SALES
demanding, instead, for an additional payment of P50,000.00.16
CASE 1 (1458)
G.R. No. 225033, August 15, 2018
SPOUSES ANTONIO BELTRAN AND FELISA
BELTRAN, Petitioners, v. SPOUSES APOLONIO CANGAYDA,
JR. AND LORETA E. CANGAYDA, Respondents.
DECISION
CAGUIOA, J.:
The Case
This is a Petition for Review on Certiorari (Petition) filed under Rule
45 of the Rules of Court against the Decision1 dated October 19,
2015 (assailed Decision) and Resolution2 dated May 17, 2016
(assailed Resolution) in CA-G.R. CV No. 03414-MIN rendered by
the Court of Appeals-Cagayan de Oro City (CA) Twenty-First
Division and Special Former Twenty-First Division, respectively.
The assailed Decision and Resolution stem from an appeal from the
Decision3 dated July 15, 2013 issued by the Regional Trial Court
(RTC), 11th Judicial Region, Davao del Norte, Branch 31 in Civil
Case No. 4020, directing petitioners Antonio and Felisa Beltran
(collectively, petitioners) to vacate a 300-square-meter residential
lot situated in Barangay Magugpo, Tagum City, Davao del Norte
(disputed property) registered in the name of respondents Apolonio,
Jr. and Loreta Cangayda (collectively, respondents) under TCT No.
T-74907.
The Facts
Sometime in August 1989,4 respondents verbally agreed to sell the
disputed property to petitioners for P35,000.00. After making an
initial payment,5 petitioners took possession of the disputed
property and built their family home thereon.6 Petitioners
subsequently made additional payments, which, together with their
initial payment, collectively amounted to P29,690.00.7
However, despite respondents' repeated demands, petitioners
failed to pay their remaining balance of P5,310.00.8 This prompted
respondents to refer the matter to the Office of the Barangay
Chairman of Barangay Magugpo, Tagum City (OBC).9
Before the OBC, the parties signed an Amicable Settlement dated
August 24, 1992, bearing the following terms:
3. That herein [petitioner Antonio] have already (sic) paid the
amount of x x x P29,690.00 x x x to [respondent Apolonio, Jr.] and
[there is a] remaining balance of x x x P5,310.00 x x x;
4. That herein [petitioner Antonio] promise(s) to pay the aforesaid
balance to [respondent Apolonio, Jr.] [within a] one week period
(sic) to start AUGUST 24, 1992 (Monday);
5. That herein [petitioner Antonio] is willing to pay the all (sic)
expenses of the titling of the aforesaid lot; and
6. That herein [respondent Apolonio, Jr.] is also willing to
signed (sic) a deed of sale agreement after [petitioner Antonio]
were (sic) able to pay the remaining balance x x x.
Failure to comply on (sic) the said agreement[,] the [OBC] is willing
to indorse (sic) this case to the higher court for proper legal
action.10 (Emphasis supplied)
Petitioners failed to pay within the period set forth in the Amicable
Settlement.11
On January 14, 2009, or nearly 17 years after the expiration of
petitioners' period to pay their remaining balance, respondents
served upon petitioners a "Last and Final Demand" to vacate the
disputed property within 30 days from notice. This demand was left
unheeded.12
RTC Proceedings
Consequently, on March 12, 2009, respondents filed a complaint for
recovery of possession and damages (Complaint) before the
RTC.13 Respondents alleged, among others, that petitioners had
been occupying the disputed property without authority, and without
payment of rental fees.14
In their Answer, petitioners admitted that they failed to settle their
unpaid balance of P5,310.00 within the period set in the Amicable
Settlement. However, petitioners alleged that when they later
attempted to tender payment two days after said
deadline,15 respondents refused to accept their payment,
On July 15, 2013, the RTC issued a Decision, the dispositive
portion of which reads:
WHEREFORE, premises considered, [petitioners], their heirs,
successors-in-interest and/or assigns are ordered to vacate the
portion of Lot No. 11 presently occupied by them within [60 days]
from receipt of x x x this Decision.
However, as there was no express agreement between the parties
that [respondents] may retain the sum of P29,600.00 already paid
to them by [petitioners], [respondents] are hereby ordered to
return the said sum to [petitioners], likewise within [60] days
from receipt of this Decision.17 (Emphasis supplied)
In so ruling, the RTC characterized the oral agreement between the
parties as a contract to sell. The RTC held that the consummation
of this contract to sell was averted due to petitioners' failure to pay
the purchase price in full.18 Hence the RTC held that ownership
over the disputed property never passed to petitioners.19
Petitioners filed a Motion for Reconsideration, which the RTC
denied.20
CA Proceedings
Aggrieved, petitioners brought the case to the CA via ordinary
appeal. Therein, petitioners argued that the oral agreement they
had entered into with respondents was not a contract to sell but
rather, a contract of sale which had the effect of transferring
ownership of the disputed property upon its delivery.21
Petitioners also raised, for the first time on appeal, that the sale of
the disputed property constitutes a sale on installment covered by
Republic Act (R.A.) No. 6552,22 otherwise known as the Maceda
Law. Corollarily, petitioners argued that respondents should not be
granted relief, since they failed to comply with the specific
procedure for rescission of sales of real estate on installment basis
set forth under the statute.23
On October 19, 2015, the CA rendered the assailed Decision,
disposing the appeal as follows:
WHEREFORE, the appeal is DISMISSED. The July 15, 2013
Decision of the [RTC], Branch 31, 11th Judicial Region, Tagum City,
24
Davao del Norte, in Civil Case No. 4020 is AFFIRMED.
The CA affirmed the findings of the RTC anent the nature of the
contract entered into by the parties.25 In addition, it rejected
petitioners' invocation of the Maceda Law. According to the CA, to
allow petitioners to seek protection under said law for the first time
on appeal would violate the tenets of due process and fair play.26
Petitioners filed a Motion for Reconsideration which was later
denied through the assailed Resolution.
Thus, the present Petition now prays that the Court: (i) reverse the
judgment of the CA and RTC; and (ii) direct respondents to allow
them to settle their remaining balance of P5,310.00 and,
subsequently, convey the disputed property in their favor.
Petitioners maintain, as they did before the CA, that the oral
agreement they entered into with respondents is a contract of sale,
and that, as a necessary incident of such contract, ownership over
the disputed property had been transferred in their favor when they
took possession and built improvements thereon.27
Further, petitioners argue that respondents are not entitled to
recover possession of the disputed property since they failed to
cancel their oral agreement by way of a notarial act, in accordance
with the provisions of the Maceda Law.28
Finally, petitioners aver that respondents' Complaint is an action
upon a written agreement, as it is based on the Amicable
Settlement. Thus, petitioners conclude that respondents' action
already prescribed, since it was filed more than 10 years after the
lapse of petitioners' period to pay their outstanding balance.
Petitioners further argue that the Complaint is also barred by
laches, considering that respondents allowed petitioners to continue
staying in the disputed property for a period of 17 years after such
29
failure to pay.
The Issues
The Petition calls on the Court to resolve the following issues:
Page 1 of 37
 1. Whether the CA erred when it affirmed the RTC Decision
characterizing the oral agreement between the parties as
a contract to sell;
2. Whether the oral agreement between the parties is
covered by the Maceda Law; and
3. Whether respondents' action for recovery of possession
should have been dismissed on the ground of
prescription and/or laches.
The Court's Ruling
The Petition is meritorious.
The agreement between the parties is
an oral contract of sale. As a
consequence, ownership of the
disputed property passed to
petitioners upon its delivery.
The CA characterized the parties' agreement as a contract to sell
primarily on the basis of respondent Loreta's testimony which
purportedly confirms their intent to reserve ownership of the
disputed property until full payment of the purchase price. The CA
held:
At trial, [respondent Loreta] testified thus —
[x x x x]
Q: Now, if any, tell us who are in possession of the [disputed property] x x x?
A: [Petitioners] and their children who are also married.
Q: Now, if you know, how did [petitioners] and their children occupied (sic)
the land you have just mentioned?
A: I know because we have [an oral] agreement with [petitioners] that
they will buy [the disputed property].
Q: Tell us what happened to the [oral] agreement of (sic) [petitioners] if you
can recall?
A: Our [oral] agreement with [petitioner Antonio] that about 300 square
meters lot (sic) that they will pay P35,000.00 to us but [petitioner
Antonio] told us that they will pay the amount of P35,000.00 when [their]
house will be sold, then they will pay us.
Q: If you can recall, did [petitioners] comply with the [oral] agreement to pay
you P35,000.00?
A: At that time, [petitioners] gave me only P15,000.00.
Q: Other than the P15,000.00 (sic) if you can recall, did they pay you?
A: x x x [Petitioners] has a rattan furniture, they made us a chair and it costs
about P14,600.00.
Q: In short, Miss witness, please tell us how much amount (sic) [petitioners]
paid you?
A: According to their total, they paid me P29,690.00
[Respondent Loreta's] testimony — that at the moment the
[oral] agreement was entered into by the parties, [petitioners]
"will buy that property" — suggests that the contract of sale
was expected to be entered into at some future date when a
condition has been fulfilled. In this case, that condition
appears to be the full payment of the purchase price. The Court
notes that this testimony was not controverted. In their Brief,
[petitioners] merely counter with the bare insistence that what the
parties entered into verbally was a contract of sale.30 (Emphasis
supplied.)
According to the CA, the foregoing finding is further bolstered by
clause 6 of the Amicable Settlement, to which petitioner Antonio
expressed his assent. Clause 6 reads:
That herein [respondent Apolonio, Jr.] is also willing to signed (sic)
a deed of sale agreement after [petitioner Antonio] were (sic) able
to pay the remaining balance x x x.31
The CA's finding is erroneous.
Article 1458 of the Civil Code defines a contract of sale:
By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its
equivalent.
"[A] contract to sell, [on the other hand], is defined as a bilateral
contract whereby the prospective seller, while expressly reserving
the ownership of the subject property despite its delivery to the
prospective buyer, commits to sell the property exclusively to the
prospective buyer"32 upon full payment of the purchase price.
Jurisprudence defines the distinctions between a contract of sale
and a contract to sell to be as follows:
In a contract of sale, title passes to the vendee upon the delivery of
the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the
full payment of the price. In a contract of sale, the vendor has
lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in a contract to sell,
title is retained by the vendor until the full payment of the price, x x
x.33 (Emphasis supplied)
Based on the foregoing distinctions, the Court finds, and so holds,
that the oral agreement entered into by the parties constitutes a
contract of sale and not a contract to sell.
A contract of sale is consensual in nature, and is perfected upon the
concurrence of its essential requisites,34 thus:
The essential requisites of a contract under Article 1318 of the
New Civil Code are: (1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; and
(3) cause of the obligation which is established. Thus, contracts,
other than real contracts are perfected by mere consent which is
manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. Once
perfected, they bind other contracting parties and the obligations
arising therefrom have the force of law between the parties and
should be complied with in good faith. The parties are bound not
only to the fulfillment of what has been expressly stipulated but also
to the consequences which, according to their nature, may be in
keeping with good faith, usage and law.
Being a consensual contract, sale is perfected at the moment
there is a meeting of minds upon the thing which is the object
of the contract and upon the price. From that moment, the
parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts. A perfected
contract of sale imposes reciprocal obligations on the parties
whereby the vendor obligates himself to transfer the ownership of
and to deliver a determinate thing to the buyer who, in turn, is
obligated to pay a price certain in money or its equivalent. Failure of
either party to comply with his obligation entitles the other to
rescission as the power to rescind is implied in reciprocal
obligations.35 (Emphasis supplied)
Contrary to the CA's findings, neither respondent Loreta's testimony
nor clause 6 of the Amicable Settlement supports the conclusion
that the parties' agreement is not a contract of sale, but only a
contract to sell — the reason being that it is not evident from said
testimony and clause 6 that there was an express agreement to
reserve ownership despite delivery of the disputed property.
A plain reading of respondent Loreta's testimony shows that the
parties' oral agreement constitutes a meeting of the minds as to the
sale of the disputed property and its purchase price. Respondent
Loreta's statements do not in any way suggest that the parties
intended to enter into a contract of sale at a later time. Such
statements only pertain to the time at which petitioners expected, or
at least hoped, to acquire the sufficient means to pay the purchase
price agreed upon. For emphasis, the Court reproduces the
relevant statements relied upon by the CA:
Our [oral] agreement with [petitioner Antonio] that about 300 square
meters lot (sic) that they will pay P35,000.00 to us but [petitioner
Antonio] told us that they will pay the amount of P35,000.00
when [their] house will be sold, then they will pay us.36 (Emphasis
supplied)
Clause 6 of the Amicable Settlement merely states respondent
Apolonio, Jr.'s commitment to formalize and reduce the oral
agreement of the parties into a public instrument upon payment of
petitioners' outstanding balance. It bears emphasizing that a formal
document is not necessary for the sale transaction to acquire
binding effect.37 Hence, the subsequent execution of a formal deed
of sale does not negate the perfection of the parties' oral contract of
sale which had already taken place upon the meeting of the parties'
minds as to the subject of the transaction and its purchase price.
In a contract of sale, ownership of a thing sold shall pass to the
buyer upon actual or constructive delivery thereof in the absence of
any stipulation to the contrary.38 Reference to Articles 1477 and
1478 of the Civil Code is in order:
Page 2 of 37
Article 1477. The ownership of the thing sold shall be transferred to
the vendee upon the actual or constructive delivery thereof.
Article 1478. The parties may stipulate that ownership in the thing
shall not pass to the purchaser until he has fully paid the price.
In accordance with the cited provisions, ownership of the disputed
property passed to petitioners when its possession was transferred
in their favor, as no reservation to the contrary had been made.
Considering that respondents' Complaint is anchored upon their
alleged ownership of the disputed property, their prayer to recover
possession thereof as a consequence of such alleged ownership
cannot prosper.
Slight delay is not sufficient to justify
rescission.
Article 1191 of the Civil Code39 lays down the remedies that the
injured party may resort to in case of breach of a reciprocal
obligation — fulfillment of the obligation or rescission thereof, with
damages in either case.
Thus, in a contract of sale, the vendor's failure to pay the price
agreed upon generally constitutes breach, and extends to the
vendor the right to demand the contract's fulfillment or rescission.40
It is important to stress, however, that the right of rescission granted
to the injured party under Article 1191 is predicated on a breach of
faith by the other party who violates the reciprocity between
them.41 Stated otherwise, rescission may not be resorted to in the
absence of breach of faith.
In this connection, Article 1592 extends to the vendee in a sale of
immovable property the right to effect payment even after expiration
of the period agreed upon, as long as no demand for rescission has
been made upon him by the vendor. The provision states:
Article 1592. 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.
A reading of Article 1592 in conjunction with Article 1191 thus
suggests that in the absence of any stipulation to the contrary, the
vendor's failure to pay within the period agreed upon
shall not constitute a breach of faith, so long as payment is made
before the vendor demands for rescission, either judicially, or by
notarial act.
Hence, in Taguba v. Peralta,42 (Taguba) the Court held that slight
delay in the payment of the purchase price does not serve as a
sufficient ground for the rescission of a sale of real property:
Despite the denomination of the deed as a "Deed of Conditional
Sale" a reading of the conditions x x x therein set forth reveals the
contrary. Nowhere in the said contract in question could we find a
proviso or stipulation to the effect that title to the property sold is
reserved in the vendor until full payment of the purchase price.
There is also no stipulation giving the vendor (petitioner Taguba)
the right to unilaterally rescind the contract the moment the vendee
(private respondent de Leon) fails to pay within a fixed period x x x.
Considering, therefore, the nature of the transaction between
petitioner Taguba and private respondent, which We affirm and
sustain to be a contract of sale, absolute in nature the applicable
provision is Article 1592 of the New Civil Code x x x.
xxxx
In the case at bar, it is undisputed that petitioner Taguba never
notified private respondent by notarial act that he was rescinding
the contract, and neither had he filed a suit in court to rescind the
sale.
Finally, it has been ruled that "where time is not of the essence
of the agreement, a slight delay on the part of one party in the
performance of his obligation is not a sufficient ground for the
rescission of the agreement". Considering that in the instant
case, private respondent had already actually paid the sum of
P12,500.00 of the total stipulated purchase price of P18,000.00
and had tendered payment of the balance of P5,500.00 within
the grace period of six months from December 31, 1972, equity
and justice mandate that she be given additional period within
which to complete payment of the purchase price.43 (Emphasis
supplied)
The Court applied the foregoing principles in the subsequent case
of Dignos v. Court of Appeals,44 (Dignos) where it resolved to grant
respondent therein an additional period within which to settle his
outstanding balance of P4,000.00, considering that he "was
delayed in payment only for one month."45 It is worth noting that
in Dignos, the Court granted the vendee an additional period to pay
the balance, despite the fact that no grace period had been
stipulated upon by the parties therein, as in Taguba.
