the same to
the hogs, is that what you want the Court to
believe?
A Yes, Sir, because when you mix chicken booster
mash in the feeds of hogs there is a better result,
Sir, in raising hogs.37
… respondents changed their justification for not paying their
Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26
and 27, 1993, various types of Nutrimix feeds
were delivered to you like chicks booster mash,
broiler starter mash and hog finisher or hog grower
mash. What is the reason for simultaneous
deliveries of various types of feeds?
A Because we used to mix all those together in one
feeding, Sir.
Q And what is the reason for mixing the chick
booster mash with broiler starter mash?
A So that the chickens will get fat, Sir.
…
Re-Cross Examination
Atty. Cruz:
Q Madam Witness, is it not a fact that the mixing
of these feeds by you is your own concuction (sic)
and without the advice of a veterinarian expert to
do so?
A That is common practice among raisers to mix
two feeds, Sir.
Q By yourself, Madam Witness, who advised you
to do the mixing of these two types of feeds for
feeding your chickens?
A That is common practice of chicken raisers,
Sir.38
Even more surprising is the fact that during the meeting with
Nutrimix President Mr. Bartolome, the respondents claimed
that their animals were plagued by disease, and that they
needed more time to settle their obligations with the
petitioner. It was only after a few months that the
unsettled accounts, claiming anew that their animals were
poisoned with the animal feeds supplied by the petitioner.
The volte-face of the respondents deserves scant
consideration for having been conjured as a mere
afterthought.

In essence, we hold that the respondents failed to prove that

the petitioner is guilty of breach of warranty due to hidden
defects. It is, likewise, rudimentary that common law places
upon the buyer of the product the burden of proving that the
seller of the product breached its warranty.39 The bevy of
expert evidence adduced by the respondents is too shaky and
utterly insufficient to prove that the Nutrimix feeds caused
the death of their animals. For these reasons, the expert
testimonies lack probative weight. The respondents’ case of
breach of implied warranty was fundamentally based upon
the circumstantial evidence that the chickens and hogs
sickened, stunted, and died after eating Nutrimix feeds; but
this was not enough to raise a reasonable supposition that the
unwholesome feeds were the proximate cause of the death
with that degree of certainty and probability required.40 The
rule is well-settled that if there be no evidence, or if evidence
be so slight as not reasonably to warrant inference of the fact
in issue or furnish more than materials for a mere conjecture,
the court will not hesitate to strike down the evidence and
rule in favor of the other party.41 This rule is both fair and
sound. Any other interpretation of the law would unloose the
courts to meander aimlessly in the arena of speculation.42

It must be stressed, however, that the remedy against

violations of warranty against hidden defects is either to
withdraw from the contract (accion redhibitoria) or to
demand a proportionate reduction of the price (accion quanti
minoris), with damages in either case.43 In any case, the
respondents have already admitted, both in their testimonies
and pleadings submitted, that they are indeed indebted to the
petitioner for the unpaid animal feeds delivered to them. For
this reason alone, they should be held liable for their
unsettled obligations to the petitioner.

WHEREFORE, in light of all the foregoing, the petition

is GRANTED. The assailed Decision of the Court of
Appeals, dated February 12, 2002, is REVERSED and SET
ASIDE. The Decision of the Regional Trial Court of
Malolos, Bulacan, Branch 9, dated January 12, 1998,
is REINSTATED. No costs.

SO ORDERED.

Puno, Austria-Martinez, Tinga, and Chico-Nazario,

JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 166714 February 9, 2007
AMELIA S. ROBERTS, Petitioner,
vs.
MARTIN B. PAPIO, Respondent.
DECISION
CALLEJO, SR., J.:
Assailed in this petition for review on certiorari is the
Decision1 of the Court of Appeals (CA), in CA-G.R. CV No.
69034 which reversed and set aside the Decision2 of the
Regional Trial Court (RTC), Branch 150, Makati City, in
Civil Case No. 01-431. The RTC ruling had affirmed with
modification the Decision3 of the Metropolitan Trial Court
(MeTC), Branch 64, Makati City in Civil Case No. 66847.
The petition likewise assails the Resolution of the CA
denying the motion for reconsideration of its decision.
The Antecedents
The spouses Martin and Lucina Papio were the owners of a
274-square-meter residential lot located in Makati (now
Makati City) and covered by Transfer Certificate of Title
(TCT) No. S-44980.4 In order to secure a ₱59,000.00 loan
from the Amparo Investments Corporation, they executed a
real estate mortgage on the property. Upon Papio’s failure to
pay the loan, the corporation filed a petition for the
extrajudicial foreclosure of the mortgage.
Since the couple needed money to redeem the property and
to prevent the foreclosure of the real estate mortgage, they
executed a Deed of Absolute Sale over the property on April
13, 1982 in favor of Martin Papio’s cousin, Amelia Roberts.
Of the ₱85,000.00 purchase price, ₱59,000.00 was paid to
the Amparo Investments Corporation, while the ₱26,000.00
difference was retained by the spouses.5 As soon as the
spouses had settled their obligation, the corporation returned
the owner’s duplicate of TCT No. S-44980, which was then
delivered to Amelia Roberts.
Thereafter, the parties (Amelia Roberts as lessor and Martin
Papio as lessee) executed a two-year contract of lease dated
April 15, 1982, effective May 1, 1982. The contract was
subject to renewal or extension for a like period at the option
of the lessor, the lessee waiving thereby the benefits of an
implied new lease. The lessee was obliged to pay monthly
rentals of ₱800.00 to be deposited in the lessor’s account at
the Bank of America, Makati City branch.6
On July 6, 1982, TCT No. S-44980 was cancelled, and TCT
No. 114478 was issued in the name of Amelia Roberts as
owner.7
Martin Papio paid the rentals from May 1, 1982 to May 1,
1984, and thereafter, for another year.8 He then failed to pay
rentals, but he and his family nevertheless remained in
possession of the property for a period of almost thirteen (13)
years.
In a letter dated June 3, 1998, Amelia Roberts, through
counsel, reminded Papio that he failed to pay the monthly
rental of ₱2,500.00 from January 1, 1986 to December 31,
1997, and ₱10,000.00 from January 1, 1998 to May 31,
1998; thus, his total liability was ₱410,000.00. She
demanded that Papio vacate the property within 15 days
from receipt of the letter in case he failed to settle the
amount.9 Because he refused to pay, Papio received another
letter from Roberts on April 22, 1999, demanding, for the
last time, that he and his family vacate the property.10 Again,
Papio refused to leave the premises.
On June 28, 1999, Amelia Roberts, through her attorney-in-
fact, Matilde Aguilar, filed a Complaint11 for unlawful
detainer and damages against Martin Papio before the
MeTC, Branch 64, Makati City. She alleged the following in
her complaint:
Sometime in 1982 she purchased from defendant a 274-sq-
m residential house and lot situated at No. 1046 Teresa St.,
Brgy. Valenzuela, Makati City.12 Upon Papio’s pleas to
continue staying in the property, they executed a two-year
lease contract13 which commenced on May 1, 1982. The
monthly rental was ₱800.00. Thereafter, TCT No.
11447814 was issued in her favor and she paid all the realty
taxes due on the property. When the term of the lease
expired, she still allowed Papio and his family to continue
leasing the property. However, he took advantage of her
absence and stopped payment beginning January 1986, and
refused to pay despite repeated demands. In June 1998, she
sent a demand letter15 through counsel requiring Papio to
pay rentals from January 1986 up to May 1998 and to vacate
the leased property. The accumulated arrears in rental are as
follows: (a) ₱360,000.00 from January 1, 1986 to December
31, 1997 at ₱2,500.00 per month; and (b) ₱50,000.00, from
January 1, 1998 to May 31, 1998 at ₱10,000.00 per
month.16 She came to the Philippines but all efforts at an
amicable settlement proved futile. Thus, in April 1999, she
sent the final demand letter to defendant directing him and
his family to pay and immediately vacate the leased
premises.17
Roberts appended to her complaint copies of the April 13,
1982 Deed of Absolute Sale, the April 15, 1982 Contract of
Lease, and TCT No. 114478.
In his Answer with counterclaim, Papio alleged the
following:
He executed the April 13, 1982 deed of absolute sale and the
contract of lease. Roberts, his cousin who is a resident of
California, United States of America (USA), arrived in the
Philippines and offered to redeem the property. Believing
that she had made the offer for the purpose of retaining his
ownership over the property, he accepted. She then remitted
₱59,000.00 to the mortgagor for his account, after which the
mortgagee cancelled the real estate mortgage. However, he
was alarmed when the plaintiff had a deed of absolute sale
over the property prepared (for ₱83,000.00 as consideration)
and asked him to sign the same. She also demanded that the
defendant turn over the owner’s duplicate of TCT No. S-
44980. The defendant was in a quandary. He then believed
that if he signed the deed of absolute sale, Roberts would
acquire ownership over the property. He asked her to allow
him to redeem or reacquire the property at any time for a
reasonable amount.18 When Roberts agreed, Papio signed
the deed of absolute sale.
Pursuant to the right to redeem/repurchase given him by
Roberts, Papio purchased the property for ₱250,000.00. In
July 1985, since Roberts was by then already in the USA, he
remitted to her authorized representative, Perlita Ventura,
the amount of ₱150,000.00 as partial payment for the
property.19 On June 16, 1986, she again remitted
₱100,000.00, through Ventura. Both payments were
evidenced by receipts signed by Ventura.20 Roberts then
declared that she would execute a deed of absolute sale and
surrender the title to the property. However, Ventura had
apparently misappropriated ₱39,000.00 out of the
₱250,000.00 that she had received; Roberts then demanded
that she pay the amount misappropriated before executing
the deed of absolute sale. Thus, the sole reason why Roberts
refused to abide by her promise was the failure of her
authorized representative to remit the full amount of
₱250,000.00. Despite Papio’s demands, Roberts refused to
execute a deed of absolute sale. Accordingly, defendant
posited that plaintiff had no cause of action to demand
payment of rental and eject him from the property.
Papio appended to his Answer the following: (1) the letter
dated July 18, 1986 of Perlita Ventura to the plaintiff
wherein the former admitted having used the money of the
plaintiff to defray the plane fares of Perlita’s parents to the
USA, and pleaded that she be allowed to repay the amount
within one year; (b) the letter of Eugene Roberts (plaintiff’s
husband) to Perlita Ventura dated July 25, 1986 where he
accused Ventura of stealing the money of plaintiff Amelia
(thus preventing the latter from paying her loan on her house
and effect the cancellation of the mortgage), and demanded
that she deposit the balance;21 and (c) plaintiff’s letter to
defendant Papio dated July 25, 1986 requesting the latter to
convince Ventura to remit the balance of ₱39,000.00 so that
the plaintiff could transfer the title of the property to the
defendant.22
Papio asserted that the letters of Roberts and her husband are
in themselves admissions or declarations against interest,
hence, admissible to prove that he had reacquired the
property although the title was still in her possession.
In her Affidavit and Position Paper,23 Roberts averred that
she had paid the real estate taxes on the property after she
had purchased it; Papio’s initial right to occupy the property
was terminated when the original lease period expired; and
his continued possession was only by mere tolerance. She
further alleged that the Deed of Sale states on its face that
the conveyance of the property was absolute and
unconditional. She also claimed that any right to repurchase
the property must appear in a public document pursuant to
Article 1358, Paragraph 1, of the Civil Code of the
Phililppines.24 Since no such document exists, defendant’s
supposed real interest over the property could not be
enforced without violating the Statute of Frauds.25 She
stressed that her Torrens title to the property was an
"absolute and indefeasible evidence of her ownership of the
property which is binding and conclusive upon the whole
world."
Roberts admitted that she demanded ₱39,000.00 from the
defendant in her letter dated July 25, 1986. However, she
averred that the amount represented his back rentals on the
property.26 She declared that she neither authorized Ventura
to sell the property nor to receive the purchase price therefor.
She merely authorized her to receive the rentals from
defendant and to deposit them in her account. She did not
know that Ventura had received ₱250,000.00 from Papio in
July 1985 and on June 16, 1986, and had signed receipts
therefor. It was only on February 11, 1998 that she became
aware of the receipts when she received defendant Papio’s
letter to which were appended the said receipts. She and her
husband offered to sell the property to the defendant in 1984
for US$15,000.00 on a "take it or leave it" basis when they
arrived in the Philippines in May 1984.27 However,
defendant refused to accept the offer. The spouses then
offered to sell the property anew on December 20, 1997, for
₱670,000.00 inclusive of back rentals.28 However,
defendant offered to settle his account with the
spouses.29 Again, the offer came on January 11, 1998, but it
was rejected. The defendant insisted that he had already
purchased the property in July 1985 for ₱250,000.00.
Roberts insisted that Papio’s claim of the right to repurchase
the property, as well as his claim of payment therefor, is
belied by his own letter in which he offered to settle
plaintiff’s claim for back rentals. Even assuming that the
purchase price of the property had been paid through
Ventura, Papio did not adduce any proof to show that
Ventura had been authorized to sell the property or to accept
any payment thereon. Any payment to Ventura could have
no binding effect on her since she was not privy to the
transaction; if at all, such agreement would be binding only
on Papio and Ventura.
She further alleged that defendant’s own inaction belies his
claim of ownership over the property: first, he failed to cause
any notice or annotation to be made on the Register of
Deed’s copy of TCT No. 114478 in order to protect his
supposed adverse claim; second, he did not institute any
action against Roberts to compel the execution of the
necessary deed of transfer of title in his favor; and third, the
defense of ownership over the property was raised only after
Roberts demanded him to vacate the property.
Based solely on the parties’ pleadings, the MeTC rendered
its January 18, 2001 Decision30 in favor of Roberts. The fallo
of the decision reads:
WHEREFORE, premises considered, finding this case for
the plaintiff, the defendant is hereby ordered to:
1. Vacate the leased premises known as 1046
Teresa St., Valenzuela, Makati City;
2. Pay plaintiff the reasonable rentals accrual for
the period January 1, 1996 to December 13, 1997
at the rate equivalent to Php2,500.00 per month
and thereafter, Php10,000.00 from January 1998
until he actually vacates the premises;
3. Pay the plaintiff attorney’s fees as
Php20,000.00; and
4. Pay the costs
SO ORDERED.31
The MeTC held that Roberts merely tolerated the stay of
Papio in the property after the expiration of the contract of
lease on May 1, 1984; hence, she had a cause of action
against him since the only elements in an unlawful detainer
action are the fact of lease and the expiration of its term. The
defendant as tenant cannot controvert the title of the plaintiff
or assert any right adverse thereto or set up any inconsistent
right to change the existing relation between them. The
plaintiff need not prove her ownership over the property
inasmuch as evidence of ownership can be admitted only for
the purpose of determining the character and extent of
possession, and the amount of damages arising from the
detention.
The court further ruled that Papio made no denials as to the
existence and authenticity of Roberts’ title to the property. It
declared that "the certificate of title is indefeasible in favor
of the person whose name appears therein and
incontrovertible upon the expiration of the one-year period
from the date of issue," and that a Torrens title, "which
enjoys a strong presumption of regularity and validity, is
generally a conclusive evidence of ownership of the land
referred to therein."
As to Papio’s claim that the transfer of the property was one
with right of repurchase, the MeTC held it to be bereft of
merit since the Deed of Sale is termed as "absolute and
unconditional." The court ruled that the right to repurchase
is not a right granted to the seller by the buyer in a
subsequent instrument but rather, a right reserved in the
same contract of sale. Once the deed of absolute sale is
executed, the seller can no longer reserve the right to
repurchase; any right thereafter granted in a separate
document cannot be a right of repurchase but some other
right.
As to the receipts of payment signed by Ventura, the court
gave credence to Roberts’s declaration in her Affidavit that
she authorized Ventura only to collect rentals from Papio,
and not to receive the repurchase price. Papio’s letter of
January 31, 1998, which called her attention to the fact that
she had been sending people without written authority to
collect money since 1985, bolstered the court’s finding that
the payment, if at all intended for the supposed repurchase,
never redounded to the benefit of the spouses Roberts.
Papio appealed the decision to the RTC, alleging the
following:
I.
THE LOWER COURT GRAVELY ERRED IN NOT
DISMISSING THE CASE FOR EJECTMENT OUTRIGHT
ON THE GROUND OF LACK OF CAUSE OF ACTION.
II.
THE LOWER COURT GRAVELY ERRED IN NOT
CONSIDERING THE DOCUMENTARY EVIDENCE
ADDUCED BY DEFENDANT-APPELLANT WHICH
ESTABLISHED THAT A REPURCHASE
TRANSACTION EXISTED BETWEEN THE PARTIES
ONLY THAT PLAINTIFF-APPELLEE WITHHELD THE
EXECUTION OF THE ABSOLUTE DEED OF SALE
AND THE TRANSFER OF TITLE OF THE SAME IN
DEFENDANT-APPELLANT’S NAME.
III.
THE LOWER COURT GRAVELY ERRED IN NOT
CONSIDERING THAT THE LETTERS OF PLAINTIFF-
[APPELLEE] AND OF HER HUSBAND ADDRESSED
TO DEFENDANT-APPELLANT AND HIS WIFE ARE IN
THEMSELVES ADMISSION AND/OR DECLARATION
OF THE FACT THAT DEFENDANT-APPELLANT HAD
DULY PAID PLAINTIFF-APPELLEE OF THE
PURCHASE AMOUNT COVERING THE SUBJECT
PROPERTY.
IV.
THE LOWER COURT GRAVELY ERRED IN NOT
DISMISSING THE CASE FOR EJECTMENT OUTRIGHT
CONSIDERING THAT PLAINTIFF-APPELLEE WHO IS
[AN] AMERICAN CITIZEN AND RESIDENT THEREIN
HAD NOT APPEARED IN COURT ONCE, NEITHER
WAS HER ALLEGED ATTORNEY-IN-FACT, MATILDE
AGUILAR NOR [DID] THE LATTER EVER [FURNISH]
THE LOWER COURT A SPECIAL POWER OF
ATTORNEY AUTHORIZING HER TO APPEAR IN
COURT IN BEHALF OF HER PRINCIPAL.32
Papio maintained that Roberts had no cause of action for
eviction because she had already ceded her right thereto
when she allowed him to redeem and reacquire the property
upon payment of ₱250,000.00 to Ventura, her duly
authorized representative. He also contended that Roberts’s
claim that the authority of Ventura is limited only to the
collection of the rentals and not of the purchase price was a
mere afterthought, since her appended Affidavit was
executed sometime in October 1999 when the proceedings
in the MeTC had already started.
On March 26, 2001, Roberts filed a Motion for Issuance of
Writ of Execution.33 The court granted the motion in an
Order34 dated June 19, 2001. Subsequently, a Writ of
Execution35 pending appeal was issued on September 28,
2001. On October 29, 2001, Sheriff Melvin M. Alidon
enforced the writ and placed Roberts in possession of the
property.
Meanwhile, Papio filed a complaint with the RTC of Makati
City, for specific performance with damages against
Roberts. Papio, as plaintiff, claimed that he entered into a
contract of sale with pacto de retro with Roberts, and prayed
that the latter be ordered to execute a Deed of Sale over `the
property in his favor and transfer the title over the property
to and in his name. The case was docketed as Civil Case No.
01-851.
On October 24, 2001, the RTC rendered judgment affirming
the appealed decision of the MeTC. The fallo of the decision
reads:36
Being in accordance with law and the circumstances
attendant to the instant case, the court finds merit in plaintiff-
appellee’s claim. Wherefore, the challenged decision dated
January 18, 2001 is hereby affirmed in toto.
SO ORDERED.37
Both parties filed their respective motions for
reconsideration.38 In an Order39 dated February 26, 2002, the
court denied the motion of Papio but modified its decision
declaring that the computation of the accrued rentals should
commence from January 1986, not January 1996. The
decretal portion of the decision reads:
Wherefore, the challenged decision dated January 18, 2001
is hereby affirmed with modification that defendant pay
plaintiff the reasonable rentals accrued for the period
January 1, 1986 to December [31, 1997] per month and
thereafter and ₱10,000.00 [per month] from January 1998 to
October 28, 2001 when defendant-appellant actually vacated
the subject leased premises.
SO ORDERED.40
On February 28, 2002, Papio filed a petition for review41 in
the CA, alleging that the RTC erred in not finding that he
had reacquired the property from Roberts for ₱250,000.00,
but the latter refused to execute a deed of absolute sale and
transfer the title in his favor. He insisted that the MeTC and
the RTC erred in giving credence to petitioner’s claim that
she did not authorize Ventura to receive his payments for the
purchase price of the property, citing Roberts’ letter dated
July 25, 1986 and the letter of Eugene Roberts to Ventura of
even date. He also averred that the MeTC and the RTC erred
in not considering his documentary evidence in deciding the
case.
On August 31, 2004, the CA rendered judgment granting the
petition. The appellate court set aside the decision of the
RTC and ordered the RTC to dismiss the complaint. The
decretal portion of the Decision42 reads:
WHEREFORE, the judgment appealed from is hereby
REVERSED and SET ASIDE and a new one entered: (1)
rendering an initial determination that the "Deed of Absolute
Sale" dated April 13, 1982 is in fact an equitable mortgage
under Article 1603 of the New Civil Code; and (2) resolving
therefore that petitioner Martin B. Papio is entitled to
possession of the property subject of this action; (3) But such
determination of ownership and equitable mortgage are not
clothed with finality and will not constitute a binding and
conclusive adjudication on the merits with respect to the
issue of ownership and such judgment shall not bar an action
between the same parties respecting title to the land, nor
shall it be held conclusive of the facts therein found in the
case between the same parties upon a different cause of
action not involving possession. All other counterclaims for
damages are hereby dismissed. Cost against the respondent.
SO ORDERED.43
According to the appellate court, although the MeTC and
RTC were correct in holding that the MeTC had jurisdiction
over the complaint for unlawful detainer, they erred in
ignoring Papio’s defense of equitable mortgage, and in not
finding that the transaction covered by the deed of absolute
sale by and between the parties was one of equitable
mortgage under Article 1602 of the New Civil Code. The
appellate court ruled that Papio retained the ownership of the
property and its peaceful possession; hence, the MeTC
should have dismissed the complaint without prejudice to the
outcome of Civil Case No. 01-851 relative to his claim of
ownership over the property.
Roberts filed a motion for reconsideration of the decision on
the following grounds:
I. Petitioner did not allege in his Answer the
defense of equitable mortgage; hence, the lower
courts [should] not have discussed the same;
II. Even assuming that Petitioner alleged the
defense of equitable mortgage, the MeTC could
not have ruled upon the said defense,
III. The M[e]TC and the RTC were not remiss in
the exercise of their jurisdiction.44
The CA denied the motion.
In this petition for review, Amelia Salvador-Roberts, as
petitioner, avers that:
I. THE HONORABLE COURT OF APPEALS
GRIEVEOUSLY (SIC) ERRED IN
DECLARING THAT THE M[e]TC AN(D) THE
RTC WERE REMISS IN THE EXERCISE OF
THAT JURISDICTION ACQUIRED BECAUSE
IT DID NOT CONSIDER ALL PETITIONER’S
DEFENSE OF EQUITABLE MORTGAGE.
II. THE HONORABLE COURT OF APPEALS
GRIEVEOUSLY (SIC) ERRED IN REQUIRING
THE M[e]TC AND RTC TO RULE ON A
DEFENSE WHICH WAS NEVER AVAILED OF
BY RESPONDENT.45
Petitioner argues that respondent is barred from raising the
issue of equitable mortgage because his defense in the MeTC
and RTC was that he had repurchased the property from the
petitioner; by such representation, he had impliedly admitted
the existence and validity of the deed of absolute sale
whereby ownership of the property was transferred to
petitioner but reverted to him upon the exercise of said right.
The respondent even filed a complaint for specific
performance with damages, which is now pending in the
RTC of Makati City, docketed as Civil Case No. 01-851
entitled "Martin B. Papio vs. Amelia Salvador-Roberts." In
that case, respondent claimed that his transaction with the
petitioner was a sale with pacto de retro. Petitioner posits
that Article 1602 of the Civil Code applies only when the
defendant specifically alleges this defense. Consequently,
the appellate court was proscribed from finding that
petitioner and respondent had entered into an equitable
mortgage under the deed of absolute sale.
Petitioner further avers that respondent was ably represented
by counsel and was aware of the difference between a pacto
de retro sale and an equitable mortgage; thus, he could not
have been mistaken in declaring that he repurchased the
property from her.
As to whether a sale is in fact an equitable mortgage,
petitioner claims that the issue should be properly addressed
and resolved by the RTC in an action to enforce ownership,
not in an ejectment case before the MeTC where the main
issue involved is possession de facto. According to her, the
obvious import of the CA Decision is that, in resolving an
ejectment case, the lower court must pass upon the issue of
ownership (in this case, by applying the presumptions under
Art. 1602) which, in effect, would use the same yardstick as
though it is the main action. The procedure will not only
promote multiplicity of suits but also place the new owner in
the absurd position of having to first seek the declaration of
ownership before filing an ejectment suit.
Respondent counters that the defense of equitable mortgage
need not be particularly stated to apprise petitioner of the
nature and character of the repurchase agreement. He
contends that he had amply discussed in his pleadings before
the trial and appellate courts all the surrounding
circumstances of the case, such as the relative situation of
the parties at the time; their attitude, acts, conduct, and
declarations; and the negotiations between them that led to
the repurchase agreement. Thus, he argues that the CA
correctly ruled that the contract was one of equitable
mortgage. He insists that petitioner allowed him to redeem
and reacquire the property, and accepted his full payment of
the property through Ventura, the authorized representative,
as shown by the signed receipts.
The threshold issues are the following: (1) whether the
MeTC had jurisdiction in an action for unlawful detainer to
resolve the issue of who between petitioner and respondent
is the owner of the property and entitled to the de facto
possession thereof; (2) whether the transaction entered into
between the parties under the Deed of Absolute Sale and the
Contract of Lease is an equitable mortgage over the
property; and (3) whether the petitioner is entitled to the
material or de facto possession of the property.
The Ruling of the Court
On the first issue, the CA ruling (which upheld the
jurisdiction of the MeTC to resolve the issue of who between
petitioner or respondent is the lawful owner of the property,
and is thus entitled to the material or de facto possession
thereof) is correct. Section 18, Rule 70 of the Rules of Court
provides that when the defendant raises the defense of
ownership in his pleadings and the question of possession
cannot be resolved without deciding the issue of ownership,
the issue of ownership shall be resolved only to determine
the issue of possession. The judgment rendered in an action
for unlawful detainer shall be conclusive with respect to the
possession only and shall in no wise bind the title or affect
the ownership of the land or building. Such judgment would
not bar an action between the same parties respecting title to
the land or building.46
The summary nature of the action is not changed by the
claim of ownership of the property of the defendant.47 The
MeTC is not divested of its jurisdiction over the unlawful
detainer action simply because the defendant asserts
ownership over the property.