Here, petitioners acknowledge that they failed to settle the purchase
price of the disputed property in full within the deadline set by the
Amicable Settlement. Nevertheless, the Court does not lose sight of
the fact that petitioners have already paid more than three-fourths
of the purchase price agreed upon. Further, petitioners have
constituted their family home on the disputed property in good faith,
and have lived thereon for 17 years without protest.
In addition, respondents do not dispute that petitioners offered to
settle their outstanding balance of P5,310.00 "two (2) days after the
deadline [set by the Amicable Settlement] and a few times
thereafter,"46 which offers respondents refused to
accept.47 Respondents also do not claim to have made a demand
for rescission at any time before petitioners made such offers to
pay, either through judicial or extra-judicial means, such as through
a notarial act.
Thus, pursuant to Article 1592, and consistent with the Court's
rulings in Taguba and Dignos, the Court deems it proper to grant
petitioners a period of 30 days from notice of this Decision to settle
their outstanding balance.
Assuming that petitioners' failure to
pay constitutes breach, respondents'
cause of action is already barred by
prescription.
Respondents hinge their cause of action on petitioners' failure to
pay within the period set by the Amicable Settlement. Hence, this
would mean that respondents' action is one that proceeds from a
breach of a written agreement, which, under Article 1144 of the Civil
Code, prescribes in 10 years.48
Respondents' Complaint was filed 17 years after the expiration of
the payment period stipulated in the Amicable Settlement.
Assuming that petitioners' failure to pay within said period
constitutes sufficient breach which gives rise to a cause of action,
such action has clearly prescribed.
Considering the foregoing, the Court deems it unnecessary to delve
into the other issues raised in the Petition.
WHEREFORE, the Petition is GRANTED. The Decision and
Resolution respectively dated October 19, 2015 and May 17, 2016
rendered by the Court of Appeals-Cagayan de Oro City in CA-G.R.
CV No. 03414-MIN, and the Decision dated July 15, 2013 issued by
the Regional Trial Court, Branch 31, 11th Judicial Region, Davao del
Norte (RTC) in Civil Case No. 4020 are REVERSED and SET
ASIDE.
Petitioners Antonio and Felisa Beltran are ORDERED to pay
respondents Apolonio Cangayda, Jr. and Loreta E. Cangayda the
sum of P5,310.00, representing their outstanding balance, within 30
days from notice of this Decision. In case of refusal or inability on
the part of respondents to receive said amount, petitioners
are DIRECTED to deposit the same with the RTC for the account of
respondents. The sum due shall earn interest at the rate of six
percent (6%) per annum from the date of finality of this Decision
until full payment, in accordance with the Court's ruling in Nacar v.
49
Gallery Frames .
Upon receipt of the foregoing sum, or the deposit of such sum with
the RTC, respondents are DIRECTED to EXECUTE a Deed of
Absolute Sale in favor of petitioners for the purpose of formalizing
the oral contract of sale concerning the 300-square-meter
Page 3 of 37
residential lot situated in Barangay Magugpo, Tagum City, Davao
del Norte, covered by TCT No. T-74907, and DELIVER to
petitioners the original owner's duplicate copy of TCT No. T-74907.
In case of refusal or inability on the part of respondents to execute a
Deed of Absolute Sale and/or deliver said owner's duplicate copy,
this Decision shall be sufficient to grant the proper Registrar of
Deeds the necessary authority to cancel TCT No. T-74907 and
issue a new title in the name of petitioners.
SO ORDERED.
CASE 2 (1459)
G.R. No. 168078
FABIO CAHAYAG and CONRADO RIVERA, Petitioners,
vs.
COMMERCIAL CREDIT CORPORATION, represented by its
President, LEONARDO B. ALEJANDRO; TERESITA T. QUA,
assisted by her husband ALFONSO MA. QUA; and the
REGISTER OF DEEDS OF LAS PINAS, METRO MANILA,
DISTRICT IV, Respondents.
x-----------------------x
G.R. No. 168357
DULOS REALTY & DEVELOPMENT CORPORATION,
represented by its President, JUANITO C. DULOS; and
MILAGROS E. ESCALONA, and ILUMINADA D.
BALDOZA, Petitioners,
vs.
COMMERCIAL CREDIT CORPORATION, represented by its
President, LEONARDO B. ALEJANDRO; TERESITA T. QUA,
assisted by her husband ALFONSO MA. QUA; and the
REGISTER OF DEEDS OF LAS PINAS, METRO MANILA,
DISTRICT IV, Respondents.
DECISION
SERENO, J.:
Before us are consolidated Rule 45 Petitions1 seeking to nullify the
Court of Appeals (CA) Decision dated 2 November 20042 and
Resolution dated 10 May 20053 in CA-G.R. CV No. 47421. The CA
Decision reversed and set aside the Decision dated 6 July 1992
issued by the Regional Trial Court (RTC), Branch 65 of Makati.4
FACTUAL ANTECEDENTS
Petitioner Dulos Realty was the registered owner of certain
residential lots covered by Transfer Certificate of Title (TCT) Nos.
S-39767, S-39775, S-28335, S-39778 and S-29776, located at
Airmen's Village Subdivision, Pulang Lupa II, Las Pinas, Metro
Manila.
On 20 December 1980, Dulos Realty obtained a loan from
respondent CCC in the amount of P300,000. To secure the loan,
the realty executed a Real Estate Mortgage over the subject
properties in favor of respondent. The mortgage was duly annotated
on the certificates of title on 3 February 1981.5
On 29 March 1981, Dulos Realty entered into a Contract to Sell with
petitioner Cahayag over the lot covered by TCT No. S-39775.6
On 12 August 1981, Dulos Realty entered into another Contract to
Sell, this time with petitioner Rivera over the lot covered by TCT No.
S-28335.7
Dulos Realty defaulted in the payment of the mortgage loan,
prompting respondent CCC to initiate extrajudicial foreclosure
proceedings. On 17 November 1981, the auction sale was held,
with respondent CCC emerging as the highest bidder.8
On 23 November 1981, a Certificate of Sale covering the
properties, together with all the buildings and improvements existing
thereon, was issued in favor of CCC.9 The Certificate of Sale was
annotated on the corresponding titles to the properties on 8 March
1982.10
Thereafter, or on 13 January 1983, Dulos Realty entered into a
Contract to Sell with petitioner Escalona over the house and lot
covered by TCT No. S-29776.11
On 10 November 1983, an Affidavit of Consolidation in favor of
respondent CCC dated 26 August 1983 was annotated on the
corresponding titles to the properties.12 By virtue of the affidavit,
TCT Nos. S-39775, S-28335, S-39778 and S-29776 - all in the
name of Dulos Realty - were cancelled and TCT Nos. 74531,
74532, 74533 and 74534 were issued in the name of respondent
CCC on the same day.13
On 10 December 1983, Dulos Realty entered into a Deed of
Absolute Sale with petitioner Baldoza over the property covered by
TCT No. S-39778, together with the improvements existing
thereon.14
On 21 December 1983, respondent CCC, through a Deed of
Absolute Sale, sold to respondent Qua the same subject properties,
now covered by TCT Nos. 74531, 74532, 74533 and 74534, which
were in the name of respondent CCC. The sale was duly annotated
on the corresponding titles to the properties on 5 January 1984.15
Accordingly, TCT Nos. 74531, 74532, 74533 and 74534 were
cancelled; and TCT Nos. 77012, 77013, 77014 and 770015 were
issued to respondent Qua on 5 January 1984.16
Subsequently, respondent Qua filed ejectment suits individually
against petitioners Du1os Realty,17 Cahayag,18 Esca1ona,19 and
Rivera20 before the Metropolitan Trial Court (MTC) of Las Piñas,
Metro Manila.
The MTC rendered Decisions in favor of respondent Qua. It ordered
Dulos Realty, Escalona, Cahayag, and Rivera to vacate the
properties.
On 8 March 1988, the MTC issued a Writ of Execution to enforce its
Decision dated 20 October 1986 in Civil Case No. 2257 against
Dulos Realty "and all persons claiming right under
defendant."21 The subject of the writ of execution was Lot 11 Block
II,22 which was the lot sold by Dulos Realty to petitioner Baldoza.
COMPLAINT FOR ANNULMENT
OF SHERIFF'S SALE AND OTHER DOCUMENTS
On 5 December 1988, petitioners filed a Complaint against
respondents for the "Annulment of Sherifffs] Sale and Other
Documents with Preliminary Injunction and/or Temporary
Restraining Order" before the RTC of Makati City, where it was
docketed as Civil Case No. 88-2599.23
The Complaint24 alleged that petitioners Cahayag, Rivera, Escalona
and Baldoza were owners of the properties in question by virtue of
Contracts of Sale individually executed in their favor, and that the
Real Estate Mortgage between Dulos Realty and defendant-
appellant CCC did not include the houses, but merely referred to
the lands themselves.25 Thus, the inclusion of the housing units in
the Deed of Sale executed by respondent CCC in favor of
respondent Qua was allegedly illegal.26
Respondents failed to file an answer within the reglementary period.
Subsequently, they were declared in default. They appealed the
order of default but their appeal was dismissed on 8 February
27
1990.
On 6 July 1992, the RTC rendered a Decision,28 which ruled that
the houses were not included in the Real Estate Mortgage; and that
the foreclosure of the mortgage over the subject lots, as well as the
housing units, was not valid.29 The trial court held that this
conclusion was established by the plaintiffs' evidence, which went
unrefuted when defendants were declared in default.30
THE CA DECISION
Respondents proceeded to the CA, where they secured a favorable
ruling. In its Decision rendered on 2 November 2004,31 the
appellate court held that the extrajudicial foreclosure was valid,
since the Real Estate Mortgage clearly included the buildings and
improvements on the lands, subject of the mortgage.
After establishing the inclusion of the housing units in the Real
Estate Mortgage, the CA determined the rights of the buyers in the
Contracts to Sell/Contract of Sale vis-a-vis those of the mortgagee
and its successor-in-interest.
In the cases of petitioners Cahayag, Rivera and Escalona, the CA
pointed to lack of evidence establishing full payment of the price. As
supporting reason, it stated that even if there were full payment of
the purchase price, the mortgagee and the latter's successor-in-
interest had a better right over the properties. The CA anchored this
conclusion on the fact that the Real Estate Mortgage was annotated
at the back of the titles to the subject properties before the
execution of the Contracts to Sell. It said that the annotation
constituted sufficient notice to third parties that the property was
subject to an encumbrance. With the notice, Cahayag, Rivera and
Escalona should have redeemed the properties within the one-year
redemption period, but they failed to do so. Consequently, the right
of respondent CCC over the properties became absolute, and the
transfer to respondent Qua was valid.
As regards Baldoza, though the case involved a Contract of Sale,
and not a mere Contract to Sell, the CA declared the transaction
null and void on the purported ground that Dulos was no longer the
owner at the time of the sale.
Page 4 of 37
The CA accordingly reversed and set aside the RTC Decision,
dismissed the case for lack of merit, and ordered petitioners to
surrender possession of the properties to respondent Qua.
THE RULE 45 PETITIONS
On 30 May 2005, petitioners Cahayag and Rivera filed their Rule 45
Petition with this Court.32 For their part, petitioners Dulos Realty,
Baldoza and Escalona filed their Rule 45 Petition on 19 July 2005.33
In the Petition under G.R. No. 168357, it is argued, among others,
that the Deed of Absolute Sale in favor of petitioner Baldoza was
the culmination of a Contract to Sell between her and Dulos Realty.
She claims that the Contract to Sell, marked as Exhibit "L" during
the trial, was executed on 10 January 1979, which preceded the
execution of the Deed of Real Estate Mortgage and the registration
of the mortgage on 3 February 1981.34 After full payment of the
price under the Contract to Sell, Dulos Realty executed the Deed of
Absolute Sale. In other words, Baldoza is arguing that she has a
better title to the property than respondent Qua since the
unregistered contract to sell in her favor was executed before the
registration of the mortgage. But the CA ignored Exhibit "L" and
merely stated that there was only a Deed of Absolute Sale in favor
of Baldoza.
THE ARGUMENTS
The arguments of petitioners, as stated in their respective
Memoranda, are summarized as follows:
Coverage of the Mortgage
Initially, petitioners attempt to stave off the effects of the extra
judicial foreclosure by attacking the coverage of the Real Estate
Mortgage with respect to its subject-matter.35 They draw attention to
the fact that the List of Properties attached to the Deed of Real
Estate Mortgage refers merely to the lands themselves and does
not include the housing units found thereon.36 Petitioners also
contend that doubts should be resolved against the drafter
inasmuch as the agreement is a contract of adhesion, having been
prepared by the mortgagee.37
As backup argument for the theory that the houses are outside the
coverage of the mortgage agreement, petitioners argue that the
improvements were not owned by Dulos Realty, the mortgagor, but
by its buyers under the Contracts to Sell and Contracts of Sale;
hence, those improvements are excluded from the coverage of the
real estate mortgage.
Validity of the Mortgage
Petitioners next challenge the validity of the foreclosure sale on the
ground that the mortgage executed by the mortgagor (petitioner
Dulos Realty) and the mortgagee (respondent CCC) was null and
void.38 Petitioners claim that Dulos Realty was no longer the owner
of the properties it had mortgaged at the time of the execution of the
mortgage contract, as they were sold under existing Contracts to
Sell and Deed of Absolute Sale.39
Petitioners Cahayag, Rivera and Escalona lean on the unregistered
Contracts to Sell they had individually executed with Dulos Realty
as vendor. For his part, petitioner Baldoza points to the Deed of
Absolute Sale executed by Dulos Realty in his favor.
Better Right over the Properties
Petitioners claim that respondent CCC cannot claim to be a
mortgagee in good faith, since it is a financial institution.40 As such,
respondent CCC knew that it was dealing with a subdivision
developer, which was in the business of selling subdivision
lots.41 Dela Merced v. GSIS42 which states that the general rule that
a mortgagee need not look beyond the title cannot benefit banks
and other financial institutions, as a higher due diligence
requirement is imposed on them.
They also raise the contention that lack of full payment of the
purchase price under the Contracts to Sell on the part of Cahayag,
Rivera and Escalona was due to respondent Qua's "harassment
and unlawful actuations.43
Petitioners further state that respondent Qua is a mere transferee of
respondent CCC and that, like a stream, she cannot rise higher
than her source. They also argue that Qua is not an innocent
purchaser for value, since she is a former investor of respondent
CCC and one of its principal stockholders.44
No Prior Written HLURB Approval of
the Mortgage
Finally, petitioners allege that the mortgage contract in this case
was not approved by the BLURB, which violates Section 18 of P.D.
45 46
957 and results in the nullity of the mortgage.
Exhibit "L" as Evidence of a Prior
Contract to Sell
The matter of CA ignoring Exhibit "L" as evidence of a prior
unregistered Contract to Sell was not included in the Memoranda of
petitioners.
THE ISSUES
Based on the foregoing facts and arguments raised by petitioners,
the threshold issues to be resolved are the following:
1. Whether the real mortgage covers the lands only, as
enumerated in the Deed of Real Estate Mortgage or the
housing units as well;
2. Whether Dulos Realty was the owner of the properties
it had mortgaged at the time of its execution in view of the
various Contracts to Sell and Deed of Absolute Sale
respectively executed in favor of petitioners Cahayag,
Rivera, Escalona and Cahayag;
3. Who, as between petitioners-buyers and respondent
Qua, has a better right over the properties?
4. Whether the Deed of Absolute Sale in favor of Baldoza
was not preceded by a Contract to Sell and full payment
of the purchase price; and
5. Whether the mortgage is void on the ground that it
lacked the prior written approval of the HLURB.
OUR RULING
We deny the Petition for reasons as follows.