The sole issue for resolution in an action for unlawful
detainer is material or de facto possession of the property.
Even if the defendant claims juridical possession or
ownership over the property based on a claim that his
transaction with the plaintiff relative to the property is
merely an equitable mortgage, or that he had repurchased the
property from the plaintiff, the MeTC may still delve into
and take cognizance of the case and make an initial or
provisional determination of who between the plaintiff and
the defendant is the owner and, in the process, resolve the
issue of who is entitled to the possession. The MeTC, in
unlawful detainer case, decides the question of ownership
only if it is intertwined with and necessary to resolve the
issue of possession.48 The resolution of the MeTC on the
ownership of the property is merely provisional or
interlocutory. Any question involving the issue of ownership
should be raised and resolved in a separate action brought
specifically to settle the question with finality, in this case,
Civil Case No. 01-851 which respondent filed before the
RTC.
The ruling of the CA, that the contract between petitioner
and respondent was an equitable mortgage, is incorrect. The
fact of the matter is that the respondent intransigently alleged
in his answer, and even in his affidavit and position paper,
that petitioner had granted him the right to redeem or
repurchase the property at any time and for a reasonable
amount; and that, he had, in fact, repurchased the property in
July 1985 for ₱250,000.00 which he remitted to petitioner
through an authorized representative who signed receipts
therefor; he had reacquired ownership and juridical
possession of the property after his repurchase thereof in
1985; and consequently, petitioner was obliged to execute a
deed of absolute sale over the property in his favor.
Notably, respondent alleged that, as stated in his letter to
petitioner, he was given the right to reacquire the property in
1982 within two years upon the payment of ₱53,000.00, plus
petitioner’s airfare for her trip to the Philippines from the
USA and back; petitioner promised to sign the deed
of absolute sale. He even filed a complaint against the
petitioner in the RTC, docketed as Civil Case No. 01-851,
for specific performance with damages to compel petitioner
to execute the said deed of absolute sale over the property
presumably on the strength of Articles 1357 and 1358 of the
New Civil Code. Certainly then, his claim that petitioner had
given him the right to repurchase the property is antithetical
to an equitable mortgage.
An equitable mortgage is one that, although lacking in some
formality, form or words, or other requisites demanded by a
statute, nevertheless reveals the intention of the parties to
change a real property as security for a debt and contain
nothing impossible or contrary to law.49 A contract between
the parties is an equitable mortgage if the following
requisites are present: (a) the parties entered into a contract
denominated as a contract of sale; and (b) the intention was
to secure an existing debt by way of mortgage.50 The
decisive factor is the intention of the parties.
In an equitable mortgage, the mortgagor retains ownership
over the property but subject to foreclosure and sale at public
auction upon failure of the mortgagor to pay his
obligation.51 In contrast, in a pacto de retro sale, ownership
of the property sold is immediately transferred to the vendee
a retro subject only to the right of the vendor a retro to
repurchase the property upon compliance with legal
requirements for the repurchase. The failure of the vendor a
retro to exercise the right to repurchase within the agreed
time vests upon the vendee a retro, by operation of law,
absolute title over the property.52
One repurchases only what one has previously sold. The
right to repurchase presupposes a valid contract of sale
between the same parties.53 By insisting that he had
repurchased the property, respondent thereby admitted that
the deed of absolute sale executed by him and petitioner on
April 13, 1982 was, in fact and in law, a deed of absolute
sale and not an equitable mortgage; hence, he had acquired
ownership over the property based on said deed. Respondent
is, thus, estopped from asserting that the contract under the
deed of absolute sale is an equitable mortgage unless there is
allegation and evidence of palpable mistake on the part of
respondent;54 or a fraud on the part of petitioner. Respondent
made no such allegation in his pleadings and affidavit. On
the contrary, he maintained that petitioner had sold the
property to him in July 1985 and acknowledged receipt of
the purchase price thereof except the amount of ₱39,000.00
retained by Perlita Ventura. Respondent is thus bound by his
admission of petitioner’s ownership of the property and is
barred from claiming otherwise.55
Respondent’s admission that petitioner acquired ownership
over the property under the April 13, 1982 deed of absolute
sale is buttressed by his admission in the Contract of Lease
dated April 15, 1982 that petitioner was the owner of the
property, and that he had paid the rentals for the duration of
the contract of lease and even until 1985 upon its extension.
Respondent was obliged to prove his defense that petitioner
had given him the right to repurchase, and that petitioner
obliged herself to resell the property for ₱250,000.00 when
they executed the April 13, 1982 deed of absolute sale.
We have carefully reviewed the case and find that
respondent failed to adduce competent and credible evidence
to prove his claim.
As gleaned from the April 13, 1982 deed, the right of
respondent to repurchase the property is not incorporated
therein. The contract is one of absolute sale and not one with
right to repurchase. The law states that if the terms of a
contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations
shall control.56 When the language of the contract is explicit,
leaving no doubt as to the intention of the drafters, the courts
may not read into it any other intention that would contradict
its plain import.57 The clear terms of the contract should
never be the subject matter of interpretation. Neither abstract
justice nor the rule of liberal interpretation justifies the
creation of a contract for the parties which they did not make
themselves, or the imposition upon one party to a contract or
obligation to assume simply or merely to avoid seeming
hardships.58 Their true meaning must be enforced, as it is to
be presumed that the contracting parties know their scope
and effects.59 As the Court held in Villarica, et al. v. Court
of Appeals:60
The right of repurchase is not a right granted the vendor by
the vendee in a subsequent instrument, but is a right reserved
by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute
sale is executed, the vendor can no longer reserve the right
to repurchase, and any right thereafter granted the vendor by
the vendee in a separate instrument cannot be a right of
repurchase but some other right like the option to buy in the
instant case.61
In Ramos v. Icasiano,62 we also held that an agreement to
repurchase becomes a promise to sell when made after the
sale because when the sale is made without such agreement
the purchaser acquires the thing sold absolutely; and, if he
afterwards grants the vendor the right to repurchase, it is a
new contract entered into by the purchaser as absolute
owner. An option to buy or a promise to sell is different and
distinct from the right of repurchase that must be reserved by
means of stipulations to that effect in the contract of sale.63
There is no evidence on record that, on or before July 1985,
petitioner agreed to sell her property to the respondent for
₱250,000.00. Neither is there any documentary evidence
showing that Ventura was authorized to offer for sale or sell
the property for and in behalf of petitioner for ₱250,000.00,
or to receive the said amount from respondent as purchase
price of the property. The rule is that when a sale of a piece
of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale
shall be void64 and cannot produce any legal effect as to
transfer the property from its lawful owner.65 Being
inexistent and void from the very beginning, said contract
cannot be ratified.66 Any contract entered into by Ventura for
and in behalf of petitioner relative to the sale of the property
is void and cannot be ratified by the latter. A void contract
produces no effect either against or in favor of anyone.67
Respondent also failed to prove that the negotiations
between him and petitioner has culminated in his offer to buy
the property for ₱250,000.00, and that they later on agreed
to the sale of the property for the same amount. He likewise
failed to prove that he purchased and reacquired the property
in July 1985. The evidence on record shows that petitioner
had offered to sell the property for US$15,000 on a "take it
or leave it" basis in May 1984 upon the expiration of the
Contract of Lease68 —an offer that was rejected by
respondent—which is why on December 30, 1997, petitioner
and her husband offered again to sell the property to
respondent for ₱670,000.00 inclusive of back rentals and the
purchase price of the property under the April 13, 1982 Deed
of absolute Sale.69 The offer was again rejected by
respondent. The final offer appears to have been made on
January 11, 199870 but again, like the previous negotiations,
no contract was perfected between the parties.
A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service.71 Under Article 1318
of the New Civil Code, there is no contract unless the
following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of
the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent manifested by the
meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract.72 Once
perfected, they bind the contracting parties and the
obligations arising therefrom have the form of law between
the parties which must be complied with in good faith. The
parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which,
according to their nature, may be in keeping with good faith,
usage and law.73
There was no contract of sale entered into by the parties
based on the Receipts dated July 1985 and June 16, 1986,
signed by Perlita Ventura and the letter of petitioner to
respondent dated July 25, 1986.
By the contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and deliver a
determinate thing and the other, to pay therefor a price
certain in money or its equivalent.74 The absence of any of
the essential elements will negate the existence of a
perfected contract of sale. As the Court ruled in Boston Bank
of the Philippines v. Manalo:75
A definite agreement as to the price is an essential element
of a binding agreement to sell personal or real property
because it seriously affects the rights and obligations of the
parties. Price is an essential element in the formation of a
binding and enforceable contract of sale. The fixing of the
price can never be left to the decision of one of the
contracting parties. But a price fixed by one of the
contracting parties, if accepted by the other, gives rise to a
perfected sale.76
A contract of sale is consensual in nature and is perfected
upon mere meeting of the minds. When there is merely an
offer by one party without acceptance of the other, there is
no contract.77 When the contract of sale is not perfected, it
cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.78
Respondent’s reliance on petitioner’s letter to him dated July
25, 1986 is misplaced. The letter reads in full:
7-25-86
Dear Martin & Ising,
Enclosed for your information is the letter written by my
husband to Perlita. I hope that you will be able to convince
your cousin that it’s to her best interest to deposit the balance
of your payment to me of ₱39,000.00 in my bank acct. per
our agreement and send me my bank book right away so that
we can transfer the title of the property.
Regards,
Amie 79
We have carefully considered the letter of Perlita Ventura,
dated July 18, 1986, and the letter of Eugene Roberts, dated
July 25, 1986, where Ventura admitted having used the
money of petitioner amounting to ₱39,000.00 without the
latter’s knowledge for the plane fare of Ventura’s parents.
Ventura promised to refund the amount of ₱39,000.00,
inclusive of interests, within one year.80 Eugene Roberts
berated Ventura and called her a thief for stealing his and
petitioner’s money and that of respondent’s wife, Ising, who
allegedly told petitioner that she, Ising, loaned the money to
her parents for their plane fare to the USA. Neither Ventura
nor Eugene Roberts declared in their letters that Ventura had
used the ₱250,000.00 which respondent gave to her.
Petitioner in her letter to respondent did not admit, either
expressly or impliedly, having received ₱211,000.00 from
Ventura. Moreover, in her letter to petitioner, only a week
earlier, or on July 18, 1986, Ventura admitted having spent
the ₱39,000.00 and pleaded that she be allowed to refund the
amount within one (1) year, including interests.
Naririto ang total ng pera mo sa bankbook mo, ₱55,000.00
pati na yong deposit na sarili mo at bale ang nagalaw ko
diyan ay ₱39,000.00. Huwag kang mag-alala ibabalik ko rin
sa iyo sa loob ng isang taon pati interest.
Ate Per81 1awphi1.net
It is incredible that Ventura was able to remit to petitioner
₱211,000.00 before July 25, 1986 when only a week earlier,
she was pleading to petitioner for a period of one year within
which to refund the ₱39,000.00 to petitioner.
It would have bolstered his cause if respondent had
submitted an affidavit of Ventura stating that she had
remitted ₱211,000.00 out of the ₱250,000.00 she received
from respondent in July 1985 and June 20, 1986.
IN LIGHT OF ALL THE FOREGOING, the petition is
GRANTED. The assailed Decision of the Court of Appeals
in CA-G.R. CV No. 69034 is REVERSED and SET ASIDE.
The Decision of the Metropolitan Trial Court, affirmed with
modification by the Regional Trial Court, is AFFIRMED.
SO ORDERED.
 SECOND DIVISION
G.R. No. 152199 June 23, 2005
LUIS S. MISTERIO, GABRIEL S. MISTERIO,
FRANCIS S. MISTERIO, THELMA S. MISTERIO and
ESTELLA S. MISTERIO-TAGIMACRUZ, petitioners,
vs.
CEBU STATE COLLEGE OF SCIENCE AND
TECHNOLOGY (CSCST), duly represented by its
President, DR. JOSE SAL TAN, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari to annul the
Decision1 dated July 31, 2000 of the Court of Appeals (CA)
in CA-G.R. CV No. 53592, as well as its
Resolution2 denying the motion for reconsideration. The CA
reversed and set aside the Decision3 of the Regional Trial
Court (RTC) of Cebu City, Branch 18, in Civil Case No.
CEB-15267.
The Antecedents
Sudlon Agricultural High School (SAHS) was established in
Cebu Province on August 2, 1948. The administrative and
supervisory control of the school was handled by the
Division of Schools of the same province. The original site
of the school was in Sudlon, about 33 kilometers from Cebu
City via the Tabunak-Talisay Highway.
In 1952, the Provincial Board of Cebu granted the usufruct
of 41 parcels of land, covering 104.5441 hectares of the
Banilad Friar Lands Estate to the SAHS. Pursuant to
Republic Act No. 948, SAHS was nationalized on June 20,
1953.
On December 31, 1956, Asuncion Sadaya-Misterio executed
a Deed of Sale of a parcel of land denominated as Lot No.
1064 of the Banilad Friar Lands Estate, in favor of the
SAHS. The property had an area of 4,563 square meters and
was situated at Lahug, Cebu City, covered by Transfer
Certificate of Title (TCT) No. 13086 of the Registry of
Deeds of the province of Cebu. The sale was subject to the
right of the vendor to repurchase the property after the high
school shall have ceased to exist, or shall have transferred its
site elsewhere.
Consequently, on May 22, 1957, TCT No. 13086 was
cancelled and in lieu thereof, TCT No. 15959 was issued by
the Registry of Deeds of Cebu City in the name of
SAHS.4 The right of the vendor to repurchase the property
was annotated at the dorsal portion thereof.
On March 18, 1960, the Provincial Board of Cebu, through
Resolution No. 491, donated the aforementioned 41 lots to
SAHS, subject to two (2) conditions: (1) that if the SAHS
ceases to operate, the ownership of the lots would
automatically revert to the province, and (2) that the SAHS
could not alienate, lease or encumber the properties.
On June 10, 1983, Batas Pambansa (B.P.) Blg. 412, entitled
"An Act Converting the Cebu School of Arts and Trades in
Cebu City into a Chartered College to be Known as the Cebu
State College of Science and Technology, Expanding its
Jurisdiction and Curricular Programs" took effect. The law
incorporated and consolidated as one school system certain
vocational schools in the province of Cebu, including the
SAHS, and which became an extension of the Cebu State
College of Science and Technology (CSCST).
In the meantime, the province of Cebu decided to recover the
41 lots it had earlier donated to SAHS on the ground that the
said deed was void. The province of Cebu opined that based
on the initial report of its provincial attorney, the SAHS had
no personality to accept the donation.
In the meantime, Asuncion died intestate. When her heirs
learned that the province of Cebu was trying to recover the
property it had earlier donated to SAHS, they went to the
province of Cebu on August 19, 1998, informing it of their
intention to exercise their right to repurchase the property as
stipulated in the aforecited deed of sale executed by their
predecessor-in-interest.
On February 1, 1989, the province of Cebu (represented by
then Governor Emilio M. R. Osmeña), and the CSCST
(represented by then DECS Secretary Lourdes R.
Quisumbing), entered into a Memorandum of Agreement
over the 40 parcels of land, allocating 53 hectares to the
province of Cebu, and 51 hectares for the SAHS. The
agreement was ratified by the Sangguniang
Panlalawigan and the SAHS Board of Trustees.
In a Letter5 dated March 13, 1990, the heirs of the late
Asuncion Sadaya-Misterio, through their counsel, Atty.
Ricardo G. Padilla, informed CSCST of the heirs’ intention
to exercise the option to repurchase Lot No. 1064 granted to
them under the deed of sale, as the SAHS had ceased to exist.
In response thereto, Jesus T. Bonilla, as Vocational School
Superintendent II of CSCST, wrote Atty. Padilla on March
29, 1990, informing the latter that the SAHS still existed and
"[i]n fact, from a purely secondary school it is now offering
collegiate courses." He explained that "what has been
changed is only the name of the school [to CSCST] which
does not imply the loss of its existence."6
On December 23, 1993, Luis, Gabriel, Francis, Thelma, all
surnamed Misterio, and Estella S. Misterio-Tagimacruz, the
legitimate heirs of the late Asuncion Sadaya-Misterio and
herein petitioners, filed a Complaint7 before the RTC of
Cebu City, Branch 18, for "Nullity of Sale and/or
Redemption." Named party-defendants were the CSCST,
Armand Fabella as CSCST Chairman, and Dr. Mussolini C.
Barillo as CSCST President, herein respondents. Docketed
as Civil Case No. 66-15267, the complaint alleged in part as
follows:
FIRST CAUSE OF ACTION
12. Sudlon Agricultural High School at the time of
the execution of the contract of sale with the late
Asuncion Sadaya sometime on December 31,
1956 had no juridical personality of it’s (sic) own.
Hence, it cannot acquire and possess any property,
including the parcel of land subject of this action.
13. The Contract of Sale executed was, therefore,
null and void and therefore non-existent. Thus, the
land subject of the sale should be reconveyed to
the legitimate heirs of Asuncion Sadaya.
SECOND CAUSE OF ACTION
14. On June 10, 1983, Batas Pambansa Blg. 412
was enacted, abolishing the then Sudlon
Agricultural College and converting it to become
part of the Cebu State College for Science and
Technology (CSCST).
15. The said law also transferred all the personnel,
properties, including buildings, sites, and
improvements, records, obligations, monies and
appropriation of Sudlon to the CSCST.
 16. The abolition of Sudhon and it’s (sic) merger
or consolidation as part of CSCST had rendered
operative the condition in the Deed of Sale
granting the vendor and her heirs, Asuncion
Sadaya, the right to redeem Lot No. 1064.
17. By the legislative act of merging or
consolidating Sudlon Agricultural College with
other colleges, the separate existence of the
constituent schools including Sudlon Agricultural
College has ceased to exist as a legal consequence
of merger or consolidation.
18. CSCST, as transferee of the land subject of
sale, is the actual possessor of the land and is the
proper party-defendant for redemption.8
The petitioners prayed that, after due proceeding, judgment
be rendered in their favor, thus –
WHEREFORE, the foregoing premises considered, it is
most respectfully prayed of this Honorable Court to render a
decision in favor of the plaintiffs to the following effect:
1. Declare the Contract of Sale between the late
Asuncion Sadaya and Sudlon Agricultural High
School as null and void for the latter has no legal
personality and cannot own a real property.
As a consequence, to order the actual possessor of
the land CSCST to deliver and reconvey the land
to plaintiffs and the latter is willing to return the
money received.
2. In the alternative, declare that Sudlon
Agricultural High School has ceased to exist and
allow the plaintiffs to redeem Lot 1064 in the
amount stipulated in the contract.
3. Other reliefs just and equitable under the
premises are prayed for.9
In their answer to the complaint, the respondents alleged
that:
11. Complainants in their complaint failed to state
sufficient cause of action which may be
considered enough ground to dismiss this instant
case;
12. The complainants are estopped from
contesting the juridical capacity of Sudlon to own
or acquire this property which is the subject of this
case, after a long period of silence or inaction from
the transfer of the title in favor of Sudlon
Agricultural School;
13. The contract of sale having been mutually and
freely entered into by the parties is valid and
binding between the vendor and the vendee,
including their successors-in-interest; hence,
reconveyance is not proper;
14. The enactment of B.P. 412, which is the
Charter of the College has not caused the abolition
of Sudlon Agricultural School. In fact, the school
has now grown into a higher status, because it has
now admitted collegiate students, in addition to its
secondary students;
15. The instruction of the Sudlon Agricultural
School is actually carried out right on the same site
which complainants claim have ceased to exist not
the site of the school transferred somewhere else.
Therefore, the conditions in the deed of sale have
not rendered operative the right of the vendor to
exercise the same.10
After the preliminary conference on May 23, 1994, the trial
court issued a pre-trial order defining the issues as follows:
… (1) whether Sudlon Agricultural School has still retained
its personality as such school or it had ceased to exist, and
(2) whether the plaintiffs have the right to exercise the right
of redemption over the property.
Upon the order of the RTC, the Clerk of Court conducted an
ocular inspection on Lot No. 1064. The court-appointed
commissioner submitted his report11 on June 10, 1994.
On November 29, 1995, the RTC rendered judgment, the
dispositive portion of which reads:
WHEREFORE, in view of all the foregoing considerations,
JUDGMENT is hereby rendered in favor of the plaintiffs and
against the defendants declaring the Deed of Sale entered
into by and between Asuncion Sadaya and Sudlon
Agricultural High School as null and void for the latter’s lack
of juridical personality to acquire real property or to enter
into such transaction or having ceased to exist and ordering
the Cebu State College of Science and Technology being the
actual possessor of the land, Lot 1064, to deliver and
reconvey the same to plaintiffs upon payment of the
aforementioned purchased price.
No pronouncement as to costs.
SO ORDERED.12
The RTC ruled that the donation was void ab initio as the
SAHS, in the first place, did not have the personality to be a
donee of real property. Moreover, with the enactment of B.P.
Blg. 412, the SAHS ceased to exist and to operate as such.
The RTC declared that, under the Corporation Code, the
constituent corporations (SAHS and CSCST) became one
through the merger or consolidation, with CSCST as the
surviving entity. Whether Lot No. 1064 was still being used
for school purposes was of no moment, and to "say that
[SAHS] still exists but is now forming part of CSCST is
stretching the interpretation of the contract too far." It
concluded that no prescription lay as against an inexistent
contract.
The CSCST, through the Office of Solicitor General (OSG),
appealed the decision to the CA, and outlined the following
assignment of errors:
I
THE TRIAL COURT ERRED IN NOT STICKING TO
THE ISSUES DEFINED BY THE PARTIES DURING
PRE-TRIAL.
II
THE TRIAL COURT ERRED IN NOT HOLDING THAT
APPELLEES ARE ESTOPPED FROM QUESTIONING
THE PERSONALITY OF THE SUDLON
AGRICULTURAL HIGH SCHOOL.
III
THE TRIAL COURT ERRED IN GIVING WEIGHT TO
INADMISSIBLE AND SELF-SERVING EVIDENCE.
IV
THE TRIAL COURT ERRED IN NOT HOLDING THAT
APPELLEES’ ACTION IS BARRED BY
PRESCRIPTION.
V WHEREFORE, the appealed decision is REVERSED and
THE TRIAL COURT ERRED IN NOT HOLDING THAT
THE DEED OF SALE IS A CONSENSUAL CONTRACT
FREELY ENTERED INTO BY THE PARTIES AND NOT
A CONTRACT OF ADHESION.
VI
THE TRIAL COURT ERRED IN NOT HOLDING THAT
THE DEED OF SALE IS NOT AMBIGUOUS.
VII
THE TRIAL COURT ERRED IN NOT HOLDING THAT
THE LOT SUBJECT OF THE SALE IS STILL BEING
USED FOR SCHOOL PURPOSES AS ORIGINALLY
INTENDED BY THE PARTIES.
VIII
THE TRIAL COURT ERRED IN NOT HOLDING THAT
B.P. [BLG.] 412 DID NOT DISSOLVE OR EXTINGUISH
SUDLON AGRICULTURAL HIGH SCHOOL BUT
MERELY SUBJECTED THE SAME TO THE
SUPERVISION AND ADMINISTRATION OF CSCST.
IX
THE TRIAL COURT ERRED IN NOT HOLDING THAT
THE SUDLON AGRICULTURAL HIGH SCHOOL
AND/OR CSCST IS/ARE NOT CORPORATIONS
GOVERNED BY THE COPORATION CODE.
On October 3, 1997, the CSCST and the province of Cebu
executed a Deed for Reversion, in which the CSCST deeded
to the province of Cebu the property covered by TCT No.
15959. Based on the said deed, TCT No. 146351 was issued
by the Register of Deeds on November 12, 1997 in the name
of the province of Cebu.13 Annotated at the dorsal portion
thereof was the notice of the pending cases before the RTC
and the CA.
On July 31, 2000, the CA rendered its decision reversing the
RTC’s decision. The fallo of the decision reads:
SET ASIDE, and a new one issued, DISMISSING the
instant complaint for lack of merit.
SO ORDERED.14
The appellate court held that the lower court should have
confined itself to the issues defined by the parties during pre-
trial, namely, (1) whether Sudlon Agricultural School still
retained its personality as such school or was still in
existence; and (2) whether the petitioners had the right to
exercise the right to repurchase the property. The CA
declared that the trial of the case should have been limited to
these two issues.
While it affirmed the RTC ruling that the SAHS had ceased
to exist when B.P. Blg. 412 took effect, the appellate court
ruled that the period for the petitioners to repurchase the
property expired on June 1987, four years after the
enactment of B.P. Blg. 412. It held that the period within
which the property was to be repurchased must be
restrictively applied in order to settle ownership and title at
the soonest possible time, and not to leave such title to the
subject property uncertain.
The petitioners filed a motion for the reconsideration of the
decision, which the CA denied in a Resolution dated January
25, 2002.
The petitioners filed the present petition for review
on certiorari, contending that the CA erred in (a) resolving
the appeal of the respondents based on prescription, although
the issue was never raised during the trial; and (b) resolving
that their action had already prescribed.
The petition is without merit.
The petitioners fault the CA for holding that their right to
repurchase Lot No. 1064 had long since prescribed. Citing
Article 1606(3) of the New Civil Code, they argue that
"[p]rescription should start to run from the time it is legally
feasible for the party to redeem the land, which is the time
when the action to redeem has accrued." The petitioners
argue that this is so since the issue of whether the SAHS had
ceased to exist had still yet to be resolved. The petitioners
posit that unless and until judgment would be rendered
stating that the SAHS has ceased to exist, the period to
repurchase the property would not start to run. It is only from
the finality of the said judgment that the right to repurchase
the property may be exercised; hence, they still had thirty
(30) days from the date of the promulgation of the CA
decision within which to repurchase the property. The
petitioners further aver that since the lien, their right to
repurchase the property, was annotated on the title of the
land, the right to exercise the same is imprescriptible. They
argue that they had been vigilant of their right to repurchase
the property, as far back as 1973. In fact, they made tender
of payment in March 1990, well within the ten-year
prescriptive period. They point out that the CSCST had
abandoned its defense of prescription by contending that the
condition for repurchase had not yet become operational.