1. Attack on the Subject-matter of
the Real Estate Mortgage
It is true that the List of Properties attached to the Deed of Real
Estate Mortgage refers merely to the lands themselves and does
not include the housing units found thereon. A plain reading of the
Real Estate Mortgage, however, reveals that it covers the housing
units as well. We quote the pertinent provision of the agreement:
[T]he MORTGAGOR has transferred and conveyed and, by these
presents, do hereby transfer and convey by way of FIRST
MORTGAGE unto the MORTGAGEE, its successors and assigns
the real properties described in the list appearing at the back of this
document and/or in a supplemental document attached hereto as
Annex "A" and made and integral part hereof, together with all the
buildings and/or other improvements now existing or which
may hereafter be place[d] or constructed thereon, all of which
the MORTGAGOR hereby warrants that he is the absolute owner
and exclusive possessor thereof, free from all liens and
encumbrances of whatever kind and nature. xxx.47 (Emphasis Ours)
Thus, the housing units would fall under the catch-all
phrase "together with all the buildings and/or other
improvements now existing or which may hereafter be placed
or constructed thereon."
The contra proferentem rule finds no application to this case. The
doctrine provides that in the interpretation of documents,
ambiguities are to be construed against the drafter.48 By its very
nature, the precept assumes the existence of an ambiguity in the
contract, which is why contra proferentem is also called the
ambiguity doctrine.49 In this case, the Deed of Real Estate
Mortgage clearly establishes that the improvements found on the
real properties listed therein are included as subject-matter of the
contract. It covers not only the real properties, but the buildings and
improvements thereon as well.
2. Challenge to the Foreclosure
Sale with Regard to the
Ownership of the Mortgaged
Properties
To begin with, the Contracts to Sell and Deed of Absolute Sale
could not have posed an impediment at all to the mortgage, given
that these contracts had yet to materialize when the mortgage was
constituted. They were all executed after the constitution of the
Real Estate Mortgage on 20 December 1980.
As regards Cahayag, the Contract to Sell in his favor was executed
on 29 March 1981, more than three months after the execution of
the mortgage contract.50 This is taken from the Contract to Sell
itself, which forms part of the records of this case.51
At this juncture, we note that the CA, for reasons unknown,
specified 29 September 1980,52 and not 29 March 1981, as the date
of the execution of the Contract to Sell in its Decision. Respondent
Qua has raised this point in her Memorandum filed with us. This
Court cannot be bound by the factual finding of the CA with regard
to the date of the Contract to Sell in favor of Cahayag. The general
rule that the Court is bound by the factual findings of the CA must
yield in this case, as it falls under one of the exceptions: when the
findings of the CA are contradicted by the evidence on record.53 In
Page 5 of 37
this case, there is nothing in the records to support the CA's
conclusion that the Contract to Sell was executed on 29 September
1980. The evidence on record, however, reveals that the correct
date is 29 March 1981.
In the case of petitioner Rivera, the corresponding Contract to Sell
in his favor was executed only on 12 August 1981, or almost eight
months after the perfection of the mortgage contract on 20
December 1980.
Lastly, Dulos Realty executed the Deed of Absolute Sale in favor of
petitioner Baldoza on 10 December 1983, which was almost three
years from the time the mortgage contract was executed on 20
December 1980.
There was neither a contract to sell nor a deed of absolute sale to
speak of when the mortgage was executed.
Petitioners equate a contract to sell to a contract of sale, in which
the vendor loses ownership over the property upon its
delivery.54 But a contract to sell, standing alone, does not transfer
ownership.55 At the point of perfection, the seller under a contract to
sell does not even have the obligation to transfer ownership to the
buyer.56 The obligation arises only when the buyer fulfills the
condition: full payment of the purchase price.57 In other words, the
seller retains ownership at the time of the execution of the contract
to sell.58
There is no evidence to show that any of petitioners Cahayag,
Rivera and Escalona were able to effect full payment of the
purchase price, which could have at least given rise to the
obligation to transfer ownership. Petitioners Cahayag and Rivera
even admit that they defaulted on their obligations under their
respective Contracts to Sell, although they attribute the default to
respondent Qua's "harassment and unlawful actuations."59 The
statement, though, was a mere allegation that was left
unsubstantiated and, as such, could not qualify as proof of
anything.60
3. Who Has a Better Right over the Properties
Registration of the mortgage hound the buyers under the
Contracts to Sell
Registration of the mortgage establishes a real right or lien in favor
of the mortgagee, as provided by Articles 131261 and 212662 of the
Civil Code.63 Corollary to the rule, the lien has been treated as
"inseparable from the property inasmuch as it is a right in rem."64 In
other words, it binds third persons to the mortgage.
The purpose of registration is to notify persons other than the
parties to the contract that a transaction concerning the property
was entered into.65 Ultimately, registration, because it provides
constructive notice to the whole world, makes the certificate of title
reliable, such that third persons dealing with registered land need
only look at the certificate to determine the status of the property.66
In this case, the Real Estate Mortgage over the property was
registered on 3 February 1981. On the other hand, the Contracts to
Sell were all executed after the registration of the mortgage. The
Contract to Sell in favor of petitioner Cahayag was executed on 29
March 1981, or almost two months after the registration of the
mortgage. The corresponding Contract to Sell in favor of Rivera
was executed only on 12 August 1981, roughly six months after the
registration of the mortgage contract. Lastly, the Contract to Sell in
favor of Escalona was executed on 13 January 1983, or nearly two
years after the registration of the mortgage on 3 February 1981.
Consequently, petitioners Cahayag, Rivera and Escalona, were
bound to the mortgage executed between mortgagor Dulos Realty
and mortgagee CCC, by virtue of its registration. Definitely, the
buyers each had constructive knowledge of the existence of the
mortgage contract when they individually executed the Contracts to
Sell.
Dela Merced v. GSIS not applicable
Petitioner invokes the above case. Dela Merced involved a clash
between an unrecorded contract to sell and a registered mortgage
contract. The contract to sell between the mortgagors (Spouses
Zulueta) and the buyer (Francisco Dela Merced) was
executed before the former's constitution of the mortgage in favor
of GSIS. Because the Zuluetas defaulted on their loans, the
mortgage was foreclosed; the properties were sold at public auction
to GSIS as the highest bidder; and the titles were consolidated after
the spouses' failure to redeem the properties within the one-year
redemption period. GSIS later sold the contested lot to Elizabeth D.
Manlongat and Ma. Therese D. Manlongat. However, Dela Merced
was able to fully pay the purchase price to Spouses Zulueta,
who executed a Deed of Absolute Sale in his favor prior to the
foreclosure sale.
This Court stated therein the general rule that the purchaser is not
required to go beyond the Torrens title if there is nothing therein to
indicate any cloud or vice in the ownership of the property or any
encumbrance thereon. The case nonetheless provided an
exception to the general rule. The exception arises when the
purchaser or mortgagee has knowledge of a defect in the vendor's
title or lack thereof, or is aware of sufficient facts to induce a
reasonably prudent person to inquire into the status of the property
under litigation. The Court applied the exception, taking into
consideration the fact that GSIS, the mortgagee, was a financing
institution.
But Dela Merced is not relevant here. Dela Merced involved a
Contract to Sell that was executed prior to the mortgage, while the
Contracts to Sell in this case were all executed after the constitution
and registration of the mortgage.
In Dela Merced, since GSIS had knowledge of the contract to sell,
this knowledge was equivalent to the registration of the Contract to
Sell. Effectively, this constitutes registration canceled out the
subsequent registration of the mortgage. In other words, the buyer
under the Contract to Sell became the- first to register. Following
the priority in time rule in civil law, the lot buyer was accorded
preference or priority in right in Dela Merced.
In this case, the registration of the mortgage, which predated the
Contracts to Sell, already bound the buyers to the mortgage.
Consequently, the determination of good faith does not come into
play.
Dela Merced materially differs from this case on another point. The
Contract to Sell in favor of Dela Merced was followed by full
payment of the price and execution of the Deed of Absolute
Sale. In this case, the Contract to Sell in favor of each of petitioners
Cahayag, Rivera and Escalona, is not coupled with full payment
and execution of a deed of absolute sale.
This case also needs to be distinguished from Luzon Development
Bank v. Enriquez.67 In that case, the unregistered Contract to Sell
was executed after the execution of the mortgage. Instead of
resorting to foreclosure, the owner/developer and the bank entered
into a dacion en pago. The Court declared that the bank was bound
by the Contract to Sell despite the non-registration of the contract. It
reasoned that the bank impliedly assumed the risk that some of the
units might have been covered by contracts to sell. On the other
hand, the Court pronounced the mortgage to be void, as it was
without the approval of the Housing and Land Use Regulatory
Board (HLURB). The Court consequently ordered the unit buyer in
that case to pay the balance to the bank, after which the buyer was
obliged to deliver a clean title to the property.
There are points of distinction between the case at bar and Luzon
Development Bank. First, there is a definite finding in Luzon
Development Bank that the mortgage was without prior HLURB
approval, rendering the mortgage void. In the present case, as will
be discussed later, there is no proof from the records on whether
the HLURB did or did not approve the mortgage. Second, Luzon
Development Bank did not even reach the foreclosure stage of the
mortgage. This case, however, not only reached the foreclosure
stage; it even went past the redemption period, consolidation of the
title in the owner, and sale of the property by the highest bidder to a
third person.
The first distinction deserves elaboration. The absence of prior
written approval of the mortgage by the HLURB rendered it void.
This effectively wiped out any discussion on whether registration
bound the installment buyer. In fact, Luzon Development Bank did
not even bother to state whether the mortgage was registered or
not. More important, the tables were turned when Luzon
Development Bank held that the bank was bound to the Contract to
Sell in view of the latter's constructive notice of the Contract to Sell.
Stated differently, the actually unregistered Contract to Sell became
fictionally registered, making it binding on the bank.
In this case, on account of its registration, and the fact that the
contracts were entered into after it, the mortgage is valid even as to
petitioners.
No Redemption within One Year from the Foreclosure Sale
When it comes to extrajudicial foreclosures, the law 68 grants
mortgagors or their successors-in-interest an opportunity to redeem
the property within one year from the date of the sale. The one-year
period has been jurisprudentially held to be counted from the
registration of the foreclosure sale with the Register of Deeds. 69 An
Page 6 of 37
exception to this rule has been carved out by Congress for juridical
mortgagors. Section 47 of the General Banking Law of 2000
shortens the redemption period to within three months after the
foreclosure sale or until the registration of the certificate of sale,
whichever comes first.70 The General Banking Law of 2000 came
into law on 13 June 2000.
If the redemption period expires and the mortgagors or their
successors-in-interest fail to redeem the foreclosed property, the
title thereto is consolidated in the purchaser.71 The consolidation
confirms the purchaser as the owner of the property; concurrently,
the mortgagor-for failure to exercise the right of redemption within
the period-loses all interest in the property.72
We now apply the rules to this case.
As the foreclosure sale took place prior to the advent of the General
Banking Law of 2000, the applicable redemption period is one year.
In this case, because the Certificate of Sale in favor of respondent
CCC was registered on 8 March 1982, the redemption period was
until 8 March 1983. It lapsed without any right of redemption having
been exercised by Dulos Realty. Consequently, the right of
respondent CCC, as purchaser of the subject lots, became
absolute. As a matter of right, it was entitled to the consolidation of
the titles in its name and to the possession of those lots. Further,
the right of respondent CCC over the lots was transferred to
respondent Qua by virtue of the Deed of Sale executed between
them.
Given the foregoing considerations, respondent Qua, who now has
title to the properties subject of the various Contracts to Sell, is the
lawful owner thereof.
Foreclosure Sale vs. Contract of Sale
When Dulos Realty executed a Deed of Absolute Sale covering the
real property registered under TCT No. S-39778 in favor of
petitioner Baldoza on 10 December 1983, it was no longer the
owner of the property. Titles to the subject properties, including the
one sold to Baldoza, had already been consolidated in favor of
respondent CCC as early as 10 November 1983. In fact, on the
same date, the titles to the subject lots in the name of Dulos Realty
had already been cancelled and new ones issued to respondent
CCC.
The fact that Dulos Realty was no longer the owner of the real
property at the time of the sale led the CA to declare that the
Contract of Sale was null and void. On this premise, the appellate
court concluded that respondent Qua had a better title to the
property over petitioner Baldoza.
We find no error in the conclusion of the CA that respondent Qua
has a better right to the property. The problem lies with its
reasoning. We therefore take a different route to reach the same
conclusion.
Proper place of nemo dat quod non habet in the Law on Sales
Undeniably, there is an established rule under the law on sales that
one cannot give what one does not have (Nemo dat quad non ha
bet).73 The CA, however, confuses the application of this rule with
respect to time. It makes the nemo dat quad non habet rule a
requirement for the perfection of a contract of sale, such that a
violation thereof goes into the validity of the sale. But the Latin
precept has been jurisprudentially held to apply to a contract of sale
at its consummation stage, and not at the perfection stage.74
Cavite Development Bank v. Spouses Syrus Lim75 puts nemo dat
quad non habet in its proper place.1âwphi1 Initially, the Court rules
out ownership as a requirement for the perfection of a contract of
sale. For all that is required is a meeting of the minds upon the
object of the contract and the price. The case then proceeds to give
examples of the rule. It cites Article 1434 of the Civil Code, which
provides that in case the seller does not own the subject matter of
the contract at the time of the sale, but later acquires title to the
thing sold, ownership shall pass to the buyer. The Court also refers
to the rule as the rationale behind Article 1462, which deals with
sale of "future goods."
Cavite Development Bank thereafter turns to Article 1459, which
requires ownership by the seller of the thing sold at the time of
delivery or consummation stage of the sale. The Court explains
that if the rule were otherwise, the seller would not be able to
comply with the latter's obligation to transfer ownership to the buyer
under a perfected contract of sale. The Court ends the discourse
with the conclusion that "[i]t is at the consummation stage where the
76
principle of nemo dat quad non habet applies.
Case law also provides that the fact th,at the seller is not the owner
of the subject matter of the sale at the time of perfection does not
make the sale void.77
Hence, the lesson: for title to pass to the buyer, the seller must be
the owner of the thing sold at the consummation stage or at the
time of delivery of the item sold. The seller need not be the owner at
the perfection stage of the contract, whether it is of a contract to sell
or a contract of sale. Ownership is not a requirement for a valid
contract of sale; it is a requirement for a valid transfer of ownership'.
Consequently, it was not correct for the CA to consider the contract
of sale void. The CA erroneously considered lack of ownership on
the part of the seller as having an effect on the validity of the sale.
The sale was very much valid when the Deed of Absolute Sale
between the parties was executed on 10 December 1983, even
though title to the property had earlier been consolidated in favor of
respondent CCC as early as 10 November 1983. The fact that
Dulos Realty was no longer the owner of the property in question at
the time of the sale did not affect the validity of the contract.
On the contrary, lack of title goes into the performance of a
contract of sale. It is therefore crucial to determine in this case if the
seller was the owner at the time of delivery of the object of the sale.
For this purpose, it should be noted that execution of a public
instrument evidencing a sale translates to delivery.78 It transfers
ownership of the item sold to the buyer.79
In this case, the delivery coincided with the perfection of the
contract -The Deed of Absolute Sale covering the real property in
favor of petitioner Baldoza was executed on 10 December 1983. As
already mentioned, Dulos Realty was no longer the owner of the
property on that date. Accordingly, it could not have validly
transferred ownership of the real property it had sold to petitioner.
Thus, the correct conclusion that should be made is that while there
was a valid sale, there was no valid transfer of title to Baldoza,
since Dulos Realty was no longer the owner at the time of the
execution of the Deed of Absolute Sale.
No Bad Faith on Qua
The contention that Qua is a stockholder and former member of the
Board of Directors of respondent CCC and therefore she is not
exactly a stranger to the affairs of CCC is not even relevant.
An innocent purchaser for value is one who "buys the property of
another without notice that some other person has a right to or
interest in it, and who pays a full and fair price at the time of the
purchase or before receiving any notice of another person's
80
claim." The concept thus presupposes that there must be an
adverse claim or defect in the title to the property to be purchased
by the innocent purchaser for value.
Respondent Qua traces her title to respondent CCC, whose
acquisition over the property proceeded from a foreclosure sale that
was valid. As there is no defect in the title of respondent CCC to
speak of in this case, there is no need to go into a discussion of
whether Qua is an innocent purchaser for value.
4. Dispute as to the Factual Finding of the CA that the Deed of
Absolute Sale in Favor of Baldoza was not Preceded by a
Contract to Sell and Full Payment of the Purchase Price
We absolutely discard the argument. We can think of at least four
reasons why. First, Exhibit "L" was not formally offered in
evidence. Second, it was not even incorporated into the
records. Third, the argument is irrelevant. Fourth, it was even
abandoned in the Memoranda filed by petitioners with us. Last, we
are not a trier of facts and thus we yield to the finding of the CA.