The OSG, for its part, contends that the petitioners’ reliance
on Article 1606(3) of the New Civil Code is misplaced,
because the law applies only to sales where the right to
repurchase is not expressly agreed upon by the parties. Here,
the right to repurchase is unquestionable. The OSG,
likewise, argues that the annotation of the right of
redemption has no bearing on the issue of prescription. It
posits that the "Torrens System has absolutely nothing to do
with the period of prescription of one’s right to repurchase,
as in the instant case." The OSG concludes that whatever
right the petitioners had on the property had already
prescribed by the mere lapse of time, by reason of
negligence.1avvphi1.net
Central to the issue is the following provision in the deed of
sale executed by Asuncion Sadaya-Misterio in favor of the
SAHS:
That the Vendee herein, the SUDLON AGRICULTURAL
HIGH SCHOOL, hereby obligates itself to use the
aforementioned Lot No. 1064 for school purposes only, and
it is a condition attached to this contract that the
aforementioned vendee obligates itself to give the Vendor
herein, the right to repurchase the said lot by paying to the
Vendee herein the aforementioned consideration of
₱9,130.00 only, after the aforementioned SUDLON
AGRICULTURAL HIGH SCHOOL shall ceased (sic) to
exist or shall have transferred its school site elsewhere.15
The essence of a pacto de retro sale is that title and
ownership of the property sold is immediately rested in the
vendee a retro, subject to the restrictive condition of
repurchase by the vendor a retro within the period provided
in Article 1606 of the New Civil Code, to wit:
Art. 1606. The right referred to in Article 1601, in the
absence of an express agreement, shall last four years from
the date of the contract.
Should there be an agreement, the period cannot exceed ten
years.lawphil.net
However, the vendor may still exercise the right to
repurchase within thirty days from the time final judgment
was rendered in a civil action on the basis that the contract
was a true sale with right to repurchase.
The failure of the vendee a retro to repurchase the property
vests upon the latter by operation of law the absolute title
and ownership over the property sold.16
Pending the repurchase of the property, the vendee a
retro may alienate, mortgage or encumber the same, but
such alienation or encumbrance is as revocable as is his
right. If the vendor a retro repurchases the property, the right
of the vendee a retro is resolved, because he has to return the
property free from all damages and encumbrances imposed
by him.17 The vendor a retro may also register his right to
repurchase under the Land Registration Act and may be
enforced against any person deriving title from the vendee a
retro.18
In this case, the vendor a retro and the vendee a retro did not
agree on any period for the exercise of the right to repurchase
the property. Hence, the vendor a retro may extend the said
right within four days from the happening of the allocated
condition contained in the deed: (a) the cessation of the
existence of the SAHS, or (b) the transfer of the school to
other site.
We note that, as gleaned from the petitioners’ complaint
before the trial court, they alleged that the SAHS ceased to
exist on June 10, 1983, when B.P. Blg. 412 took effect,
abolishing therein the SAHS which, in the meantime, had
been converted into the Sudlon Agricultural College. The
CA found the position of the petitioners to be correct, and
declared that conformably to the condition in the deed of
sale, and under Article 1606 of the New Civil Code, the right
of the petitioners as successors-in-interest of the vendee a
retro commenced to run on June 10, 1983. Hence, they had
until June 10, 1987 within which to repurchase the property;
however, they failed to do so.
It is true that respondent CSCST, through counsel, was of
the view that despite the effectivity of B.P. Blg. 412, the
structure and facilities of the SAHS remained in the property
and, as such, it cannot be said that the said school had ceased
to exist. It argued that the phrase "SAHS ceased to exist" in
the deed meant that the structure and facilities of the school
would be destroyed or dismantled, and had no relation
whatsoever to the abolition of the school and its integration
into the Cebu State College for Science and Technology.
However, the CA rejected the position of the respondent
CSCST, as well as that of the OSG, and affirmed that of the
petitioners.
The four-year period for the petitioners to repurchase the
property was not suspended merely and solely because there
was a divergence of opinion between the petitioners, on the
one hand, and the respondent, on the other, as to the precise
meaning of the phrase "after the SAHS shall cease to exist"
in the deed of sale. The existence of the petitioners’ right to
repurchase the property was not dependent upon the prior
final interpretation by the court of the said phrase. Indeed,
the petitioners specifically alleged in the complaint that:
FIRST CAUSE OF ACTION
12. Sudlon Agricultural High School at the time of
the execution of the contract of sale with the late
Asuncion Sadaya sometime on December 31,
1956 had no juridical personality of its own.
Hence, it cannot acquire and possess any property,
including the parcel of land subject of this action.
13. The Contract of Sale executed was therefore
null and void and therefore non-existent. Thus, the
land subject of sale should be reconveyed to the
legitimate heirs of Asuncion Sadaya.
SECOND CAUSE OF ACTION
14. On June 10, 1983, Batas Pambansa Blg. 412
was enacted abolishing the then Sudlon
Agricultural College and converting it to become
part of the Cebu State College for Science and
Technology (CSCST).
15. The said law also transferred all the personnel,
properties, including buildings, sites, and
improvements, records, obligations, monies and
appropriations of Sudlon to the CSCST.
16. The abolition of Sudlon and its merger or
consolidation as part of CSCST had rendered
operative the condition in the Deed of Sale
granting the vendor and her heirs, Asuncion
Sadaya, the right to redeem Lot No. 1064.
17. By the legislative act of merging or
consolidating Sudlon Agricultural College with
other colleges, the separate existence of the
constituent schools including Sudlon Agricultural
College has ceased to exist as a legal consequence
of merger or consolidation.
18. CSCST, as transferee of the land subject of
sale, is the actual possessor of the land and is the
proper party defendant for redemption.19
The petitioners are estopped from changing on appeal their
theory of the case in the trial court and in the CA.20
We agree with the contention of the OSG that the annotation
of the petitioners’ right to repurchase the property at the
dorsal side of TCT No. 15959 has no relation whatsoever to
the issue as to when such right had prescribed. The
annotation was only for the purpose of notifying third parties
of the petitioners’ right to repurchase the property under the
terms of the deed of sale, and the law.
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED DUE COURSE. Costs against the petitioners.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-
Nazario, JJ., concur.
 Republic of the Philippines embraced in Transfer Certificate of Title
SUPREME COURT No. 9633 (Exhibit "9") and Transfer
Manila Certificate of Title No. (492194) —
11938 (Exhibit "8") of the Registry of
THIRD DIVISION Deeds in Pasig, Metro Manila, in order
to secure the payment of a loan of
P10,000,000.00 which the former
obtained from the latter. A year after,
Solid Homes applied for and was
G.R. No. 117501 July 8, 1997 granted an additional loan of
P1,511,270.03 by State Financing, and
SOLID HOMES, INC., petitioner, to secure its payment, Solid Homes
vs. executed the Amendment to Real Estate
Mortgage dated June 4, 1980 (Exhibit
HON. COURT OF APPEALS, STATE FINANCING
"4") whereby the credits secured by the
CENTER, INC., and REGISTER OF DEEDS FOR
RIZAL, respondents. first mortgage on the abovementioned
properties were increased from
P10,000,000.00 to P11,511,270.03.
Sometime thereafter, Solid Homes
obtained additional credits and
PANGANIBAN, J.: financing facilities from State Financing
in the sum of P1,499,811,97, and to
secure its payment, Solid Homes
Is the failure to annotate the vendor a retro's right of
executed in favor of State Financing the
repurchase in the certificates of title of the real estate
Amendment to Real Estate Mortgage
properties subject of dacion en pago conclusive evidence of
dated March 5, 1982 (Exhibit "5")
the vendee a retro's malice and bad faith, entitling the
whereby the mortgage executed on its
former to damages? In a sale with pacto de retro, is the
properties on June 4, 1979 was again
repurchase price limited by Article 1616 of the Civil Code?
amended so that the loans or credits
secured thereby were further increased
These are the basic questions raised in this petition for from P11,511,270.03 to
review on certiorari under Rule 45 of the Rules of Court P13,011,082.00.
assailing the Court of Appeals1 Decision2 promulgated on
April 25, 1994 and Resolution3 of September 26, 1994 in
When the loan obligations
CA-G.R. CV No. 39154, affirming the decision4 of the
abovementioned became due and
Regional Trial Court of Pasig, Branch 157 in Civil Case No.
payable, State Financing made repeated
51214. The said RTC decision sustained the validity of the
demands upon Solid Homes for the
subject dacion en pago agreement and declared the same as
payment thereof, but the latter failed to
"a true sale with right of repurchase."
do so. So, on December 16, 1982, State
Financing filed a petition for
The Facts extrajudicial foreclosure of the
mortgages abovementioned with the
The facts of the case as narrated by the trial court and Provincial Sheriff of Rizal, who, in
reproduced in the assailed Decision of the Court of Appeals pursuance of the petition, issued a
Notice of Sheriff's Sale dated February
are undisputed by the parties. These are the relevant
4, 1983 (Exhibit "6"), whereby the
portions:
mortgaged properties of Solid Homes
and the improvements existing thereon,
It appears that on June 4, 1979, Solid
including the V.V. Soliven Towers II
Homes executed in favor of State
Building, were set for public auction
Financing (Center, Inc.) a Real Estate
sale on March 7, 1983 in order to satisfy
Mortgage (Exhibit "3") on its properties
the full amount of Solid Homes'
mortgage indebtedness, the interest
thereon, and the fees and expenses
incidental to the foreclosure
proceedings.
Before the scheduled public auction sale
. . . , the mortgagor Solid Homes made
representations and induced State
Financing to forego with the foreclosure
of the real estate mortgages referred to
above. By reason thereof, State
Financing agreed to suspend the
foreclosure of the mortgaged properties,
subject to the terms and conditions they
agreed upon, and in pursuance of their
said agreement, they executed a
document entitled MEMORANDUM
OF AGREEMENT/DACION EN
PAGO ("Memorandum") dated
February 28, 1983 (Exhibits "C" and
"7") . . . . Among the terms and
conditions that said parties agreed upon
were . . . :
1. (Solid Homes) acknowledges
that it has an outstanding
obligation due and payable to
(State Financing) and binds and
obligates to pay (State Financing)
the totality of its outstanding
obligation in the amount of
P14,225,178.40, within one
hundred eighty (180) days from
date of signing of this instrument.
However, it is understood and
agreed that the principal
obligation of P14,225,178.40
shall earn interest at the rate of
14% per annum and penalty of
16% per annum counted from
March 01, 1983 until fully paid.
2. The parties agree that should
(Solid Homes) be able to pay
(State Financing) an amount
equivalent to sixty per
centum (60%) of the principal
obligation, or the amount of
P8,535,107.04, within the first
one hundred eighty (180) days,
 (State Financing) shall allow the
remaining obligation of (Solid
Homes) to be restructured at a rate
of interest to be mutually agreed
between the parties.
3. It is hereby understood and
agreed that in the event (Solid
Homes) fails to comply with the
provisions of the preceding
paragraphs, within the said period
of one hundred eighty (180) days,
this document shall automatically
operate to be an instrument of
dacion en pago without the need
of executing any document to
such an effect and (Solid Homes)
hereby obligates and binds itself
to transfer, convey and assign to
(State Financing), by way of
dacion en pago, its heirs,
successors and assigns, and (State
Financing) does hereby accept the
conveyance and transfer of the
above-described real properties,
including all the improvements
thereon, free from all liens and
encumbrances, in full payment of
the outstanding indebtedness of
(Solid Homes) to (State
Financing) . . . .
xxx xxx xxx
6. (State Financing) hereby grants
(Solid Homes) the right to
repurchase the aforesaid real
properties, including the
condominium units and other
improvements thereon, within ten
(10) months counted from and
after the one hundred eighty (180)
days from date of signing hereof
at an agreed price of
P14,225,178.40, or as reduced
pursuant to par. 5 (d), plus all cost
of money equivalent to 30% per
annum, registration fees, real
estate and documentary stamp
taxes and other incidental
expenses incurred by (State
Financing) in the transfer and
registration of its ownership via
dacion en pago . . . .
xxx xxx xxx
Subsequently, Solid Homes failed to
pay State Financing an amount
equivalent to 60% (or P8,535,107.04) of
the principal obligation of
P14,225,178.40 within 180 days from
the signing of the (Memorandum) on
February 28, 1983, as provided under
paragraph 2 of the said document.
Hence, and in pursuance of paragraph 3
thereof which provided that "this
document shall automatically operate to
be an instrument of dacion en pago
without the need of executing any
document to such an effect . . . (,)" State
Financing registered the said
(Memorandum) with the Register of
Deeds in Pasig, Metro Manila on
September 15, 1983. Consequently, the
said Register of Deeds cancelled TCT
No. 9633 and TCT No. (492194) 11938
in the name of Solid Homes which were
the subject matter of the (Memorandum)
abovementioned, and in lieu thereof, the
said office issued Transfer Certificate of
Title No. 40534 (Exhibits "J" and "11")
and Transfer Certificate of Title No.
40534 (Exhibits "K" and "12") in the
name of State Financing . . . .
In a letter dated October 11, 1983
(Exhibit "16"), State Financing
informed Solid Homes of the transfer in
its name of the titles to all the properties
subject matter of the (Memorandum)
and demanded among other things, the
Solid Homes turn over to State
Financing the possession of the V.V.
Soliven Towers II Building erected on
two of the said properties. Solid Homes
replied with a letter dated October 14,
1983, (Exhibit "20") asking for a period
of ten (10) days within which to
categorize its position on the matter; and
in a subsequent letter dated October 24,
1983, Solid Homes made known to State
Financing its position that the
(Memorandum) is null and void because
the essence thereof is that State
Financing, as mortgagee creditor, would
be able to appropriate unto itself the
properties mortgaged by Solid Homes
which is in contravention of Article
2088 of the Civil Code. State Financing
then sent to Solid Homes another letter
dated November 3, 1983 (Exhibit "17"),
whereby it pointed out that Art. 2088 of
the Civil Code is not applicable to the
(Memorandum) they have executed, and
also reiterated its previous demand that
Solid Homes turn over to it the
possession of the V.V. Soliven Towers
II Building within five (5) days, but
Solid Homes did not comply with the
said demand.
. . . and within that period of repurchase,
Solid Homes wrote to State Financing a
letter dated April 30, 1984 containing its
proposal for repayment schemes under
terms and conditions indicated therein
for the repurchase of the properties
referred to. In reply to said letter, State
Financing sent a letter dated May 17,
1984 (Exhibit "18") advising Solid
Homes that State Financing's
management was not amenable to its
proposal, and that by way of granting it
some concessions, said management
made a counter-proposal requiring Solid
Homes to make an initial payment of
P10 million until 22 May 1984 and the
balance payable within the remaining
period to repurchase the properties as
provided for under the (Memorandum) .
. . . Thereafter, a number of conferences
were held among the corporate officers
of both companies wherein they
discussed the payment arrangement of
Solid Home's outstanding obligation, . .
. . In a letter dated June 7, 1984 (Exhibit
"19"), State Financing reiterated the
counter-proposal in its previous letter
dated May 17, 1984 to Solid Homes as a
way of making good its account, and at
the same time reminded Solid Homes
that it has until 27 June 1984 to exercise
 its right to repurchase the properties
pursuant to the terms and conditions of
the (Memorandum), otherwise, it will
have to vacate and turn over the
possession of said properties to State
Financing. In return, Solid Homes sent
to State Financing a letter dated June 18,
1984 (Exhibits "N" and "22") containing
a copy of the written offer made by C.L.
Alma Jose & Sons, Inc. (Exhibits "M"
and "22-A") to avail of Solid Homes'
right to repurchase the V.V. Soliven
Towers II pursuant to the terms of the
Dacion En Pago. The letter also
contained a request that the repurchase
period under said Dacion En Pago
which will expire on June 27, 1984 be
extended by sixty (60) days to enable
Solid Homes to comply with the
conditions in the offer of Alma Jose &
Sons, Inc. referred to, and thereafter, to
avail of the one year period to pay the
balance based on the verbal
commitment of State Financing's
President . . . .
However, on June 26, 1984, a day
before the expiry date of its right to
repurchase the properties involved in the
(Memorandum) on June 27, 1984, Solid
Homes filed the present action against
defendants State Financing and the
Register of Deeds for Metro Manila
District II (Pasig), seeking the
annulment of said (Memorandum) and
the consequent reinstatement of the
mortgages over the same properties; . .
.5
As earlier stated, the trial court held that the Memorandum
of Agreement/Dacion En Pago executed by the parties was
valid and binding, and that the registration of said instrument
in the Register of Deeds was in accordance with law and the
agreement of the parties. It disposed of the case thus:
WHEREFORE, this Court hereby
renders judgment, as follows:
1. Declaring that the Memorandum of
Agreement/Dacion En Pago entered into
by and between plaintiff Solid Homes
and defendant State Financing on
February 28, 1983 is a valid and binding
document which does not violate the
prohibition against pactum
commisorium under Art. 2088 of the
Civil Code;
2. Declaring that the said Memorandum
of Agreement/Dacion En Pago is a true
sale with right of repurchase, and not an
equitable mortgage;
3. Declaring that the registration of the
said Memorandum of
Agreement/Dacion En Pago with the
defendant Register of Deeds in Pasig,
Metro Manila by defendant State
Financing on September 15, 1983 is in
accordance with law and the agreement
of the parties in the said document; but
the annotation of the said document by
the said Register of Deeds on the
certificates of title over the properties
subject of the Memorandum of
Agreement/Dacion En Pago without any
mention of the right of repurchase and
the period thereof, is improper, and said
Register of Deeds' cancellation of the
certificates of title in the name of Solid
Homes over the properties referred to
and issuance of new titles in lieu thereof
in the name of State Financing — during
the period of repurchase and without
any judicial order — is in violation of
Art. 1607 of the Civil Code, which
renders said titles null and void;
4. Ordering the defendant State
Financing to surrender to the defendant
Register of Deeds in Pasig, Metro
Manila for the cancellation thereof, all
the certificates of title issued in its name
over the properties subject of the
Memorandum of Agreement/Dacion En
Pago, including those titles covering the
fully paid condominium units and the
substitute collateral submitted in
exchange for said condominium units;
5. Ordering the said defendant Register
of Deeds to cancel all the titles in the
name of State Financing referred to and
to reinstate the former titles over the
same properties in the name of Solid
Homes, with the proper annotation
thereon of the Memorandum of
Agreement/Dacion En Pago together
with the right of repurchase and the
period thereof — as provided in said
document — and to return the said
reinstated former titles (owner's copies)
in the name of Solid Homes to State
Financing;
6. Ordering the defendant State
Financing to release to plaintiff Solid
Homes all the certificates of title over
the fully paid condominium units in the
name of Solid Homes, free from all liens
and encumbrances by releasing the
mortgage thereon;
7. Granting the plaintiff Solid Homes
the opportunity to exercise its right to
repurchase the properties subject of the
Memorandum of Agreement/Dacion En
Pago within thirty (30) days from the
finality of this Decision, by paying to
defendant State Financing the agreed
price of P14,225,178.40 plus all cost of
money equivalent to 30% (interest of
14% and penalty of 16% from March 1,
1983) per annum, registration fees, real
estate and documentary stamp taxes and
other incidental expenses incurred by
State Financing in the transfer and
registration of its ownership via the
Dacion En Pago, as provided in the said
document and in pursuance of Articles
1606 and 1616 of the Civil Code; and
8. Ordering the defendant Register of
Deeds in Pasig, Metro Manila — should
plaintiff Solid Homes fail to exercise the
abovementioned right to repurchase
within 30 days from the finality of this
judgment — to record the consolidation
of ownership in State Financing over the
properties subject of the Memorandum
of Agreement/Dacion En Pago in the
 Registry of Property, in pursuance of
this Order, but excluding therefrom the
fully paid condominium units and their
corresponding titles to be released by
State Financing.
For lack of merit, the respective claims
of both parties for damages, attorney's
fees, expenses of litigation and costs of
suit are hereby denied. 6
Both parties appealed from the trial court's decision. Solid
Homes raised a lone question contesting the denial of its
claim for damages. Such damages allegedly resulted from
the bad faith and malice of State Financing in deliberately
failing to annotate Solid Homes' right to repurchase the
subject properties in the former's consolidated titles thereto.
As a result of the non-annotation, Solid Homes claimed to
have been prevented from generating funds from prospective
buyers to enable it to comply with the Agreement and to
redeem the subject properties.
State Financing, on the other hand, assigned three errors
against the RTC decision: (1) granting Solid Homes a period
of thirty (30) days from finality of the judgment within
which to exercise its right of repurchase; (2) ordering Solid
Homes to pay only 30% per annum as interest and penalty
on the principal obligation, rather than reasonable rental
value from the time possession of the properties was illegally
withheld from State Financing; and (3) failing to order the
immediate turnover of the possession of the properties to
State Financing as the purchaser a retro from whom no
repurchase has been made.
As to the lone issue raised by Solid Homes, the Court of
Appeals agreed with the trial court that the failure to annotate
the right of repurchase of the vendor a retro is not by itself
an indication of bad faith or malice. State Financing was not
legally bound to cause its annotation, and Solid Homes could
have taken steps to protect its own interests. The evidence
shows that after such registration and transfer of titles, State
Financing willingly negotiated with Solid Homes to enable
the latter to exercise its right to repurchase the subject
properties,7 an act that negates bad faith.
Anent the first error assigned by State Financing,
Respondent Court likewise upheld the trial court in applying
Article 1606, paragraph 38 of the Civil Code. Solid Homes
was not in bad faith in filing the complaint for the declaration
of nullity of the Memorandum of Agreement/Dacion En
Pago. There is statutory basis for petitioner's claim that an
equitable mortgage existed since it believed that (1) the price
of P14 million was grossly inadequate, considering that the
building alone was allegedly built at a cost of P60 million in
1979 and the lot was valued at P5,000.00 per square meter
and (2) it remained in possession of the subject
properties.9 Furthermore, Article 1607 10 of the Civil Code
abolished automatic consolidation of ownership in the
vendee a retro upon expiration of the redemption period by
requiring the vendee to institute an action for consolidation
where the vendor a retro may be duly heard. If the vendee
succeeds in proving that the transaction was indeed a pacto
de retro, the vendor is still given a period of thirty days from
the finality of the judgment within which to repurchase the
property. 11
Respondent Court also affirmed the trial court's imposition
of the 30% interest per annum on top of the redemption price
in accordance with paragraph 6 of the parties' Memorandum
of Agreement. 12
However, Respondent Court of Appeals rules favorably on
State Financing's last assigned error by ordering Solid
Homes to deliver possession of the subject properties to the
private respondent, citing jurisprudence that in a sale
with pacto de retro, the vendee shall immediately acquire
title over and possession of the real property sold, subject
only to the vendor's right of redemption. 13 The full text of
the dispositive portion of the assailed Decision is as follows:
WHEREFORE, the judgment appealed
from is affirmed with the modification
that plaintiff Solid Homes is further
ordered to deliver the possession of the
subject property to State Financing. 14
The two opposing parties filed their respective motions for
reconsideration of the assailed Decision. Both were denied
by said Court for lack of merit. Both parties thereafter filed
separate petitions for review before this Court. In a minute
Resolution 15 dated December 5, 1994, this Court (Third
Division) denied State Financing Center's petition because
of its failure to show that a reversible error was committed
by the appellate court. Its motion for reconsideration of said
resolution was likewise denied for lack of merit. This case
disposes only of the petition filed by Solid Homes, Inc.
Issues
In its petition, Solid Homes repeats its arguments before the
Court of Appeals. It claims damages allegedly arising from
the non-annotation of its right of repurchase in the
consolidated titles issued to private respondent. Petitioner
reiterates its attack against the inclusion of 30% interest per
annum as part of the redemption price. It asserts that Article
1616 of the Civil Code authorizes only the return of the (1)
price of the sale, (2) expenses of the contract and any other
legitimate payments by reason of the sale and (3) necessary
and useful expenses made on the thing sold. Considering that
the transfer of titles was null and void, it was thus erroneous
to charge petitioner the registration fees, documentary stamp
taxes and other incidental expenses incurred by State
Financing in the transfer and registration of the subject
properties via the dacion en pago. Lastly, petitioner argues
that there is no need for the immediate turnover of the
properties to State Financing since the same was not
stipulated under their Agreement, and the latter's rights were
amply protected by the issuance of new certificates of title
in its name.
The Court's Ruling
First Issue: Damages
To resolve the issue of damages, an examination of factual
circumstances would be necessary, a task that is clearly
beyond this Court's dominion. It is elementary that in
petitions for review on certiorari, only questions of law may
be brought by the parties and passed upon by this Court.
Findings of fact of lower courts are deemed conclusive and
binding upon the Supreme Court except when the findings
are grounded on speculation, surmises or conjectures; when
the inference made is manifestly mistaken, absurd or
impossible; when there is grave abuse of discretion in the
appreciation of facts; when the factual findings of the trial
and appellate courts are conflicting; when the Court of
Appeals, in making its findings, has gone beyond the issues
of the case and such findings are contrary to the admissions
of both appellant and appellee; 16 when the judgment of the
appellate court is premised on a misapprehension of facts or
when it has failed to notice certain relevant facts which, if
properly considered, will justify a different conclusion;
when the findings of fact are conclusions without citation of
specific evidence upon which they are based; and when
findings of fact of the Court of Appeals are premised on the
absence of evidence but are contradicted by the evidence on
record. 17
The petitioner has not shown any — and indeed the Court
finds none — of the above-mentioned exceptions to warrant
a departure from the general rule.
In fact, petitioner has not even bothered to support with
evidence as claim for "actual, moral and punitive/nominal
damages" as well as "exemplary damages and attorney's
fees." It is basic that the claim for these damages must each
be independently identified and justified; such claims cannot
be dealt with in the aggregate, since they are neither kindred
or analogous terms nor governed by a coincident set of
rules. 18
The trial court found, and the Court of Appeals affirmed, that
petitioner's claim for actual damages was baseless. Solid
Homes utterly failed to prove that respondent corporation
had maliciously and in bad faith caused the non-annotation
of petitioner's right of repurchase so as to prevent the latter
from exercising such right. On the contrary, it is admitted by
both parties that State Financing informed petitioner of the
registration with the Register of Deeds of Pasig of their
Memorandum of Agreement/Dacion en Pago and the
issuance of new certificates of title in the name of the
respondent corporation. Petitioner exchanged
communications and held conferences with private
respondent in order to draw a mutually acceptable payment
arrangement for the former's repurchase of the subject
properties. A written offer from another corporation alleging
willingness to avail itself of petitioner's right of repurchase
was even attached to one of these communications. Clearly,
petitioner was not prejudiced by the non-annotation of such
right in the certificates of titles issued in the name of State
Financing. Besides, as the Court of Appeals noted, it was not
the function of respondent corporation for cause said
annotation. It was equally the responsibility of petitioner to
protect its own rights by making sure that its right of
repurchase was indeed annotated in the consolidated titles of
private respondent.
The only legal transgression of State Financing was its
failure to observe the proper procedure in effecting the
consolidation of the titles in its name. But this does not
automatically entitle the petitioner to damages absent
convincing proof of malice and bad faith 19 on the part of
private respondent and actual damages suffered by petitioner
as a direct and probable consequence thereof. In fact, the
evidence proffered by petitioner consist of mere conjectures
and speculations with no factual moorings. Furthermore,
such transgression was addressed by the lower courts when
they nullified the consolidated of ownership over the subject
properties in the name of respondent corporation, because it
had been effected in contravention of the provisions of
Article 1607 20 of the Civil Code. Such rulings are consistent
with law and jurisprudence.