Exhibit "L" not formally offered
A perusal of the records shows that the Contract to Sell that
Baldoza referred to had in fact been marked as Exhibit "L" during
her direct examination in court.81 Even so, Exhibit "L" was never
formally offered as evidence. For this reason, we reject her
contention. Courts do not consider evidence that has not been
formally offered.82 This explains why the CA never mentioned the
alleged Contract to Sell in favor of Baldoza.
The rationale behind the rule rests on the need for judges to confine
their factual findings and ultimately their judgment solely and strictly
to the evidence offered by the parties to a suit.83 The rule has a
threefold purpose. It allows the trial judge to know the purpose of
the evidence presented; affords opposing parties the opportunity to
examine the evidence and object to its admissibility when
necessary; and facilitates review, given that an appellate court does
not have to review documents that have not been subjected to
scrutiny by the trial court.84
Exhibit "L" not incorporated into the records
Page 7 of 37
The rule, of course, admits an exception. Evidence not formally
offered may be admitted and considered by the trial court so long
as the following requirements obtain: (1) the evidence is
duly identified by testimony duly recorded; and (2) the evidence
is incorporated into the records of the case.
The exception does not apply to the case of Baldoza. While she
duly identified the Contract to Sell during her direct examination,
which was duly recorded, Exhibit "L" was not incorporated into the
records.
Exhibit "L" not relevant
Be that as it may, the contention that a Contract to Sell in favor of
Baldoza preceded the sale in her favor is irrelevant. It must be
stressed that the sale to Baldoza made by Dulos Realty took
place after the lapse of the redemption period and after
consolidation of title in the name of respondent CCC on 10
November 1983, one month prior to the sale to Baldoza on 10
December 1983. Dulos Realty still would have lost all interest over
the property mortgaged.
The fact that Dulos Realty ceased to be the owner of the property
and therefore it could no longer effect delivery of the property at the
time the Deed of Absolute Sale in favor of Baldoza was executed is
the very reason why the case of Baldoza cannot be compared
with Dela Merced. In the case, the buyer in the Contract to Sell was
able to effect full payment of the purchase price and to execute a
Deed of Absolute Sale in his favor before the foreclosure sale. In
this case, the full payment of the purchase price and the execution
of a Deed of Absolute Sale in favor of Baldoza was done after the
foreclosure sale.
Issue over Exhibit "L" not included in the Memorandum
Equally important is the fact that petitioners failed to include the
issue over Exhibit "L" in any of the Memoranda they filed with us.
The omission is fatal. Issues raised in previous pleadings but
not included in the memorandum are deemed waived or
abandoned (A.M. No. 99-2-04-SC). As they are "a summation of
the parties' previous pleadings, the memoranda alone may be
considered by the Court in deciding or resolving the
petition."85 Thus, even as the issue was raised in the Petition, the
Court may not consider it in resolving the case on the ground of
failure of petitioners to include the issue in the Memorandum. They
have either waived or abandoned it.
5. Issue of HLURB's Non-Approval of the Mortgage
Petitioners allege before the Court that the mortgage contract in this
case was not approved by the HLURB. They claim that this violates
Section 18 of P.D. 95786 and results in the nullity of the mortgage.
Respondents have disputed the claim and counter-argue that the
allegation of the petitioners is not supported by evidence.
Respondents likewise aver that the argument was raised for the first
time on appeal.87
It is rather too late in the day for petitioners to raise this argument.
Parties are not permitted to change their theory of a case at the
appellate stage.88 Thus, theories and issues not raised at the trial
level will not be considered by a reviewing court on the ground that
they cannot be raised for the first time on appeal.89 Overriding
considerations of fair play, justice and due process dictate this
recognized rule.90 This Court cannot even receive evidence on this
matter.
Petitioners' original theory of the case is the nullity of the mortgage
on the grounds previously discussed. If petitioners are allowed to
introduce their new theory, respondents would have no more
opportunity to rebut the new claim with contrary evidence, as the
trial stage has already been terminated. In the interest of fair play
and justice, the introduction of the new argument must be barred.91
Exceptions Not Applicable
The Court is aware that the foregoing is merely a general rule.
Exceptions are written in case law: first, an issue of jurisdiction may
be raised at any time, even on appeal, for as long as the exercise
thereof will not result in a mockery of the demands of fair
play;92 second, in the interest of justice and at the sound discretion
of the appellate court, a party may be allowed to change its legal
theory on appeal, but only when the factual bases thereof would not
require further presentation of evidence by the adverse party for the
purpose of addressing the issue raised in the new
theory;93 and last, which is actually a bogus exception, is when the
question falls within the issues raised at the trial court.94
The exceptions do not apply to the instant case. The new argument
offered in this case concerns a factual matter - prior approval by the
HLURB. This prerequisite is not in any way related to jurisdiction,
and so the first exception is not applicable. There is nothing in the
record to allow us to make any conclusion with respect to this new
allegation.
Neither will the case fall under the second exception. Evidence
would be required of the respondents to disprove the new allegation
that the mortgage did not have the requisite prior HLURB approval.
Besides, to the mind of this court, to allow petitioners to change
their theory at this stage of the proceedings will be exceedingly
inappropriate.
Petitioners raised the issue only after obtaining an unfavorable
judgment from the CA. Undoubtedly, if we allow a change of theory
late in the game, so to speak, we will unjustifiably close our eyes to
the fundamental right of petitioners to procedural due process. They
will lose the opportunity to meet the challenge, because trial has
already ended. Ultimately, we will be throwing the Constitutional
rulebook out the window.
WHEREFORE, premises considered, the Petitions are DENIED,
and the Court of Appeals Decision dated 2 November 2004 and
Resolution dated 10 May 2005 in CA-G.R. CV No. 47421 are
hereby AFFIRMED.
SO ORDERED.
CASE 3 (1460)
HEIRS OF JUAN SAN ANDRES (VICTOR S. ZIGA) and
SALVACION S. TRIA, Petitioners, v. VICENTE
RODRIGUEZ, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision of the Court
of Appeals 1 reversing the decision of the Regional Trial Court,
Naga City, Branch 19, in Civil Case No. 87-1335, as well as the
appellate court’s resolution denying reconsideration.
The antecedent facts are as follows:
Juan San Andres was the registered owner of Lot No. 1914-B-2
situated in Liboton, Naga City. On September 28, 1964, he sold a
portion thereof, consisting of 345 square meters, to respondent
Vicente S. Rodriguez for P2,415.00. The sale is evidenced by a
Deed of Sale. 2
Upon the death of Juan San Andres on May 5, 1965, Ramon San
Andres was appointed judicial administrator of the decedent’s
estate in Special Proceedings No. R-21, RTC, Branch 19, Naga
City. Ramon San Andres engaged the services of a geodetic
engineer, Jose Penero, to prepare a consolidated plan (Exh. A) of
the estate. Engineer Penero also prepared a sketch plan of the 345-
square meter lot sold to Respondent. From the result of the survey,
it was found that respondent had enlarged the area which he
purchased from the late Juan San Andres by 509 square meters. 3
Accordingly, the judicial administrator sent a letter, 4 dated July 27,
1987, to respondent demanding that the latter vacate the portion
allegedly encroached by him. However, respondent refused to do
so, claiming he had purchased the same from the late Juan San
Andres. Thereafter, on November 24, 1987, the judicial
administrator brought an action, in behalf of the estate of Juan San
Andres, for recovery of possession of the 509-square meter lot.
In his Re-amended Answer filed on February 6, 1989, respondent
alleged that apart from the 345-square meter lot which had been
sold to him by Juan San Andres on September 28, 1964, the latter
likewise sold to him the following day the remaining portion of the
lot consisting of 509 square meters, with both parties treating the
two lots as one whole parcel with a total area of 854 square meters.
Respondent alleged that the full payment of the 509-square meter
lot would be effected within five (5) years from the execution of a
formal deed of sale after a survey is conducted over said property.
He further alleged that with the consent of the former owner, Juan
San Andres, he took possession of the same and introduced
improvements thereon as early as 1964.
As proof. of the sale to him of 509 square meters, respondent
Page 8 of 37
attached to his answer a receipt (Exh. 2) 5 signed by the late Juan
San Andres, which reads in full as follows:
Received from Vicente Rodriguez the sum of Five Hundred
(P500.00) Pesos representing an advance payment for a residential
lot adjoining his previously paid lot on three sides excepting on the
frontage svith the agreed price of Fifteen (15.00) Pesos per square
meter and the payment of the full consideration based on a survey
shall be due and payable in five (5) years period from the execution
of the formal deed of sale; and it is agreed that the expenses of
survey and its approval by the Bureau of Lands shall be borne by
Mr. Rodriguez.
Naga City, September 29, 1964.
(Sgd.)
JUAN R. SAN ANDRES
Vendor
Noted:
(Sgd.)
VICENTE RODRIGUEZ
Vendee
Respondent also attached to his answer a letter of judicial
administrator Ramon San Andres (Exh. 3), 6 asking payment of the
balance of the purchase price. The letter reads:
Dear Inting,
Please accommodate my request for Three Hundred (P300.00) Pesos as I
am in need of funds as I intimated to you the other day.
We will just adjust it with whatever balance you have payable to the
subdivision.
Thanks.
Sincerely,
(Sgd.)
RAMON SAN ANDRES
Vicente Rodriguez
Penafrancia Subdivision, Naga City
P.S.
You can let bearer Enrique del Castillo sign for the amount.
Received One Hundred Only
(Sgd.)
RAMON SAN ANDRES
3/30/66
Respondent deposited in court the balance of the purchase price
amounting to P7,035.00 for the aforesaid 509-square meter lot.
While the proceedings were pending, judicial administrator Ramon
San Andres died and was substituted by his son Ricardo San
Andres. On the other hand, respondent Vicente Rodriguez died on
August 15, 1989 and was substituted by his heirs. 7
Petitioner, as plaintiff, presented two witnesses. The first witness,
Engr. Jose Peñero, 8 testified that based on his survey conducted
sometime between 1982 and 1985, respondent had enlarged the
area which he purchased from the late Juan San Andres by 509
square meters belonging to the latter’s estate. According to Peñero,
the titled property (Exh. A-5) of respondent was enclosed with a
fence with metal holes and barbed wire, while the expanded area
was fenced with barbed wire and bamboo and light materials.
The second witness, Ricardo San Andres, 9 administrator of the
estate, testified that respondent had not filed any claim before
Special Proceedings No. R-21 and denied knowledge of Exhibits 2
and 3. However, he recognized the signature in Exhibit 3 as similar
to that of the former administrator, Ramon San Andres. Finally, he
declared that the expanded portion occupied by the family of
respondent is now enclosed with barbed wire fence unlike before
where it was found without fence.
On the other hand, Bibiana B. Rodriguez, 10 widow of respondent
Vicente Rodriguez, testified that they had purchased the subject lot
from Juan San Andres, who was their compadre, on September 29,
1964, at P15.00 per square meter. According to her, they gave
P500.00 to the late Juan San Andres who later affixed his signature
to Exhibit 2. She added that on March- 30, 1966, Ramon San
Andres wrote them a letter asking for P300.00 as partial payment
for the subject lot, but they were able to give him only P100.00. She
added that they had paid the total purchase price of P7,035.00 on
November 21, 1988 by depositing it in court. Bibiana B. Rodriquez
stated that they had been in possession of the 509-square meter lot
since 1964 when the late Juan San Andres signed the receipt. (Exh.
2) Lastly, she testified that they did not know at that time the exact
area sold to them because they were told that the same would be
known after the survey of the subject lot.
On September 20, 1994, the trial court 11 rendered judgment in
favor of petitioner. It ruled that there was no contract of sale to
speak of for lack of a valid object because there was no sufficient
indication in Exhibit 2 to identify the property subject of the sale,
hence, the need to execute a new contract.
Respondent appealed to the Court of Appeals, which on April 21,
1998 rendered a decision reversing the decision of the trial court.
The appellate court held that the object of the contract was
determinable, and that there was a conditional sale with the balance
of the purchase price payable within five years from the execution
of the deed of sale. The dispositive portion of its decision’s reads:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from
is hereby REVERSED and SET ASIDE and a new one entered
DISMISSING the complaint and rendering judgment against the
plaintiff-appellee:
1. to accept the P7,035.00 representing the balance of the
purchase price of the portion and which is deposited in court under
Official Receipt No. 105754 (page 122, Records);
2. to execute the formal deed of sale over the said 509 square
meter portion of Lot 1914-B-2 in favor of appellant Vicente
Rodriguez;
3. to pay the defendant-appellant the amount of P50,000.00 as
damages and P10,000.00 attorney’s fees as stipulated by them
during the trial of this case; and
4. to pay the costs of the suit.
SO ORDERED.
Hence, this petition. Petitioner assigns the following errors as
having been allegedly committed by the trial court:
I. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT
THE DOCUMENT (EXHIBIT "2") IS A CONTRACT TO SELL
DESPITE ITS LACKING ONE OF THE ESSENTIAL ELEMENTS
OF A CONTRACT, NAMELY, OBJECT CERTAIN AND
SUFFICIENTLY DESCRIBED.
II. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER IS OBLIGED TO HONOR THE PURPORTED
CONTRACT TO SELL DESPITE NON-FULFILLMENT BY
RESPONDENT OF THE CONDITION THEREIN OF PAYMENT OF
THE BALANCE OF THE PURCHASE PRICE.
III. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT
CONSIGNATION WAS VALID DESPITE NON-COMPLIANCE
WITH THE MANDATORY REQUIREMENTS THEREOF.
IV. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT
LACHES AND PRESCRIPTION DO NOT APPLY TO
RESPONDENT WHO SOUGHT INDIRECTLY TO ENFORCE THE
PURPORTED CONTRACT AFTER THE LAPSE OF 24 YEARS.
The petition has no merit.
First. Art. 1458 of the Civil Code provides:
By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.
As thus defined, the essential elements of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price;
b) Determinate subject matter; and,
c) Price certain in money or its equivalent. 12
Page 9 of 37

As shown in the receipt, dated September 29, 1964, the late Juan
San Andres received P500.00 from respondent as "advance
payment for the residential lot adjoining his previously paid lot on
three sides excepting on the frontage;" the agreed purchase price
was P15.00 per square meter; and the full amount of the purchase
price was to be based on the results of a survey and would be due
and payable in five (5) years from the execution of a deed of sale.
Petitioner contends, however, that the "property subject of the sale
was not described with sufficient certainty such that there is a
necessity of another agreement between the parties to finally
ascertain the identity, size and purchase price of the property which
is the object of the alleged sale." 13 He argues that the "quantity of
the object is not determinate as in fact a survey is needed to
determine its exact size and the full purchase price therefor." 14 In
support of his contention, petitioner cites the following provisions of
the Civil Code:
ARTICLE 1349. The object of every contract must be determinate
as to its kind. The fact that the quantity is not determinable shall not
be an obstacle to the existence of a contract, provided it is possible
to determine the same without the need of a new contract between
the parties.
ARTICLE 1460. . . . The requisite that a thing be determinate is
satisfied if at the time the contract is entered into, the thing is
capable of being made determinate without the necessity of a new
and further agreement between the parties.
Petitioner’s contention is without merit. There is no dispute that
respondent purchased a portion of Lot 1914-B-2 consisting of 345
square meters. This portion is located in the middle of Lot 1914-B-2,
which has a total area of 854 square meters, and is clearly what
was referred to in the receipt as the "previously paid lot." Since the
lot subsequently sold to respondent is said to adjoin the "previously
paid lot" on three sides thereof, the subject lot is capable of being
determined without the need of any new contract. The fact that the
exact area of these adjoining residential lots is subject to the result
of a survey does not detract from the fact that they are determinate
or determinable. As the Court of Appeals explained:
Concomitantly, the object of the sale is certain and determinate.
Under Article 1460 of the New Civil Code, a thing sold is
determinate if at the time the contract is entered into, the thing is
capable of being determinate without necessity of a new or further
agreement between the parties. Here, this definition finds
realizatlon.
Appellee’s Exhibit "A" (page 4, Records) affirmingly shows that the
original 345 sq. m. portion earlier sold lies at the middle of Lot 1914-
B-2 surrounded by the remaining portion of the said Lot 1914-B-2
on three (3) sides, in the east, in the west and in the north. The
northern boundary is a 12 meter road. Conclusively, therefore, this
is the only remaining 509 sq. m. portion of Lot 1914-B-2
surrounding the 345 sq. m. lot initially purchased by Rodriguez. It is
quite defined, determinate and certain. Withal, this is the same
portion adjunctively occupied and possessed by Rodriguez since
September 29, 1964, unperturbed by anyone for over twenty (20)
years until appellee instituted this suit.
Thus, all of the essential elements of a contract of sale are present,
i.e., that there was a meeting of the minds between the parties, by
virtue of which the late Juan San Andres undertook to transfer
ownership of and to deliver a determinate thing for a price certain in
money. As Art. 1475 of the Civil Code provides:
The contract of sale is perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and upon
the price . . .
That the contract of sale is perfected was confirmed by the former
administrator of the estates, Ramon San Andres, who wrote a letter
to respondent on March 30, 1966 asking for P300.00 as partial
payment for the subject lot. As the Court of Appeals observed:
Without any doubt, the receipt profoundly speaks of a meeting of
the mind between San Andres and Rodriguez for the sale of the
property adjoining the 345 square meter portion previously sold to
Rodriguez on its three (3) sides excepting the frontage. The price is
certain, which is P15.00 per square meter. evidently, this is a
perfected contract of sale on a deferred payment of the purchase
price. All the pre-requisite elements for a valid purchase transaction
are present. Sale does not require any formal document for its
existence and validity. And delivery of possession of land sold is a
consummation of the sale (Galar v. Husain, 20 SCRA 186 [1967]).
A private deed of sale is a valid contract between the parties
(Carbonell v. CA, 69 SCRA 99 [1976D.
In the same vein, after the late Juan R. San Andres received the
P500.00 downpayment on March 30, 1966, Ramon R. San Andres
wrote a letter to Rodriguez and received from Rodriguez the
amount of P100.00 (although P300.00 was being requested)
deductible from the purchase price of the subject portion. Enrique
del Castillo, Ramon’s authorized agent, correspondingly signed the
receipt for the P100.00. Surely, this is explicitly a veritable proof of
the sale over the remaining portion of Lot 1914-B-2 and a
confirmation by Ramon San Andres of the existence thereof. 16
There is a need, however, to clarify what the Court of Appeals said
is a conditional contract of sale. Apparently, the appellate court
considered as a "condition" the stipulation of the parties that the full
consideration, based on a survey of the lot, would be due and
payable within five (5) years from the execution of a formal deed of
sale. It is evident from the stipulations in the receipt that the vendor
Juan San Andres sold the residential lot in question to respondent
and undertook to transfer the ownership thereof to respondent
without any qualification, reservation or condition. In Ang Yu
Asuncion v. Court of Appeals, 17 we held:
In Dignos v. Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or
unless the price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (e.g., by the execution of
a public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of the
condition would prevent such perfection. If the condition is imposed
on the obligation of a party which is not fulfilled, the other party may
either waive the condition or refuse to proceed with the sale. (Art.
1545, Civil Code).
Thus, in one case, when the sellers declared in a "Receipt of Down
Payment" that they received an amount as purchase price for a
house and lot without any reservation of title until full payment of the
entire purchase price, the implication was that they sold their
property. 18 In People’s Industrial and Commercial Corporation v.
Court of Appeals, 19 it was stated:
A deed of sale is considered absolute in nature where there is
neither a stipulation in the deed that title to the property sold is
reserved in the seller until full payment of the price, nor one giving
the vendor the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period.
Applying these principles to this case, it cannot be gainsaid that the
contract of sale between the parties is absolute, not conditional.
There is no reservation of ownership nor a stipulation providing for
a unilateral rescission by either party. In fact, the sale was
consummated upon the delivery of the lot to Respondent. 20 Thus,
Art. 1477 provides that the ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery
thereof.
The stipulation that the "payment of the full consideration based on
a survey shall be due and payable in five (5) years from the
execution of a formal deed of sale" is not a condition which affects
the efficacy of the contract of sale. It merely provides the manner by
which the full consideration is to be computed and the time within
which the same is to be paid. But it does not affect in any manner
the effectivity of the contract. Consequently, the contention that the
absence of a formal deed of sale stipulated in the receipt prevents
the happening of a sale has no merit.
Second. With respect to the contention that the Court of Appeals
erred in upholding the validity of a consignation of P7,035.00
representing the balance of the purchase price of the lot, nowhere
in the decision of the appellate court is there any mention of
consignation. Under Art. 1257 of this Civil Code, consignation is
proper only in cases where an existing obligation is due. In this
case, however, the contracting parties agreed that full payment of
purchase price shall be due and payable within five (5) years from
the execution of a formal deed of sale. At the time respondent
deposited the amount of P7,035.00 in the court, no formal deed of
sale had yet been executed by the parties, and, therefore, the five-
year period during which the purchase price should be paid had not
commenced. In short, the purchase price was not yet due and
payable.
This is not to say, however, that the deposit of the purchase price in
Page 10 of 37
the court is erroneous. The Court of Appeals correctly ordered the
execution of a deed of sale and petitioners to accept the amount
deposited by Respondent.
Third. The claim of petitioners that the price of P7,035.00 is
iniquitous is untenable. The amount is based on the agreement of
the parties as evidenced by the receipt (Exh. 2). Time and again,
we have stressed the rule that a contract is the law between the
parties, and courts have no choice but to enforce such contract so
long as they are not contrary to law, morals, good customs or public
policy. Otherwise, courts would be interfering with the freedom of
contract of the parties. Simply put, courts cannot stipulate for the
parties nor amend the latter’s agreement, for to do so would be to
alter the real intentions of the contracting parties when the contrary
function of courts is to give force and effect to the intentions of the
parties.
Fourth. Finally, petitioners argue that respondent is barred by
prescription and laches from enforcing the contract. This contention
is likewise untenable. The contract of sale in this case is perfected,
and the delivery of the subject lot to respondent effectively
transferred ownership to him. For this reason, respondent seeks to
comply with his obligation to pay the full purchase price, but
because the deed of sale is yet to be executed, he deemed it
appropriate to deposit the balance of the purchase price in court.
Accordingly, Art. 1144 of the Civil Code has no application to the
instant case. 21 Considering that a survey of the lot has already
been conducted and approved by the Bureau of Lands,
respondent’s heirs, assigns or successors-in-interest should
reimburse the expenses incurred by herein petitioners, pursuant to
the provisions of the contract.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED
with the modification that respondent is ORDERED to reimburse
petitioners for the expenses of the survey.
SO ORDERED.
CASE 4 (1466)
[G.R. No. 102784. February 28, 1996.]
ROSA LIM, Petitioner, v. COURT OF APPEALS and PEOPLE OF
THE PHILIPPINES, Respondents.
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS
ARE OBLIGATORY IN WHATEVER FORM ENTERED; PLACE OF
SIGNATURE IMMATERIAL; PARTY BOUND THEREON THE
MOMENT SHE AFFIXED HER SIGNATURE. — Rosa Lim’s
signature indeed appears on the upper portion of the receipt
immediately below the description of the items taken. We find that
this fact does not have the effect of altering the terms of the
transaction from a contract of agency to sell on commission basis to
a contract of sale. Neither does it indicate absence or vitiation of
consent thereto on the part of Rosa Lim which would make the
contract void or voidable. The moment she affixed her signature
thereon, petitioner became bound by all the terms stipulated in the
receipt. She, thus, opened herself to all the legal obligations that
may arise from their breach. This is clear from Article 1356 of the
New Civil Code which provides: "Contracts shall be obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present." In the case before
us, the parties did not execute a notarial will but a simple contract of
agency to sell on commission basis, thus making the position of
petitioner’s signature thereto immaterial.
2. ID.; ID.; CONTRACT OF AGENCY; NO FORMALITIES
REQUIRED. — There are some provisions of the law which require
certain formalities for particular contracts. The first is when the form
is required for the validity of the contract; the second is when it is
required to make the contract effective as against the third parties
such as those mentioned in Articles 1357 and 1358; and the third is
when the form is required for the purpose of proving the existence
of the contract, such as those provided in the Statute of Frauds in
Article 1403. A contract of agency to sell on commission basis does
not belong to any of these three categories, hence, it is valid and
enforceable in whatever form it may be entered into.
3. REMEDIAL LAW; EVIDENCE; WEIGHT THEREOF NOT
DETERMINED BY SUPERIORITY IN NUMBERS OF WITNESSES.
— Weight of evidence is not determined mathematically by the
numerical superiority of the witnesses testifying to a given fact. It
depends upon its practical effect in inducing belief on the part of the
judge trying the case.
4. ID.; ID.; CREDIBILITY; FINDINGS OF THE TRIAL AND
APPELLATE COURTS GENERALLY NOT INTERFERED WITH
ON APPEAL. — In the case at bench, both the trial court and the
Court of Appeals gave weight to the testimony of Vicky Suarez that
she did not authorize Rosa Lim to return the pieces of jewelry to
Nadera. We shall not disturb this finding of the respondent court. It
is well settled that we should not interfere with the judgment of the
trial court in determining the credibility of witnesses, unless there
appears in the record some fact or circumstances of weight and
influence which has been overlooked or the significance of which
has been misinterpreted. The reason is that the trial court is in a
better position to determine questions involving credibility having
heard the witnesses and having observed their deportment and
manner of testifying during the trial.
DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in
CA-G.R. CR No. 10290, entitled "People v. Rosa Lim," promulgated
on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against
petitioner Rosa Lim before Branch 92 of the Regional Trial Court of
Quezon City. 1 The Information reads:
"That on or about the 8th day of October 1987 in Quezon City,
Philippines and within the jurisdiction of this Honorable Court, the
said accused with intent to gain, with unfaithfulness and/or abuse of
confidence, did, then and there, wilfully, unlawfully and feloniously
defraud one VICTORIA SUAREZ, in the following manner, to wit: on
the date and place aforementioned said accused got and received
in trust from said complainant one (1) ring 3 .35 solo worth
P169,000.00, Philippine Currency, with the obligation to sell the
same on commission basis and to turn over the proceeds of the
sale to said complainant or to return said jewelry if unsold, but the
said accused once in possession thereof and far from complying
with her obligation despite repeated demands therefor, misapplied,
misappropriated and converted the same to her own personal use
and benefit, to the damage and prejudice of the said offended party
in the amount aforementioned and in such other amount as may be
awarded under the provisions of the Civil Code"
"CONTRARY TO LAW." 2
After arraignment and trial on the merits, the trial court rendered
judgment, the dispositive portion of which reads:
"WHEREFORE, in view of the foregoing, judgment is hereby
rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of
the offense of estafa as defined and penalized under Article 315,
paragraph 1 (b) of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4)
YEARS and TWO (2) MONTHS of prision correccional as minimum,
to TEN (10) YEARS of prision mayor as maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez
the ring or its value in the amount of P169,000 without subsidiary
imprisonment in case insolvency; and
4. To pay costs." 3
On appeal, the Court of Appeals affirmed the Judgment of
conviction with the modification that the penalty imposed shall be
six (6) years, eight (8) months and twenty- one (21) days to twenty
(20) years in accordance with Article 315, paragraph 1 of the
Page 11 of 37
Revised Penal Code. 4
Petitioner filed a motion for reconsideration before the appellate
court on September 20, 1991, but the motion was denied in a
Resolution dated November 11 1991.
In her final bid to exonerate herself, petitioner filed the instant
petition for review alleging the following grounds:
I jewelry on commission basis. She told Mrs. Suarez that she would
THE RESPONDENT COURT VIOLATED THE CONSTITUTION,
THE RULES OF COURT AND THE DECISION OF THIS
HONORABLE COURT IN NOT PASSING UPON THE FIRST AND
THIRD ASSIGNED ERRORS IN PETITIONER’S BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE
THAT THE PAROL EVIDENCE RULE WAS WAIVED WHEN THE
PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER
AND AURELIA NADERA AND WHEN COMPLAINANT WAS
CROSS-EXAMINED BY THE COUNSEL FOR THE PETITIONER
AS TO THE TRUE NATURE OF THE AGREEMENT BETWEEN
THE PARTIES WHEREIN IT WAS DISCLOSED THAT THE TRUE
AGREEMENT OF THE, PARTIES WAS A SALE OF JEWELRIES
AND NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED
AS EXHIBIT "A" WHICH WAS RELIED UPON BY THE
RESPONDENT COURT IN AFFIRMING THE JUDGMENT OF
CONVICTION AGAINST HEREIN PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE
THE PRINCIPLE ENUNCIATED BY THIS HONORABLE COURT
TO THE EFFECT THAT "ACCUSATION" IS NOT, ACCORDING
TO THE FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT:
THE PROSECUTION MUST OVERTHROW THE PRESUMPTION
OF INNOCENCE WITH PROOF OF GUILT BEYOND
REASONABLE DOUBT. TO MEET THIS STANDARD, THERE IS
NEED FOR THE MOST CAREFUL SCRUTINY OF THE
TESTIMONY OF THE STATE, BOTH ORAL AND
DOCUMENTARY, INDEPENDENTLY OF WHATEVER DEFENSE
IS OFFERED BY THE ACCUSED. ONLY IF THE JUDGE BELOW
AND THE APPELLATE TRIBUNAL COULD ARRIVE AT A
CONCLUSION THAT THE CRIME HAD BEEN COMMITTED
PRECISELY BY THE PERSON ON TRIAL UNDER SUCH AN
EXACTING TEST SHOULD SENTENCE THUS REQUIRED THAT
EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE
PROOF AGAINST HIM MUST SURVIVE THE TEST OF REASON,
THE STRONGEST SUSPICION MUST NOT BE PERMITTED TO
SWAY JUDGMENT." (People v. Austria, 195 SCRA 700) 5
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come
from Cebu received from private respondent Victoria Suarez the
following two pieces of jewelry: one (l) 3.35 carat diamond ring
worth P169,000.00 and one (1) bracelet worth P170,000.00, to be
sold on commission basis. The agreement was reflected in a receipt
marked as Exhibit "A" 6 for the prosecution. The transaction took
place at the Sir Williams Apartelle in Timog Avenue, Quezon City,
where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky
Suarez, but failed to return the diamond ring or to turn over the
proceeds thereof if sold. As a result, private complainant, aside
from making verbal demands, wrote a demand letter 7 to petitioner
asking for the return of said ring or the proceeds of the sale thereof
In response, Petitioner, thru counsel, wrote a letter 8 to private
respondent’s counsel alleging that Rosa Lim had returned both ring
and bracelet to Vicky Suarez sometime in September, 1987, for
which reason, petitioner had no longer any liability to Mrs. Suarez
insofar as the pieces of jewelry were concerned. Irked, Vicky
Suarez filed a complaint for estafa under Article 315, par l(b) of the
Revised Penal Code for which the petitioner herein stands
convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu
sometime in October 1987, together with one Aurelia Nadera, who
introduced petitioner to private respondent, and that they were
lodged at the Williams Apartelle in Timog, Quezon City. Petitioner
denied that the transaction was for her to sell the two pieces of
consider buying the pieces of jewelry for her own use and that she
would inform the private complainant of such decision before she
goes back to Cebu. Thereafter, the petitioner took the pieces of
jewelry and told Mrs. Suarez to prepare the "necessary paper for
me to sign because I was not yet prepare (d) to buy it." 9 After the
document was prepared, petitioner signed it. To prove that she did
not agree to the terms of the receipt regarding the sale on
commission basis, petitioner insists that she signed the aforesaid
document on the upper portion thereof and not at the bottom where
a space is provided for the signature of the person(s) receiving the
jewelry. 10
On October 12, 1987 before departing for Cebu, petitioner called up
Mrs. Suarez by telephone in order to inform her that she was no
longer interested in the ring and bracelet. Mrs. Suarez replied that
she was busy at the time and so, she instructed the petitioner to
give the pieces of jewelry to Aurelia Nadera who would in turn give
them back to the private complainant. The petitioner did as she was
told and gave the two pieces of jewelry to Nadera as evidenced by
a handwritten receipt, dated October 12, 1987. 11
Two issues need to be resolved: First, what was the real transaction
between Rosa Lim and Vicky Suarez — a contract of agency to sell
on commission basis as set out in the receipt or a sale on credit;
and, second, was the subject diamond ring returned to Mrs. Suarez
through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she
never received the jewelries in trust or on commission basis from
Vicky Suarez. The real agreement between her and the private
respondent was a sale on credit with Mrs. Suarez as the owner-
seller and petitioner as the buyer, as indicated by the fact that
petitioner did not sign on the blank space provided for the signature
of the person receiving the jewelry but at the upper portion thereof
immediately below the description of the items taken. 12
The contention is far from meritorious
The receipt marked as Exhibit "A" which establishes a contract of
agency to sell on commission basis between Vicky Suarez and
Rosa Lim is herein reproduced in order to come to a proper
perspective:
"THIS IS TO CERTIFY, that I received from Vicky Suarez
PINATUTUNAYAN KO na aking tinanggap kay ____________ the
following jewelries: ang mga alahas na sumusunod:
Description Price
Mga Uri Halaga
1 ring 3.35 dolo P169.000.00
1 bracelet 70.000.00
total Kabuuan P339.000.00
in good condition, to be sold in CASH ONLY within . . . days from
date of signing this receipt na nasa mabuting kalagayan upang
ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng . . . araw
mula ng ating pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period
mentioned above, if I would be able to sell, I shall immediately
deliver and account the whole proceeds of sale thereof to the owner
of the jewelries at his/her residence; my compensation or
commission shall be the over-price on the value of each jewelry
quoted above. I am prohibited to sell any jewelry on credit or by
Page 12 of 37
installment, deposit, give for safekeeping; lend, pledge or give as
security or guaranty under any circumstance or manner, any jewelry
to other person or persons.’
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob
ng taning na panahong nakatala sa itaas; kung maipagbili ko
naman ay dagli kong isusulit at ibibigay ang buong pinagbilhan sa
may-ari ng mga alahas sa kanyang bahay tahanan; ang aking
gantimpala ay ang mapapahigit na halaga sa nakatakdang halaga
sa itaas ng bawat alahas HINDI ko ipinahihintulutang ipa-u-u-tang o
ibibigay na hulugan ang alin mang alahas, ilalagak, ipagkakatiwala,
ipahihiram; isasangla o ipananagot kahit sa anong paraan ang alin
mang alahas sa ibang mga tao o tao.’
I sign my name this . . . day of . . . 19 . . . at Maynila.
NILALAGDAAN ko ang kasunduang ito ngayong ika____ ng dito sa
Maynila.
___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)
Address: . . . . . . . . . . . ."cralaw virtua1aw library
Rosa Lim’s signature indeed appears on the upper portion of the
receipt immediately below the description of the items taken. We
find that this fact does not have the effect of altering the terms of
the transaction from a contract of agency to sell on commission
basis to a contract of sale. Neither does it indicate absence or
vitiation of consent thereto on the pan of Rosa Lim which would
make the contract void or voidable. The moment she affixed her
signature thereon, petitioner became bound by all the terms
stipulated in the receipt. She, thus, opened herself to all the legal
obligations that may arise from their breach. This is clear from
Article 1356 of the New Civil Code which provides:
"Contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity
are present.." . ."cralaw virtua1aw library
However, there are some provisions of the law which require certain
formalities for particular contracts. The first is when the form is
required for the validity of the contract; the second is when it is
required to make the contract effective as against third parties such
as those mentioned in Articles 1357 and 1358; and the third is when
the form is required for the purpose of proving the existence of the
contract, such as those provided in the Statute of Frauds in article
1403. 13 A contract of agency to sell on commission basis does not
belong to any of these three categories, hence it is valid and
enforceable in whatever form it may be entered into.
Furthermore, there is only one type of legal instrument where the
law strictly prescribes the location of the signature of the parties
thereto. This is in the case of notarial wills found in Article 805 of
the Civil Code, to wit:
"Every will, other than a holographic will, must be subscribed at the
end thereof by the testator himself . . .
The testator or the person requested by him to write his name and
the instrumental witnesses of the will, shall also sign, as aforesaid,
each and every page thereof, except the last, on the left margin . .
."cralaw virtua1aw library
In the case before us, the parties did not execute a notarial will but
a simple contract of agency to sell on commission basis, thus
making the position of petitioner’s signature thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned
to Vicky Suarez through Aurelia Nadera, thus relieving her of any
liability Rosa Lim testified to this effect on direct examination by her
counsel:
"Q: And when she left the jewelries with you, what did you do
thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky
through telephone and informed her that I am no longer interested
in the bracelet and ring and that l will just return it.
Q: And what was the reply of Vicky Suarez?
A: She told me that she could not come to the apartelle since she
was very busy. So, she asked me if Aurelia was there and when I
informed her that Aurelia was there, she instructed me to give the
pieces of jewelry to Aurelia who in turn will give it back to Vicky.
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
A: Yes, Your Honor." 14
This was supported by Aurelia Nadera in her direct examination by
petitioner’s counsel:
"Q: Do you know if Rosa Lim in fact returned the jewelries?
A: She gave the jewelries to me.
Q: Why did Rosa Lim give the jewelries to you?
A: Rosa Lim called up Vicky Suarez the following morning and told
Vicky Suarez that she was going home to Cebu and asked if she
could give the jewelries to me
Q: And when did Rosa Lim give to you the jewelries?
A: Before she left for Cebu." 15
On rebuttal, these testimonies were belied by Vicky Suarez herself:
"Q: It has been testified to here also by both Aurelia. Nadera and
Rosa Lim that you gave authorization to Rosa Lim to turn over the
two (2) pieces of jewelries mentioned in Exhibit "A" to Aurelia
Nadera, what can you say about that?
A: That is not true sir, because at that time Aurelia Nadera is highly
indebted to me in the amount of P140,000 00, so if I gave it to
Nadera, I will be exposing myself to a high risk." 16
The issue as to the return of the ring boils down to one of credibility.
Weight of evidence is not determined mathematically by the
numerical superiority of the witnesses testifying to a given fact. It
depends upon its practical effect in inducing belief on the part of the
judge trying the case. 17 In the case at bench, both the trial court
and the Court of Appeals gave weight to the testimony of Vicky
Suarez that she did not authorize Rosa Lim to return the pieces of
jewelry to Nadera. The respondent court, in affirming the trial court,
said:
". . . This claim (that the ring. had been returned to Suarez thru
Nadera) is disconcerting. It contravenes the very terms of Exhibit A
The instruction by the complaining witness to appellant to deliver
the ring to Aurelia Nadera is vehemently denied by the complaining
witness, who declared that she did not authorize and/or instruct
appellant to do so. And thus, by delivering the ring to Aurelia
without the express authority and consent of the complaining
witness, appellant assumed the right to dispose of the jewelry as if it
were hers, thereby committing conversion, a clear breach of trust,
punishable under Article 315, par. 1(b), Revised Penal Code.’
We shall not disturb this finding of the respondent court. It is well
settled that we should not interfere with the judgment of the trial
court in determining the credibility of witnesses, unless there
appears in the record some fact or circumstance of weight and
influence which has been overlooked or the significance of which
has been misinterpreted. The reason is that the trial court is in a
better position to determine questions involving credibility having
heard the witnesses and having observed their deportment and
manner of testifying during the trial. 18
Page 13 of 37
Article 315, par 1 (b) of the Revised Penal Code provides:
"ART. 315. Swindling (estafa). — Any person who shall defraud
another by any of the means mentioned hereinbelow shall be
punished by:
x x x conditions of this agreement, as well as
(b) By misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of or to
return the same, even though such obligation be totally or partially
guaranteed by a bond; or by denying having received such money,
goods, or other property.
x x x to the account of the contractor. All taxes shall be for the
The elements of estafa with abuse of confidence under this
subdivision are as follows: (1) That money? goods, or other
personal property be received by the offender in trust, or on
commission, or for administration, or under any other obligation
involving the duty to make delivery of, or to return, the same; (2)
That there be misappropriation or conversion of such money or
property by the offender or denial on his part of such receipt; (3)
That such misappropriation or conversion or denial is to the
prejudice of another; and (4) That there is a demand made by the
offended party to the offender (Note: The 4th element is not
necessary when there is evidence of misappropriation of the goods
by the defendant) 19
All the elements of estafa under Article 315, Paragraph 1 (b) of the
Revised Penal Code, are present in the case at bench. First, the
receipt marked as Exhibit "A" proves that petitioner Rosa Lim
received the pieces of jewelry in trust from Vicky Suarez to be sold
on commission basis. Second, petitioner misappropriated or
converted the jewelry to her own use; and, third, such
misappropriation obviously caused damage and prejudice to the
private Respondent.
WHEREFORE, the petition is DENIED and the Decision of the
Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
CASE 5 (1467)
G.R. No. 153033 June 23, 2005
DEL MONTE PHILIPPINES, INC., petitioner,
vs.
NAPOLEON N. ARAGONES, respondent.
DECISION
CARPIO-MORALES, J.:
The decision in the present Petition for Review on Certiorari hinges
on the nature of the contract denominated "Supply
Agreement"1 which was forged between Dynablock Enterprises,
represented by its Manager herein respondent Napoleon N.
Aragones (Aragones) and Mega-Engineering Services in joint
venture with WAFF Construction System Corporation (MEGA-
WAFF) — whether it was one of sale or for a piece of work.
On September 18, 1988, herein petitioner Del Monte Philippines
Inc. (DMPI) entered into an "Agreement"2 with MEGA-WAFF,
represented by "Managing Principal" Edilberto Garcia (Garcia),
whereby the latter undertook "the supply and installation of modular
pavement" at DMPI’s condiments warehouse at Cagayan de Oro
City within 60 calendar days from signing of the agreement.
To source its supply of concrete blocks to be installed on the
pavement of the DMPI warehouse, MEGA-WAFF, as
CONTRACTOR represented by Garcia, entered into a "Supply
Agreement" with Dynablock Enterprises, represented by herein
respondent Aragones, as SUPPLIER, under the following terms:
1. ITEMS TO BE SUPPLIED
The SUPPLIER at its own expense shall provide the
CONTRACTOR with labor and all materials, equipment,
tools and supplies necessary and incident thereto, the
required concrete blocks at the contractor’s specified
casting site, all in accordance with the terms and
the requirements of the project specifications and
provisions with respect to the fabrication of concrete
blocks.
2. PRICE
The CONTRACTOR will pay the supplier in consideration
for the full and total performance of the above
undertaking, inclusive of all applicable taxes, the unit
price of ₱7.00 per supplied and accepted piece. This
price is based on the assumption that the cost per bag of
premium cement is ₱54.00 and aggregate at ₱95.00 per
cu. m. Any increase of the above raw materials shall be
account of the contractor.
3. PLANT/EQUIPMENT
3.1 - The machines for the fabrication/casting
of the concrete blocks, including all necessary
equipment and accessories, shall be provided
by the SUPPLIER. The machines and
equipment shall be mobilized and made
operational at the specified casting
location/stockpiling yard designated and
provided by the CONTRACTOR.
3.2 - The SUPPLIER shall ensure that all plant
facilities/equipment must, at all times,
be accessible for inspection by the
representatives of the CONTRACTOR.
3.3 - The SUPPLIER shall ensure that the
plant/casting machines actual operating
capacities shall not be lower than 75,000
pieces every month. If at any time within the life
of this agreement the plant/casting machines
are proven to be operating below the required
minimum capacity as aforesaid, the SUPPLIER
shall be obliged to take the necessary actions
to upgrade the plant/casting machines and/or
make the necessary rehabilitation to increase
the capacity to the required level.
4. QUALITY OF MATERIALS
4.1 – The SUPPLIER guarantees that all
materials supplied to the CONTRACTOR
shall meet the approved specifications
(Attached Annex "A") at 5,000 pci.
In this connection, the CONTRACTOR shall
assign an inspector at the casting site to
ensure that all items supplied shall conform
with the approved standards.
4.2 – The CONTRACTOR may reject any
finished product or materials which do not pass
the approved standards.
4.3 – There shall be a system of sampling the
output of the plant and/or each casting machine
for testing in accordance with the quality
standards specified. Result of such sampling
tests shall be the basis for acceptance or
rejection of the finished materials.
4.4 – Where the CONTRACTOR has provided
materials to the SUPPLIER to be incorporated
into the SUPPLIER’s production, as in the case
of cement and aggregates, the cost of such
materials which becomes part of the rejected
products due to faulty
batching/mixing/curing shall be for the
account of the SUPPLIER.
5. MATERIALS AND OTHER PROVISIONS SUPPLIED
BY THE CONTRACTOR
5.1 - All the materials are for the account of the
SUPPLIER. The CONTRACTOR shall,
however, provide all the cement and
aggregates requirement for the fabrication
of the concrete blocks, in which the
Page 14 of 37
 corresponding cost shall be deducted from the
periodical proceeds due to the SUPPLIER.
5.2- The CONTRACTOR shall provide and
make available to the SUPPLIER the following
provisions/facilities free of charge:
a) Casting/Fabrication Area
b) Stockpile Area
c) Warehouse for Cement
d) An all-weather working shed for
workers
e) Night Watchers
5.3 – The CONTRACTOR shall arrange for the
installation of electrical and water facilities for
the work in which the cost of electricity and
water actually consumed shall be borne by the
SUPPLIER.
5.4 – The SUPPLIER shall be responsible for
all materials already turned over by the
CONTRACTOR at the casting area. The
responsibility, however, of the SUPPLIER on
the finished products ceases upon loading of
the same to the CONTRACTOR’s truck on way
to the project site.
6. OBLIGATIONS OF SUPPLIER
6.1 – To fabricate and provide the required
block machines in such number adequate to
cope up with time schedule.
6.2 – To provide concrete mixers: one (1) unit
of two-bagger, and two (2) units of one-bagger.
6.3 – To provide drying racks, measuring
boxes, wheel borrows and other necessary
hand tools.
6.4 – To supervise and provide the required
manpower for the operation and production of
concrete blocks.
6.5 – To undertake the following:
a) mixing and formulation of proper
mix.
b) to consolidate, form and compress
the blocks.
c) to unload the formed blocks into
the drying racks.
d) after initial setting of blocks, to
unload and arrange them to wooden
pallets.
e) curing of blocks as per approved
standards.
7. OTHER OBLIGATIONS OF CONTRACTOR
7.1 - To provide tarpaulin or canvas or plastic
sheets to cover blocks during the seasoning
stage.
7.2 - To provide forklift and wooden pallets.
8. EXCLUSIVITY OF PRODUCTION
8.1 - Effective upon the execution of this
agreement, the SUPPLIER binds itself
to devote the entire plant/casting machines
and its accessories for the CONTRACTOR’s
exclusive use and full operation and
production of the required concrete blocks for
the intended project.
8.2 – The SUPPLIER or his agents or
representatives shall not, directly or indirectly,
enter into any contract, agreement,
concessions or transactions of whatever nature
or kind with the project owner or of its
representative which will affect the rights,
interest or participation of the CONTRACTOR
in regard to the execution and accomplishment
of the project.
8.3 – In case of violation of this exclusivity
clause, utmost fidelity and good faith being of
the essence, the CONTRACTOR shall have
the right to demand reasonable amount of
damages or terminate this agreement upon due
notice.
9. CONDITIONS OF PAYMENT
9.1 – Upon mobilization of the casting
machines, equipments accessories and making
some operational at the casting area by the
SUPPLIER, the CONTRACTOR shall advance
to the supplier a downpayment or mobilization
fund of TEN THOUSAND (₱10,000.00) PESOS
per machine. Said mobilization fee shall be
deducted from the proceeds of the SUPPLIER
at two (2) equal installments beginning at the
first billing.
9.2 - The SUPPLIER shall present its billing
every fifteen days based on the below indicated
payment schedule:
a) Billing from 1st/day/month to 15th
day payable after fifteen days from
the date the billing is submitted.
b) Billing from the 16th day of the
month to the 31st day of the month,
payable after fifteen days from the
date the billing is submitted.
10. EFFECTIVITY OF CONTRACT
This agreement shall be co-terminus with the terms of the
contract for the project and/or upon completion of all
requirements therefor; PROVIDED, However, that if for
some reason or another the production of the concrete
blocks is temporarily suspended, this agreement shall
remain in force and effective for a period of fifteen (15)
days from the date of the cessation of production. In case
the said grace period expires without the production
having resumed, the CONTRACTOR shall be obliged to
pay reasonable compensation for the period of
suspension counted from the expiration of the said grace
period.
11. PERFORMANCE BOND
The SUPPLIER shall post a SURETY/PERFORMANCE
BOND in such sums which may be deemed adequate to
secure its faithful compliance of the terms and conditions
of this agreement.
12. PENALTY CLAUSE
In the event the SUPPLIER fails to meet the requirements
demanded in this agreement or when the SUPPLIER is in delay in
the performance of its obligation to the prejudice of the
CONTRACTOR, the SUPPLIER shall answer for the corresponding
damages equivalent to one-tenth (1/10) of the rated monthly
production capacity. (Emphasis and underscoring supplied).3
Aragones thereupon started assembling the machines for the
fabrication/casting of the concrete blocks which MEGA-WAFF
specified to be hexagonal shaped. MEGA-WAFF, through Garcia,
later directed Aragones to instead fabricate machines for S shaped
blocks.
As stated in the "Agreement" between DMPI and MEGA-WAFF,
the deadline for the installation of the pavement of the warehouse
was November 18, 1988, but it was not met. As extended, the
installation was finished on or about February 28, 1989, but MEGA-
WAFF was, in accordance with its agreement with DMPI, penalized
for the delay, albeit at a reduced amount.
Aragones, having in the meantime gotten wind of MEGA-WAFF &
DMPI’s "Agreement," more particularly the imposition of a penalty
by DMPI for the delay in the completion of the installation of the
warehouse pavement, appealed to DMPI, by letter of March 4,
1989,4 for leniency in the imposition of the penalty which "would
affect [him] also although [he] was not a direct party to the contract,"
he inviting attention to the "intricacy and enormity of the job
involved."
Aragones later failed to collect from MEGA-WAFF the full payment
of the concrete blocks. He thus sent DMPI a letter dated March 10,
1989,5 received by the latter on March 13, 1989,6 advising it of
MEGA-WAFF’s unpaid obligation and requesting it to earmark and
withhold the amount of ₱188,652.65 "from [MEGA-WAFF’s] billing"
to be paid directly to him "[l]est Garcia collects and fails to pay
[him]."
DMPI, in the meantime, verbally advised Aragones to secure a
court order directing it to withhold payment of the amount due
MEGA-WAFF for, in the absence of such court order, DMPI was
under its agreement with MEGA-WAFF obliged to release full
payment within 30 days from acceptance of the completed work.
Page 15 of 37
It appears that Aragones reiterated his request to DMPI for direct
payment to him, by letter of March 28, 1989.7 This was followed by
another letter dated April 6, 19898 which was received on April 8,
19899 by DMPI, copy of which it referred to Garcia, by letter of April
27, 1989,10 for his comment.
By letter of May 3, 198911 addressed to DMPI, Garcia, commenting
on Aragones’ April 6, 1989 letter, stated:
xxx
If there is somebody who have (sic) justifiable ground to complain, it
is MEGA-WAFF against Atty. Aragones for all the miseries and
embarrassment we had suffered due to the factors attributable to
Atty. Aragones Dynablock Enterprises.
For proper evaluation of things and to give both parties a fair
chance, we enclosed (sic) pertinent papers for your perusal.
As contractor and businessman, it is our firm policy not to take
advantage of other people and definitely not to renegade (sic) from
commitments/obligations.
We are willing to pay Atty. Aragones but based on the actual
accomplishment and amount only due to him as per reconciliation
furnished to him. (attached)
We sincerely hope that the facts we had presented will suffice, and
please accept our apology for whatever inconvenience it has
caused you and we pray that this matter of payments be settled
soon for the general benefit of all concerned.
x x x (Underscoring supplied).
It turned out that DMPI had, on or about April 6, 1989, released to
MEGA-WAFF a check dated April 4, 1989 in the amount of
₱157,863.77 representing DMPI’s balance of its obligation to
MEGA-WAFF.
Aragones was thus prompted to file on May 25, 1989 a
complaint12 for sum of money (₱188,652.65) with damages against
Garcia and/or MEGA-WAFF and DMPI before the Regional Trial
Court (RTC) of Lanao del Norte which was raffled to Branch 5
thereof.
Aragones impleaded DMPI on the strength of Articles 1729 and
1467 of the Civil Code, he contending that it was liable to him who
put labor upon or furnished materials for a piece of work.
By his July 14, 1989 Answer,13 Garcia, without disputing the amount
being collected by Aragones, justified his "refusal to satisfy
[Aragones’] demand" by claiming that Aragones defaulted in his
obligation under the "Supply Agreement".
DMPI, by its Answer14 of June 25, 1989, pleaded that Aragones had
no cause of action against it as it had no privity of contract with him;
that it had already paid MEGA-WAFF the full amount due it; and
that it had not committed any actionable wrong against Aragones.
Aragones later filed an Amended Complaint,15 with leave of court,
"to cure certain formal defects in the original complaint as to the
designation of parties . . ."
DMPI also later filed a Motion for Leave to File an Amended Answer
with Cross-Claim against Garcia and WAFF President Francisco
Castro16 which the trial court granted. In the Amended Answer with
Cross Claim,17 DMPI alleged, inter alia, that "[i]n the event
[Aragones] succeeds in obtaining a judgment [against] DMPI, that
said judgment should be charged to and paid by the cross-
defendants who have collected the full contract price of the
Agreement wherein [Aragones] claims the rights of a subcontractor,
plus consequential damages" (underscoring in the original).
The trial court, upon the following issues:
a. Whether or not [Aragones] has still a collectible amount
of ₱188,652.65 from defendants Garcia and Castro;
b. Whether or not defendant DMPI may also be held
accountable for this unpaid obligation of defendant
Garcia/MEGA-WAFF;
c. Whether or not the remaining balance of defendant
DMPI account payable is ₱188,652.65 insisted by
defendant Garcia/MEGA-WAFF or only ₱157,863.77
insisted by defendant DMPI;
d. Whether or not the parties are entitled to damages
pleaded;
e. Whether or not there was delay in the performance of
the respective obligations of either party or both;
f. Assuming that defendant DMPI is liable to plaintiff,
whether or not cross defendant Garcia/MEGA-WAFF
shall be liable to DMPI for reimbursement.18,
found for the plaintiff Aragones in light of the following
considerations:
Those who put their labor upon or furnish materials for a piece of
work undertaken by the contractor have an action against the owner
up to the amount owing from the latter to the contractor at the time
the claim is made. However, the following shall not prejudice the
laborers, employees and furnishers of materials:
(1) Payments made by the owner of the contractor before
they are due;
(2) Renunciation by the contractor of any amount due him
from the owner.
This article is subject to the provisions of special laws (1597a)
(Article 1729, New Civil Code, [emphasis supplied]).
In interpreting the foregoing provision, the Supreme Court made the
following pertinent pronouncement:
"Article 1729 is promulgated to protect the laborers and the
materialmen from being taken advantage of by unscrupulous
contractors and from possible connivance between owners and
contractors." (Velasco vs. C.A. 95 Phils. (sic) (616-641).
"The legal issue that arises is whether or not GSIS is liable to the
petitioners for the cost of the materials and labor furnished by them
in construction of the 63 houses now owned by the GSIS and for
the construction of which no payment has been made on the
balance due to petitioners. Our considered view is and we so hold
that even in equity alone, GSIS should pay the petitioners, without
prejudice to its securing indemnity from Laigo Realty Corp." (Velaso
vs. C.A., 95 Phils. (sic) 616-641 [emphasis and underscoring
supplied]).
Moreover, anent this matter another decisional rule, says:
"Although there was no privity of contract between plaintiff and
defendant Joven, Inc., there is sufficient evidence showing that he
had really supplied stones and sands to said defendant and also
removed dirt and soil from its construction site. And it is this main
point which calls for resolution in the light of the provisions of Art.
1729 of the New Civil Code, to determine whether or not defendant
corporation is liable for materials supplied and services rendered by
the plaintiff. It is quite clear that the owner of the building, Joven Inc.
is liable for materials and labor furnished to the contractor "up to the
amount owing from the latter to the contractor" and to enforce such
liability, the law allows the person furnishing labor or materials
to bring his right of action directly against the owner." (Flores
vs. Ruelo, CA 52 OG 850, [emphasis and underscoring supplied]).
Of course, while defendant DMPI is indeed directly liable to pay
plaintiff the cost of the construction material (modular paving
blocks) sought to be collected, this defendant has also a right of
recourse against cross defendant Garcia/MEGA-WAFF for
reimbursement of whatever amount it will be required here to pay
plaintiff, otherwise it would result in making defendant
Garcia/MEGA-WAFF enrich itself at the expense of defendant
DMPI. Additionally since the evidence on record shows that plaintiff
was compelled to litigate this matter if only to collect a just and
demandable obligation, the refusal of these defendants to pay their
obligation upon demand could not be justified in law, thus both
defendants should be condemned to pay exemplary damages in the
amount of ₱20,000.00 each and attorney’s fees in the amount of
₱10,000.00 each, including the cost of this suit. (Underscoring
supplied)19
The trial court accordingly rendered judgment in favor of Aragones
by decision20 of September 11, 1992, the dispositive portion of
which reads:
WHEREFORE, the foregoing premises considered, the Court finds
that there is ample reason in law and preponderant evidence on
record to sustain the cause of action of plaintiff asserted against
both defendants, thus judgment is now rendered granting the
following relief:
a. That the defendants Garcia/MEGA-WAFF and DMPI
shall be liable to jointly and severally pay plaintiff the
unpaid cost of the modular paving blocks construction
material which he delivered to defendant DMPI priced at
₱188,652.65 and in the event that defendant DMPI will
be made to pay the full amount of this particular
obligation, the defendant Garcia MEGA-WAFF must
reimburse said defendant such amount;
b. That this unpaid obligation sought to be collected must
bear legal interest of 12% per annum from the time there
was an extrajudicial demand made by plaintiff last March
01, 1989; and
c. Lastly, these defendants are condemned that each pay
plaintiff ₱20,000.00 for exemplary damages and
Page 16 of 37
 ₱10,000.00 for attorney’s fees, including the cost of this
suit.
SO ORDERED. (Emphasis and underscoring supplied).21
On appeal to the Court of Appeals (CA) by only DMPI, upon the
following assigned errors:
I to administer oaths. There is no showing that defendant appellant
THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF DID
NOT INCUR DELAY AND VIOLATE ITS SUPPLY AGREEMENT
WITH DEFENDANT MEGA-WAFF;
II
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT
MEGA-WAFF’S LIABILITY TO PLAINTIFF IS
₱188,652.65 BECAUSE AS STIPULATED IN THE SUPPLY
AGREEMENT, THE CEMENT AND AGGREGATES USED IN THE
MANUFACTURE OF THE BLOCKS WERE ADVANCED BY
MEGA-WAFF, THE COST OF WHICH WILL BE DEDUCED FROM
PLAINTIFF’S BILLINGS;
III.
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT
DMPI IS ALSO LIABLE TO PLAINTIFF FOR ANY LIABILITY OF
MEGA-WAFF UNDER THE SUPPLY AGREEMENT;
IV.
ASSUMING EX GRATIA ARGUMENTI THAT DMPI IS LIABLE TO
PLAINTIFF'S AID LIABILITY CANNOT EXCEED THE SUM OF
₱157,863.77 BALANCE OF THE CONTRACT PRICE BETWEEN
DMPI AND MEGA-WAFF, LESS AGREED PENALTY FOR LATE
DELIVERY AS LIQUIDATED DAMAGES;
V.
THE TRIAL COURT ERRED IN HOLDING DEFENDANT DMPI
LIABLE TO PLAINTIFF FOR ATTORNEY’S FEES AND COSTS OF
COLLECTION CONSIDERING THAT IT HAD THE RIGHT TO
RESIST PAYMENT BECAUSE IT HAS NO PRIVITY OF
CONTRACT BETWEEN PLAINTIFF AND DEFENDANT MEGA-
WAFF, (Underscoring supplied),22
the CA, by decision of September 19, 200123 subject of the petition
at bar, affirmed the trial court’s decision in this wise:
At this juncture it is well to note that the Supply Agreement was in
the nature of a contract for a piece of work. The distinction between
a contract of sale and one for work, labor and materials is tested by
inquiry whether the thing transferred is one not in existence and
which never would have existed but for the order of the party
desiring to acquire it, or a thing which would have existed but has
been the subject of sale to some other persons even if the order
had not been given. If the article ordered by the purchaser is exactly
such as the seller makes and keeps on hand for sale to anyone,
and no change or modification of it is made at purchaser’s request,
it is a contract of sale even though it may be entirely made after,
and in consequence of the purchaser’s order for it. [Commissioner
of Internal Revenue vs. Engineering Equipment and Supply
Company, G.R. No. L-27044, June 30, 1975]
In the case at bench, the modular paving blocks are not exactly
what the plaintiff-appellee makes and keeps on hand for sale to
anyone, but with a modification that the same be "S" in shape.
Hence, the agreement falls within the ambit of Article 1467 making
Article 1729 likewise applicable in the instant case.
As regard the issue of privity of contracts, We need to add only that
Article 1311 of the New Civil Code which DMPI invokes is not
applicable where the situation contemplated in Article 1729 obtains.
The intention of the latter provision is to protect the laborers and the
materialmen from being taken advantage of by unscrupulous
contractors and from possible connivance between owners and
contractors. Thus, a constructive vinculum or contractual privity is
created by this provision, by way of exception to the principle
underlying Article 1311 between the owner, on the one hand, and
those who furnish labor and/or materials, on the other. [Velasco vs.
Court of Appeals, G.R. No. L-47544, January 28, 1980]
As a matter of fact, insofar as the laborers are concerned, by a
special law, Act no. 3959, otherwise known as "An Act making it
obligatory for any person, company, firm or corporation owning any
work of any kind executed by contract to require the contractor to
furnish a bond guaranteeing the payment of the laborers." they are
given added protection by requiring contractors to file bonds
guaranteeing payment to them.
It is true that defendant-appellant had already fully paid its
obligation to defendant Garcia however, the former’s payment to
the latter does not extinguish its legal obligation to plaintiff-appellee
because such payment was irregular. The former should have
taken care not to pay to such contractor the full amount which he is
entitled to receive by virtue of the contract, until he shall have
shown that he first paid the wages of the laborer employed in said
work, by means of an affidavit made and subscribed by said
contractor before a notary public or other officer authorized by law
DMPI, as owner of the building, complied with this requirement paid
down in Act No. 3959. Hence, under Section 2 of said law, said
defendant-appellant is responsible, jointly and severally with the
general contractor, for the payment to plaintiff-appellee as sub-
contractor.
In this connection, while, indeed, Article 1729 refers to the laborers
and materialmen themselves, under the peculiar circumstances of
this case, it is but fair and just that plaintiff-appellee be deemed as
suing for the reimbursement of what they have already paid the
laborers and materialmen, as otherwise he would be unduly
prejudiced while either defendant-appellant DMPI or defendant
Garcia would enrich themselves at plaintiff-appellee’s expense.
Be that as it may, We so hold that plaintiff-appellee has a lawful
claim against defendant-appellant DMPI, owner of the constructed
warehouse since it disregarded the notice of claim of plaintiff-
appellee, at a time when the amounts owing from defendant-
appellant DMPI to defendant GARCIA were more than sufficient to
pay for plaintiff-appellee’s claim. The least that defendant-appellant
should have done was to withhold payment of the balance still
owing to defendant Garcia as until the claim of plaintiff-appellee
was clarified. (Italics in the original; emphasis and underscoring
supplied).24
Its Motion for Reconsideration having been denied by the CA, DMPI
(hereinafter referred to as petitioner) lodged the present Petition for
Review on Certiorari, faulting the CA:
I.
. . . IN FINDING THAT DMPI WAS LIABLE TO RESPONDENT
ARAGONES FOR THE UNPAID PRICE OF THE CONCRETE
PAVING BLOCKS OWED BY MEGA-WAFF TO THE LATTER.
A. …IN FINDING THAT THE CONTRACT FOR
THE SUPPLY OF THE CONCRETE PAVING
BLOCKS WAS NOT A SALE BUT ONE FOR A
PIECE OF WORK.
B. …IN HOLDING DMPI LIABLE BASED
UPON THE PROVISIONS OF ARTICLE 1729
OF THE CIVIL CODE AND ACT 3959, WHICH
ARE INAPPLICABLE.
II.
. . . IN FAILING TO AWARD MORAL DAMAGES, ATTORNEY’S
FEES, AND LITIGATION EXPENSES TO DMPI ON ITS
COUNTERCLAIM.25
As reflected above, only petitioner appealed the trial court’s
decision. MEGA-WAFF did not appeal. The decision as to it then is
final and executory.
Petitioner, in the main, contends that while the CA correctly stated
the test in determining whether a transfer is a sale or one for a
piece of work, it failed to properly apply the same.
Applying the "nature of the object" test, petitioner insists that the
concrete block to be produced by Aragones under the "Supply
Agreement" represented by Garcia clearly shows that the contract
was one of sale, advancing the following reasons:
1.4.1 First, the concrete paving blocks were . . . capable of being
mass-produced
1.4.2 Second, save for the shape, there was here no consideration
of any special needs or requirements of DMPI taken into account in
the design or manufacture of the concrete paving blocks.26
Petitioner cites the following ruling in Commissioner of Internal
Revenue v. Arnoldus Carpentry Shop, Inc.:27
x x x As can be clearly seen from the wordings of Art. 1467, what
determines whether the contract is one of work or of sale is whether
the thing has been "manufactured specially for the customer and
upon his special order." Thus, if the thing is specially done on the
order of another, this is a contract for a piece of work. If, on the
other hand, the thing is manufactured or procured for the
general market in the ordinary course of one’s business, it is a
contract of sale." (Italics and emphasis in the original;
underscoring supplied),28
and argues that "given habituality of business and the ability to
mass-produce the article ordered, that customers requires (sic)
certain specifications is of no moment, the transaction remains one
of sale."
Page 17 of 37
Petitioner further cites, among other authorities, the following ruling
in Celestino Co. v. Collector of Internal Revenue:29
x x x The important thing to remember is that Celestino & Co.
habitually makes sash, windows and doors, as it has
represented in its stationery and advertisements to the public.
That it "manufactures" the same is practically admitted by appellant
itself. The fact that windows and doors are made by it only when
customers place their orders, does not alter the nature of the
establishment of such materials-moulding, frames, panels – as it
ordinarily manufactured or was in a position habitually to
manufacture.
xxx
That the doors and windows must meet desired specifications
is neither here nor there. If these specifications do not happen to
be of the kind habitually manufactured by appellant – special forms
of sash, mouldings, panels – it would not accept the order – and no
sale is made. If they do, the transaction would be no different from
purchaser of manufactured goods held in stock for sale; they are
bought because they meet specifications desired by the purchaser.
Nobody will say that when a sawmill cuts lumber in accordance with
the peculiar specifications of a customer – sizes not previously held
in stock for sale to the public – it thereby becomes an employee or
servant of the customer, not the seller of lumber. The same
consideration applies to this sash manufacturer.
The Oriental Sash Factory does nothing more than sell the
goods that it mass-produces or habitually makes – sash,
panels, mouldings, frames – cutting them to such sizes and
combining them in such forms as its customers may desire.
xxx
x x x Such new form does not divest the Oriental Sash Factory
of its character as manufacturer. Neither does it take the
transaction out of the category of sales under Article
1467 above quoted, because although the Factory does not, in
the ordinary course of its business, manufacture and keep on
stock doors of the kind sold to Teodoro, it could and/or
probably had in stock the sash, mouldings and panels it used
therefor (some of them at least). (Emphasis in the original;
underscoring supplied).
Petitioner concludes that as the "Supply Agreement" between
Aragones and MEGA-WAFF was one of sale to which it (petitioner)
was not privy, it cannot be held liable for any obligation arising
therefrom.
Dodging liability for the damages ("exemplary and . . . attorney’s
fees including the cost of this suit") awarded to Aragones, petitioner
claims that it was in fact the one which was injured by Aragones’
filing in bad faith of a complaint bereft of cause of action and "at
best, [one] barred by full payment of the amount due to MEGA-
WAFF," on account of which it is entitled to moral damages in the
amount of ₱50,000.00 pursuant to Article 2217 of the Civil Code,
and to attorney’s fees and expenses of litigation in the amount of at
least ₱30,000.00 plus ₱2,500.00 per hearing pursuant to Article
2208 of the Civil Code.
The petition fails.
The authorities petitioner cited in fact show that the nature of
the "Supply Agreement" between Aragones and MEGA-WAFF
was one for a piece of work.
Contrary to petitioner’s claim that "save for the shape, there was no
consideration of any special needs or requirements of DMPI taken
into account in the design or manufacture of the concrete paving
blocks," the "Supply Agreement" is replete with specifications,
terms or conditions showing that it was one for a piece of work.
As reflected in the highlighted and underscored above-quoted
provisions of the "Supply Agreement," as well as other evidence
on record, the machines Aragones was obliged to fabricate were
those for casting the concrete blocks specified by Garcia. Aragones
did not have those kind of machines in his usual business, hence,
the special order.
While initially Garcia specified that the machines to be fabricated
should be for hexagon shaped blocks, he later asked Aragones to
instead fabricate machines for casting S shaped blocks.
In accordance with the "Supply Agreement," Garcia furnished the
cement and aggregates for the fabrication of the blocks and
Aragones fabricated three (3) machines for S shaped blocks which
were delivered at the casting site on different dates. And the "entire
plant/casting machines and . . . . accessories" were, as dictated
under the "Supply Agreement," devoted by Aragones "for [MEGA-
WAFF]’s exclusive use.
There can be no gainsaying that the specifications/conditions in the
"Supply Agreement" and the admitted subsequent directive of
Garcia for Aragones to fabricate machines for casting S shaped,
instead of hexagon shaped blocks, show that the concrete blocks
were "manufactured specifically for, and upon the special order" of
Garcia.
That Garcia supplied the cement and aggregates and that the entire
made-to-order casting machines and accessories used in the
manufacture of those unusual shaped blocks were agreed upon to
be devoted only "for the exclusive use" of MEGA-WAFF should
belie petitioner’s contention that the concrete blocks were mass-
produced and catered to the general market in the ordinary course
of Aragones’ business.
Under Art. 1467 then of the Civil Code which provides:
ART. 1467. A contract for the delivery at a certain price of an article
which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same
is on hand at the time or not, is a contract of sale, but if the goods
are to be manufactured specially for the customer and upon his
special order, and not for the general market, it is a contract for a
piece of work. (Emphasis and underscoring supplied),
the "Supply Agreement" was decidedly a contract for a piece of
work.
Following Art. 1729 of the Civil Code which provides:
ART. 1729. Those who put their labor upon or furnish materials for
a piece of work undertaken by the contractor have an action against
the owner up to the amount owing from the latter to the
contractor at the time the claim is made. x x x
x x x (Underscoring supplied),
Aragones having specially fabricated three casting machines and
furnished some materials for the production of the concrete blocks
specially ordered and specified by MEGA-WAFF which were to be
and indeed they were for the exclusive use of MEGA-WAFF, he has
a cause of action upon petitioner up to the amount it owed MEGA-
WAFF at the time Aragones made his claim to petitioner.
As Velasco v. CA30 explains, the intention of Art. 1729 is
to protect the laborers and materialmen from being taken
advantage of by unscrupulous contractors and from possible
connivance between owners and contractors. Thus, a constructive
vinculum or contractual privity is created by this provision, by way of
exception to the principle underlying Article 1311 between the
owner, on the one hand, and those who furnish labor and/or
materials, on the other.
In fine, a constructive vinculum or contractual privity was created
between petitioner and Aragones.
Respecting petitioner’s disclaimer of liability for damages and its
claim for moral damages, attorney’s fees and expenses of litigation,
the trial court’s disposition thereof, to wit:
. . . since the evidence on record shows that [Aragones]
was compelled to litigate this matter if only to collect a just and
demandable obligation, the refusal of [DMPI and MEGA-WAFF] to
pay their obligation upon demand could not be justified by law, thus
both… should be condemned to pay exemplary damages in the
amount of ₱20,000.00 each and attorney’s fees in the amount of
₱10,000.00 each including… costs of this suit" (underscoring
supplied),
merits this Court’s approval.
Why should not petitioner be liable for damages. Aragones’ request,
based on a provision of law, to petitioner for it to pay directly to him
his account receivable from MEGA-WAFF/Garcia out of petitioner’s
account payable to MEGA-WAFF was made before petitioner’s
obligation to it was due. Yet petitioner settled such obligation to
MEGA-WAFF on or about April 6, 1989 when it released to it its
check-payment. For petitioner to harp on its undertaking under
its "Agreement" with MEGA-WAFF to pay its full obligation
thereunder within 30 days from complete installation of the
pavement by MEGA-WAFF unless a court injunction could be
produced by Aragones is too shallow, under the facts and
circumstances surrounding the case, to merit consideration.
Petitioner’s referral for comment of Garcia, by letter of April 27,
1989, on Aragones’ April 6, 1989 reiterative letter for the
withholding of the release of so much amount to MEGA-WAFF even
after it (petitioner) had already released on or about April 6, 1989 its
check-full payment to MEGA-WAFF reflects a futile attempt to
cover-up the apparent "connivance" between it and contractor
MEGA-WAFF to the prejudice of Aragones, leaving him no option
but to litigate.
Page 18 of 37
As for the assailed citation by the appellate court of Act No. 3959
(which requires a person or firm owning any work of any kind
executed by contract to put up a bond guaranteeing the payment of
the laborers) as additional justification to hold petitioner liable to
Aragones, indeed, said Act had been repealed in 1974 by P.D. No.
442 (The Labor Code of the Philippines).
WHEREFORE, in light of the foregoing discussions, the petition is
hereby DENIED.
Costs against petitioner.
SO ORDERED.
CASE 6 (1469)
G. R. No. 158149 February 9, 2006
BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF
COMMERCE), Petitioner,
vs.
PERLA P. MANALO and CARLOS MANALO, JR., Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision1 of
the Court of Appeals (CA) in CA-G.R. CV No. 47458 affirming, on
appeal, the Decision2 of the Regional Trial Court (RTC) of Quezon
City, Branch 98, in Civil Case No. Q-89-3905.
The Antecedents
The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in
Quezon City, known as the Xavierville Estate Subdivision, with an
area of 42 hectares. XEI caused the subdivision of the property into
residential lots, which was then offered for sale to individual lot
buyers.3
On September 8, 1967, XEI, through its General Manager, Antonio
Ramos, as vendor, and The Overseas Bank of Manila (OBM), as
vendee, executed a "Deed of Sale of Real Estate" over some
residential lots in the subdivision, including Lot 1, Block 2, with an
area of 907.5 square meters, and Lot 2, Block 2, with an area of
832.80 square meters. The transaction was subject to the approval
of the Board of Directors of OBM, and was covered by real estate
mortgages in favor of the Philippine National Bank as security for its
account amounting to ₱5,187,000.00, and the Central Bank of the
Philippines as security for advances amounting to
4
₱22,185,193.74. Nevertheless, XEI continued selling the
residential lots in the subdivision as agent of OBM.5
Sometime in 1972, then XEI president Emerito Ramos, Jr.
contracted the services of Engr. Carlos Manalo, Jr. who was in
business of drilling deep water wells and installing pumps under the
business name Hurricane Commercial, Inc. For ₱34,887.66,
Manalo, Jr. installed a water pump at Ramos’ residence at the
corner of Aurora Boulevard and Katipunan Avenue, Quezon City.
Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot
in the Xavierville subdivision, and offered as part of the
downpayment the ₱34,887.66 Ramos owed him. XEI, through
Ramos, agreed. In a letter dated February 8, 1972, Ramos
requested Manalo, Jr. to choose which lots he wanted to buy so
that the price of the lots and the terms of payment could be fixed
and incorporated in the conditional sale.6 Manalo, Jr. met with
Ramos and informed him that he and his wife Perla had chosen
Lots 1 and 2 of Block 2 with a total area of 1,740.3 square meters.
In a letter dated August 22, 1972 to Perla Manalo, Ramos
confirmed the reservation of the lots. He also pegged the price of
the lots at ₱200.00 per square meter, or a total of ₱348,060.00, with
a 20% down payment of the purchase price amounting to
₱69,612.00 less the ₱34,887.66 owing from Ramos, payable on or
before December 31, 1972; the corresponding Contract of
Conditional Sale would then be signed on or before the same date,
but if the selling operations of XEI resumed after December 31,
1972, the balance of the downpayment would fall due then, and the
spouses would sign the aforesaid contract within five (5) days from
receipt of the notice of resumption of such selling operations. It was
also stated in the letter that, in the meantime, the spouses may
introduce improvements thereon subject to the rules and
regulations imposed by XEI in the subdivision. Perla Manalo
conformed to the letter agreement.7
The spouses Manalo took possession of the property on September
2, 1972, constructed a house thereon, and installed a fence around
the perimeter of the lots.
In the meantime, many of the lot buyers refused to pay their
monthly installments until they were assured that they would be
issued Torrens titles over the lots they had purchased. 8 The
spouses Manalo were notified of the resumption of the selling
operations of XEI.9 However, they did not pay the balance of the
downpayment on the lots because Ramos failed to prepare a
contract of conditional sale and transmit the same to Manalo for
their signature. On August 14, 1973, Perla Manalo went to the XEI
office and requested that the payment of the amount representing
the balance of the downpayment be deferred, which, however, XEI
rejected. On August 10, 1973, XEI furnished her with a statement of
their account as of July 31, 1973, showing that they had a balance
of ₱34,724.34 on the downpayment of the two lots after deducting
the account of Ramos, plus ₱3,819.6810 interest thereon from
September 1, 1972 to July 31, 1973, and that the interests on the
unpaid balance of the purchase price of ₱278,448.00 from
September 1, 1972 to July 31, 1973 amounted to ₱30,629.28.11 The
spouses were informed that they were being billed for said unpaid
interests.12
On January 25, 1974, the spouses Manalo received another
statement of account from XEI, inclusive of interests on the
purchase price of the lots.13 In a letter dated April 6, 1974 to XEI,
Manalo, Jr. stated they had not yet received the notice of
resumption of Lei’s selling operations, and that there had been no
arrangement on the payment of interests; hence, they should not be
charged with interest on the balance of the downpayment on the
property.14 Further, they demanded that a deed of conditional sale
over the two lots be transmitted to them for their signatures.
However, XEI ignored the demands. Consequently, the spouses
refused to pay the balance of the downpayment of the purchase
price.15
Sometime in June 1976, Manalo, Jr. constructed a business sign in
the sidewalk near his house. In a letter dated June 17, 1976, XEI
informed Manalo, Jr. that business signs were not allowed along the
sidewalk. It demanded that he remove the same, on the ground,
among others, that the sidewalk was not part of the land which he
had purchased on installment basis from XEI.16 Manalo, Jr. did not
respond. XEI reiterated its demand on September 15, 1977.17
Subsequently, XEI turned over its selling operations to OBM,
including the receivables for lots already contracted and those yet
to be sold.18 On December 8, 1977, OBM warned Manalo, Jr., that
"putting up of a business sign is specifically prohibited by their
contract of conditional sale" and that his failure to comply with its
demand would impel it to avail of the remedies as provided in their
contract of conditional sale.19
Meanwhile, on December 5, 1979, the Register of Deeds issued
Transfer Certificate of Title (TCT) No. T-265822 over Lot 1, Block 2,
and TCT No. T-265823 over Lot 2, Block 2, in favor of the
OBM.20 The lien in favor of the Central Bank of the Philippines was
annotated at the dorsal portion of said title, which was later
cancelled on August 4, 1980.21
Subsequently, the Commercial Bank of Manila (CBM) acquired the
Xavierville Estate from OBM. CBM wrote Edilberto Ng, the
president of Xavierville Homeowners Association that, as of
January 31, 1983, Manalo, Jr. was one of the lot buyers in the
subdivision.22 CBM reiterated in its letter to Ng that, as of January
24, 1984, Manalo was a homeowner in the subdivision.23
In a letter dated August 5, 1986, the CBM requested Perla Manalo
to stop any on-going construction on the property since it (CBM)
was the owner of the lot and she had no permission for such
construction.24 She agreed to have a conference meeting with CBM
officers where she informed them that her husband had a contract
with OBM, through XEI, to purchase the property. When asked to
prove her claim, she promised to send the documents to CBM.
However, she failed to do so.25 On September 5, 1986, CBM
reiterated its demand that it be furnished with the documents
promised,26 but Perla Manalo did not respond.
On July 27, 1987, CBM filed a complaint27 for unlawful detainer
against the spouses with the Metropolitan Trial Court of Quezon
City. The case was docketed as Civil Case No. 51618. CBM
claimed that the spouses had been unlawfully occupying the
property without its consent and that despite its demands, they
refused to vacate the property. The latter alleged that they, as
vendors, and XEI, as vendee, had a contract of sale over the lots
28
which had not yet been rescinded.
While the case was pending, the spouses Manalo wrote CBM to
offer an amicable settlement, promising to abide by the purchase
Page 19 of 37
price of the property (₱313,172.34), per agreement with XEI,
through Ramos. However, on July 28, 1988, CBM wrote the
spouses, through counsel, proposing that the price of ₱1,500.00 per
square meter of the property was a reasonable starting point for
negotiation of the settlement.29 The spouses rejected the counter
proposal,30 