Neither can moral damages be awarded to petitioner. Time
and again, we have held that a corporation — being an
artificial person which has no feelings, emotions or senses,
and which cannot experience physical suffering or mental
anguish — is not entitled to moral damages. 21
While the amount of exemplary damages need not be
proved, petitioner must show that he is entitled to moral or
actual damages; 22 but the converse obtains in the instant
case. Award of attorney's fees is likewise not warranted
when moral and exemplary damages are eliminated and
entitlement thereto is not demonstrated by the claimant. 23
Lastly, "(n)ominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated or recognized, and not for
the purpose of indemnifying the plaintiff for any loss
suffered by him." 24 As elaborated above and in the decisions
of the two lower courts, no right of petitioner was violated
or invaded by respondent corporation.
Second Issue: Redemption Price
Another fundamental principle of procedural law precludes
higher courts from entertaining matters neither alleged in the
pleadings nor raised during the proceedings below, but
ventilated for the first time only in a motion for
reconsideration or on appeal. 25 On appeal, only errors
specifically assigned and properly argued in the brief will be
considered, with the exception of those affecting jurisdiction
over the subject matter as well as plain and clerical
errors. 26
As stated earlier, the single issue raised by petitioner in its
appeal of the RTC decision to the Court of Appeals
concerned only the denial of its claim for damages.
Petitioner succinctly stated such issue in its brief as follows:
I. LONE ASSIGNMENT OF ERROR
The trial court erred in that after having
found that the registration of the
Memorandum of Agreement/Dacion en
Pago on September 15, 1983 [and the
consequent cancellation of the titles of
plaintiff-appellant Solid Homes, Inc.
and issuance in lieu thereof of titles to
defendant-appellant State Financing
Center, Inc. (SFCI)] was null and void
because of failure to duly annotate the
right to repurchase granted to plaintiff-
appellant Solid Homes, Inc. under par. 6
thereof still then subsisting up to June
28, 1984 and the failure to comply with
the provisions of Art. 1607, Civil Code .
..
I[t] nonetheless did not rule that such
irregular registration unduly deprived
plaintiff-appellant Solid Homes, Inc. of
its right of repurchase and that it further
erred in not having declared that
defendant-appellant SFCI liable in favor
of said plaintiff-appellant for
damages. 27
Petitioner is thus barred from raising a new issue in its appeal
before this Court. Nevertheless, in the interest of substantial
justice, we now resolve the additional question posed with
respect to the composition of the redemption price
prescribed by the trial court and affirmed by the Court of
Appeals, as follows:
7. Granting the plaintiff Solid Homes
the opportunity to exercise its right to
repurchase the properties . . . by paying
to defendant State Financing the agreed
price of P14,225,178.40 plus all cost of
money equivalent to 30% (interest of
14% and penalty of 16% from March 1,
1983) per annum, registration fees, real
estate and documentary stamp taxes and
other incidental expenses incurred by
State Financing in the transfer and
registration of its ownership via the
Dacion En Pago, as provided in the said
document and in pursuance of Articles
1606 and 1616 of the Civil Code; 28
Petitioner argues that such total redemption price is in
contravention of Art. 1616 of the Civil Code. We do not,
however, find said legal provision to be restrictive or
exclusive, barring additional amounts that the parties may
agree upon. Said provision should be construed together
with Art. 1601 of the same Code which provides as follows:
 Art. 1601. Conventional redemption
shall take place when the vendor
reserves the right to repurchase the thing
sold, with the obligation to comply with
the provisions of article 1616 and other
stipulations which may have been
agreed upon. (emphasis supplied)
It is clear, therefore, that the provisions of Art. 1601 require
petitioner to "comply with . . . the other stipulations" of the
Memorandum of Agreement/Dacion en Pago it freely
entered into with private respondent. The said
Memorandum's provision on redemption states:
6. The FIRST PARTY (State Financing)
hereby grants the SECOND PARTY
(Solid Homes) the right to repurchase
the aforesaid real properties, including
the condominium units and other
improvements thereon, within ten (10)
months counted from and after the one
hundred eighty (180) days from date of
signing hereof at an agreed price of
P14,225,178.40, or as reduced pursuant
to par. 5 (d), plus all cost of money
equivalent to 30% per annum,
registration fees, real estate and
documentary stamp taxes and the other
incidental expenses incurred by the
FIRST PARTY (State Financing) in the
transfer and registration of its ownership
via dacion en pago . . . 29 (emphasis
supplied)
relating to the registration of the dacion en pago, but not the
registration and other expenses incurred in the issuance of
new certificates of title in the name of State Financing.
Possession of the Subject Properties
During the Redemption Period
The Court of Appeals Decision modified that of the trial
court only insofar as it ordered petitioner to deliver
possession of the subject properties to State Financing, the
vendee a retro. We find no legal error in this holding. In a
contract of sale with pacto de retro, the vendee has a right to
the immediate possession of the property sold, unless
otherwise agreed upon. It is basic that in a pacto de
retro sale, the title and ownership of the property sold are
immediately vested in the vendee a retro, subject only to the
resolutory condition of repurchase by the vendor a
retro within the stipulated period. 31
WHEREFORE, the assailed Decision of the Court of
Appeals is hereby AFFIRMED with the MODIFICATION
that the redemption price shall not include the registration
and other expenses incurred by State Financing Center, Inc.
in the issuance of new certificates of title in its name, as this
was done without the proper judicial order required under
Article 1607 of the Civil Code.
SO ORDERED.
Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.
Melo, J., is on leave.

Contracts have the force of law between the contracting

parties who may establish such stipulations, clauses, terms
and conditions as they may want subject only to the
limitation that their agreements are not contrary to law,
morals, customs, public policy or public order 30 — and the
above-quoted provision of the Memorandum does not
appear to be so.

Petitioner, however, is right in its observation that the Court

of Appeal's inclusion of "registration fees, real estate and
documentary stamp taxes and other incidental expenses
incurred by State Financing in the transfer and registration
of its ownership (of the subject properties) via dacion en
pago" was vague, if not erroneous, considering that such
transfer and issuance of the new titles were null and void.
Thus, the redemption price shall include only those expenses
 SPECIAL FIRST DIVISION
G.R. No. 146651 August 6, 2002
RONALDO P. ABILLA and GERALDA A.
DIZON, petitioners,
vs.
CARLOS ANG GOBONSENG, JR. and THERESITA
MIMIE ONG, respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
This resolves the Motion for Reconsideration filed by
respondents of our Decision dated January 17, 2002 which
granted the instant petition and reversed the Order dated
January 14, 2001 of the Regional Trial Court of Dumaguete
City, Branch 41 in Civil Case No. 8148.
The Motion for Reconsideration raises the following
grounds:
A. WITH DUE RESPECT, THIS HONORABLE
HIGHEST COURT ERRED IN NOT
AFFIRMING THE ORDER OF THE
REGIONAL TRIAL COURT, BRANCH 41,
DUMAGUETE CITY, IN CIVIL CASE NO.
8148 WHICH GRANTED RESPONDENT
SPOUSES GOBONSENG THE RIGHT TO
REPURCHASE THE SEVENTEEN (17) LOTS
SUBJECT OF THE PACTO DE RETRO SALE
WITHIN THIRTY (30) DAYS FROM THE
FINALITY OF THE ORDER.
B. WITH DUE RESPECT, THIS HONORABLE
HIGHEST COURT ERRED IN NOT APPLYING
TO THE INSTANT CASE THE THIRD
PARAGRAPH OF ARTICLE 1606 OF THE
NEW CIVIL CODE, HENCE, THE PERIOD TO
REPURCHASE ON THE PART OF
RESPONDENTS HAS NOT YET
EXPIRED.1âwphi1.nêt
C. WITH DUE RESPECT, THIS HONORABLE
HIGHEST COURT ERRED IN APPLYING TO
THE CASE AT BAR THE CASE OF VDA. DE
MACOY VS. COURT OF APPEALS (206 SCRA
244) CITING THE CASE OF FELICEN, SR. VS.
ORIAS (156 SCRA 586).1
In compliance with our resolution,2 petitioners filed their
Comment to the motion for reconsideration, arguing that
respondents failed to seasonably exercise their right of
redemption; and that this Court was correct in its application
of the case of Vda. de Macoy v. Court of Appeals, which held
that Article 1606, third paragraph, of the Civil Code does not
apply to cases where the parties intended their contract of
sale not as an equitable mortgage but a true sale involving
transfer of ownership.3
It may be helpful to restate the undisputed facts. Respondent
contracted a loan from petitioner in the sum of P550,000.00,
secured by a real estate mortgage over two parcels of land,
covered by TCT Nos. 13607 and 13535. Respondent
defaulted in the payment of the loan, which had reached the
amount of P700,000.00. He sought a renewal of the loan and
issued two postdated checks, one for P10,000.00 and the
other for P690,000.00, representing the full amount of his
obligation.
The second check was dishonored by the drawee bank.
Respondent promised to pay petitioner the sum of
P690,000.00 upon approval of his pending loan application
with the State Investment House, Inc. However, the said
lending institution required a collateral before approving and
releasing the loan, for which reason respondent borrowed
from petitioner the two titles, TCT Nos. 13607 and 13535,
so he can mortgage the same. Thus, petitioner cancelled the
mortgage in his favor and delivered the two titles to
respondent.
Despite approval of the loan, respondent failed to make good
on his promise to pay his outstanding obligation to
petitioner. Hence, the latter threatened to sue him for Estafa.
Respondent thus executed a deed of absolute sale over his
seventeen lots in Dumaguete City in favor of petitioner. On
the same day, the parties executed an Option to Buy whereby
respondent was allowed to repurchase the lots within a
period of six months.
Respondent failed to repurchase the seventeen lots within the
stipulated period of six months. Consequently, petitioners
instituted an action for specific performance, praying that
respondent be made to pay the capital gains tax and
registration expenses for the transfer of title to the said lots,
pursuant to the deed of absolute sale. In his answer,
respondent interposed the defense that the transaction was in
reality an equitable mortgage.
On October 29, 1990, the Regional Trial Court of
Dumaguete City, Branch 42, rendered judgment in favor of
petitioner and ruled that the Option to Buy was rendered null
and void by respondent's failure to exercise the option within
the period of six months.4 On appeal, the Court of Appeals
affirmed the decision of the trial court, but further declared
that "the deed of sale and option to buy actually constitute
a pacto de retro sale."5 Respondent's motion for
reconsideration was denied,6 and the petition filed with this
Court was dismissed.7 Hence, the decision became final on
February 8, 1999 and was duly entered in the Book of Entries
of Judgments.8
On February 27, 1999, respondent filed with the court of
origin a motion to repurchase the lots with tender of
payment, which was denied.9 Subsequently, the trial court
issued an Order granting respondent's motion for
reconsideration and allowing him to repurchase the lots
within thirty days from finality thereof.10
Thus, petitioner brought the instant petition for review.
On January 17, 2002, we rendered the assailed Decision
reversing the Order of the Regional Trial Court of
Dumaguete City, in effect denying respondent the right to
repurchase the subject lots.
Respondent's claim of the right to repurchase the lots is
anchored on the third paragraph of Article 1606 of the Civil
Code, which states:
However, the vendor may still exercise the right to
repurchase within thirty days from the time final judgment
was rendered in a civil action on the basis that the contract
was a true sale with right to repurchase.
The above-quoted provision applies only where the nature
and character of the transaction – whether as a pacto de
retro sale or as an equitable mortgage – was put in issue
before the court.11 In other words, it applies in a situation
where, in a case, one of the contending parties claims that
the transaction was a sale with right to repurchase and the
other counters that the same was an equitable mortgage, and
the court declares in a final judgment that the transaction was
really a sale with pacto de retro.
In our Decision, we ruled that Article 1606 of the Civil Code
does not apply to the case at bar because the transaction
between the parties was a pacto de retro sale, citing the case
of Vda. de Macoy v. Court of Appeals.12 However, upon a
careful review and analysis of the antecedent facts, we are
convinced that the right granted under the third paragraph of
Article 1606 may be invoked by respondent.
In Vda. de Macoy,13 citing the earlier ruling in Felicen, Sr. v.
Orias,14 we held:
The application of the third paragraph of Article
1606 is predicated upon the bona fides of the
vendor a retro. It must appear that there was a
belief on his part, founded on facts attendant upon
the execution of the sale with pacto de
retro, honestly and sincerely entertained, that the
agreement was in reality a mortgage, one not
intended to affect the title to the property
ostensibly sold, but merely to give it as security for
a loan or other obligation. In that event, if the
matter of the real nature of the contract is
submitted for judicial resolution, the application of
the rule is meet and proper; that the vendor a
retro be allowed to repurchase the property sold
within 30 days from rendition of final judgment
declaring the contract to be a true sale with right
to repurchase. Conversely, if it should appear that
the parties' agreement was really one of sale —
transferring ownership to the vendee, but
accompanied by a reservation to the vendor of the
right to repurchase the property — and there are
no circumstances that may reasonably be accepted
as generating some honest doubt as to the parties'
intention, the proviso is inapplicable. The reason
is quite obvious. If the rule were otherwise, it
would be within the power of every vendor a
retro to set at naught a pacto de retro, or resurrect
an expired right of repurchase, by simply
instituting an action to reform the contract —
known to him to be in truth a sale with pacto de
retro — into an equitable mortgage. xxx xxx xxx.
(Underscoring ours)
Therefore, the applicability of Article 1606 rests on the bona
fide intent of the vendor a retro, i.e., respondent in this case.
If he honestly believed that the transaction was an equitable
mortgage, the said article applies and he can still repurchase
the property within thirty days from finality of the judgment
declaring the transaction as a sale with pacto de
retro. Parenthetically, it matters not what the vendee which respondent filed on February 27, 1999 was on time.
intended the transaction to be. Petitioners should, therefore, be ordered to accept the
tendered payment for the lots and to execute the necessary
As we stated above, we analyzed the peculiar factual deed of sale conveying the same to respondents.1âwphi1.nêt
background of this case in order to determine the true intent
of respondent. We noted that his contractual relations with WHEREFORE, in view of the foregoing, the Decision
petitioner commenced with a loan secured by a real estate dated January 17, 2002 is SET ASIDE. The instant petition
mortgage over two parcels of registered land. Said mortgage is DENIED. Petitioners are ORDERED to accept the
was cancelled by petitioner when respondent borrowed the payment tendered by respondents and to execute the
titles to the properties so that he can mortgage the same to necessary deed of sale conveying the subject lots to
the State Investment House, Inc. Respondent applied for a respondents.
loan with the said lending institution precisely to settle his
unpaid obligation to petitioner. However, respondent still SO ORDERED.
failed to settle his obligation to petitioner.
Puno, and Kapunan, JJ., concur.
When petitioner lent the two titles to respondent, the loan he Davide, Jr., C.J., i vote to deny the motion for
extended to respondent became unsecured. Naturally, there reconsideration. Our decision of 17 January 2002 is correct.
was a need to secure respondent's obligation after he reneged
on his promise to pay the same out of the loan proceeds from
State Investment House. Thus, it may well be that the deed
of sale, together with the option to buy executed on the same
day, was meant to serve as security for the indebtedness of
respondent which had become long overdue. Said obligation
would have been satisfied had respondent exercised the
option to buy within the stipulated period.
These circumstances, peculiar to the case at bar, make this
case fall squarely within the situation contemplated in the
above-quoted doctrine – that there was a belief on the part of
the vendor a retro, founded on facts attendant upon the
execution of the sale with pacto de retro, honestly and
sincerely entertained, that the agreement was in reality a
mortgage, one not intended to affect the title to the property
ostensibly sold, but merely to give it as security for a loan or
other obligation. Consistently therewith, respondent has
maintained throughout the proceedings that transaction
between him and petitioner was really an equitable
mortgage. As such, respondent may avail of the third
paragraph of Article 1606 of the Civil Code and repurchase
the lots affected by the deed of absolute sale and option to
buy.
The trial court, however, erred in holding that respondent
shall be allowed to repurchase the subject lots within thirty
days from finality of its Order dated January 14, 2001.
Pursuant to Article 1606, third paragraph, of the Civil Code,
the thirty-day period shall be counted from the date of
finality of the decision declaring the transaction to be a pacto
de retro sale, i.e., February 8, 1999.15 Consequently, the
urgent motion to repurchase the lots with tender of payment
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 71694 August 16, 1991
NYCO SALES CORPORATION, petitioner,
vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A.
DE LEON—REGIONAL TRIAL COURT, BR. II,
INTERMEDIATE APPELLATE COURT, FIRST
CIVIL CASES DIVISION, respondents.
ABC Law Offices for petitioner.
Valera, Urmeneta & Associates for private respondent.
PARAS, J.:
In this petition for review on certiorari, petitioner challenges
the April 22, 1985 decision* and the July 16, 1985
resolution* of the then Intermediate Appellate Court in AC-
G.R. CV No. 02553 entitled "BA Finance Corporation v.
Nyco Sales Corporation, et al." which affirmed with
modification the July 20, 1983 decision** of the Regional
Trial Court, National Capital Region, Manila, Branch II in
the same case docketed as Civil Case No. 125909 ordering
petitioner to pay respondent the amount of P60,000.00 as
principal obligation plus corresponding interest, the sum of
P10,000.00 as and for, attomey's fees and 1/3 of the costs of
suit.
It appears on record that petitioner Nyco Sales Corporation
(hereinafter referred to as Nyco) whose president and
general manager is Rufino Yao, is engaged in the business
of selling construction materials with principal office in
Davao City. Sometime in 1978, the brothers Santiago and
Renato Fernandez (hereinafter referred to as the
Fernandezes), both acting in behalf of Sanshell Corporation,
approached Rufino Yao for credit accommodation. They
requested Nyco, thru Yao, to grant Sanshell discounting
privileges which Nyco had with BA Finance Corporation
(hereinafter referred to as BA Finance). Yao apparently
acquiesced, hence on or about November 15, 1978, the
Fernandezes went to Yao for the purpose of discounting
Sanshell's post-dated check which was a BPI-Davao Branch
Check No. 499648 dated February 17, 1979 for the amount
of P60,000.00. The said check was payable to Nyco.
Following the discounting process agreed upon, Nyco, thru
Yao, endorsed the check in favor of BA Finance. Thereafter,
BA Finance issued a check payable to Nyco which endorsed
it in favor of Sanshell. Sanshell then made use of and/or
negotiated the check. Accompanying the exchange of checks
was a Deed of Assignment executed by Nyco in favor of BA
Finance with the conformity of Sanshell. Nyco was
represented by Rufino Yao, while Sanshell was represented
by the Fernandez brothers. Under the said Deed, the subject
of the discounting was the aforecited check (Rollo, pp- 26-
28). At the back thereof and of every deed of assignment was
the Continuing Suretyship Agreement whereby the
Fernandezes unconditionally guaranteed to BA Finance the
full, faithful and prompt payment and discharge of any and
all indebtedness of Nyco (Ibid., pp. 36, 46). The BPI check,
however, was dishonored by the drawee bank upon
presentment for payment. BA Finance immediately reported
the matter to the Fernandezes who thereupon issued a
substitute check dated February 19,1979 for the same
amount in favor of BA Finance. It was a Security Bank and
Trust Company check bearing the number 183157, which
was again dishonored when it was presented for payment.
Despite repeated demands, Nyco and the Fernandezes failed
to settle the obligation with BA Finance, thus prompting the
latter to institute an action in court (Ibid., p 28). Nyco and
the Fernandezes, despite having been served with summons
and copies of the complaint, failed to file their answer and
were consequently declared in default. On May 16, 1980, the
lower court ruled in favor of BA Finance ordering them to
pay the former jointly and severally, the sum of P65,536.67
plus 14% interest per annum from July 1, 1979 and attorney's
fees in the amount of P3, 000. 00 as well as the costs of suit
(Rollo, pp. 51-52). Nyco, however, moved to set aside the
order of default, to have its answer admitted and to be able
to implead Sanshell. The prayer was granted through an
order dated June 23, 1980, wherein the decision of the court
was set aside only as regards Nyco. Trial ensued once more
until the court reached a second decision which states:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendant
Nyco Sales Corporation by ordering the latter to
pay the former the following:
1) P60,000.00 as principal obligation, plus interest
thereon at the rate of 14% per annum from
February 1, 1979 until fully paid;
2) The amount of P100,000.00 as and for
attorney's fees; and
3) One-third (1/3) of the costs of this suit.
With respect to defendants Santiago and Renato
Fernandez, the decision of May 16, 1980 stands.
The cross-claim of defendant Nyco Sales
Corporation against codefendants Santiago B.
Fernandez and Renato B. Fernandez is hereby
denied, as there is no showing that Nyco's Answer
with cross-claim dated May 29, 1980 was ever
received by said Fernandez brothers, even as it is
noted that the latter have not been declared in
default with respect to said cross-claim, nor were
evidence adduced in connection therewith.
As to the would-be litigant Sanshell Construction
and Development Corporation, defendant Nyco
Sales Corporation did not properly implead said
corporation which should have been by way of a
third-party complaint instead of a mere cross-
claim. The same observations are noted as regard
this cross-claim against Sanshell as those made
with respect to the Fernandez brothers.
SO ORDERED.
On appeal, the appellate court also upheld BA Finance but
modified the lower court's decision by ordering that the
interest should run from February 19, 1979 until paid and not
from February 1, 1979. Nyco's subsequent motion for
reconsideration was denied (Ibid., pp. 33, 62). Hence, the
present recourse.
The crux of the controversy is whether or not the assignor is
liable to its assignee for its dishonored checks.
For its defense, Nyco anchors its arguments on the following
premises: a) that the appellate court erred in affirming its
liability for the BPI check despite a similar finding of
liability for the SBTC check rendered by the same lower
court; b) that it was actually discharged of its liability over
the SBTC check when BA Finance failed to give it a notice
of dishonor; c) that there was novation when BA Finance
accepted the SBTC check in replacement of the BPI check;
and d) that it cannot be held liable for its Presidents
unauthorized acts.
The petition is devoid of merit.
An assignment of credit is the process of transferring the
right of the assignor to the assignee, who would then be
allowed to proceed against the debtor. It may be done either
gratuitously or generously, in which case, the assignment has
an effect similar to that of a sale.
According to Article 1628 of the Civil Code, the assignor-
vendor warrants both the credit itself (its existence and
legality) and the person of the debtor (his solvency), if so
stipulated, as in the case at bar. Consequently, if there be any
breach of the above warranties, the assignor-vendor should
be held answerable therefor. There is no question then that
the assignor-vendor is indeed liable for the invalidity of
whatever he as signed to the assignee-vendee.
Considering now the facts of the case at bar, it is beyond
dispute that Nyco executed a deed of assignment in favor of
BA Finance with Sanshell Corporation as the debtor-obligor.
BA Finance is actually enforcing said deed and the check
covered thereby is merely an incidental or collateral matter.
This particular check merely evidenced the credit which was
actually assigned to BA Finance. Thus, the designation is
immaterial as it could be any other check. Both the lower
and the appellate courts recognized this and so it is utterly
misplaced to say that Nyco is being held liable for both the
BPI and the SBTC checks. It is only what is represented by
the said checks that Nyco is being asked to pay. Indeed,
nowhere in the dispositive parts of the decisions of the courts
can it be gleaned that BA Finance may recover from the two
checks.
Nyco's pretension that it had not been notified of the fact of
dishonor is belied not only by the formal demand letter but
also by the findings of the trial court that Rufino Yao of
Nyco and the Fernandez Brothers of Sanshell had frequent
contacts before, during and after the dishonor (Rollo, p. 40).
More importantly, it fails to realize that for as long as the
credit remains outstanding, it shall continue to be liable to
BA Finance as its assignor. The dishonor of an assigned
check simply stresses its liability and the failure to give a
notice of dishonor will not discharge it from such liability.
This is because the cause of action stems from the breach of
the warranties embodied in the Deed of Assignment, and not
from the dishonoring of the check alone (See Art. 1628, Civil and such other rightfully relies and acts on such belief, so
Code). that he will be prejudiced if the former is permitted to deny
the existence of such facts (Panay Electric Co., Inc. v. Court
Novation is the third defense set up by petitioner of Appeals, G.R. No. 81939, June 29,1989). Nyco remained
Nyco.1âwphi1 It insists that novation took place when BA silent in the course of the transaction and spoke out only later
Finance accepted the SBTC check in replacement of the BPI to escape liability. This cannot be countenanced. Nyco is
cheek. Such is manifestly untenable. estopped from denying Rufino Yao's authority as far as the
latter's transactions with BA Finance are concerned.
There are only two ways which indicate the presence of
novation and thereby produce the effect of extinguishing an PREMISES CONSIDERED, the decision appealed from is
obligation by another which substitutes the same. First, AFFIRMED.
novation must be explicitly stated and declared in
unequivocal terms as novation is never presumed SO ORDERED.
(Mondragon v. Intermediate Appellate Court, G.R. No.
71889, April 17, 1990; Caneda Jr. v. Court of Appeals, G.R. Melencio-Herrera (Chairperson), Padilla, Sarmiento and
No. 81322, February 5, 1990). Secondly, the old and the new Regalado, JJ., concur.
obligations must be incompatible on every point. The test of
incompatibility is whether or not the two obligations can
stand together, each one having its independent existence If
they cannot, they are incompatible and the latter obligation
novates the first (Mondragon v. Intermediate Appellate
Court, supra; Caneda Jr. v. Court of Appeals, supra). In the
instant case, there was no express agreement that BA
Finance's acceptance of the SBTC check will discharge
Nyco from liability. Neither is there incompatibility because
both checks were given precisely to terminate a single
obligation arising from Nyco's sale of credit to BA Finance.
As novation speaks of two distinct obligations, such is
inapplicable to this case.
Finally, Nyco disowns its President's acts claiming that it
never authorized Rufino Yao (Nyco's President) to even
apply to BA Finance for credit accommodation. It supports
its argument with the fact that it did not issue a Board
resolution giving Yao such authority. However, the very
evidence on record readily belies Nyco's contention. Its
corporate By-Laws clearly provide for the powers of its
President, which include, inter alia, executing contracts and
agreements, borrowing money, signing, indorsing and
delivering checks, all in behalf of the corporation.
Furthermore, the appellate court correctly adopted the lower
court's observation that there was already a previous
transaction of discounting of checks involving the same
personalities wherein any enabling resolution from Nyco
was dispensed with and yet BA Finance was able to collect
from Nyco and Sanshell was able to discharge its own
undertakings. Such effectively places Nyco under
estoppel in pais which arises when one, by his acts,
representations or admissions, or by his silence when he
ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist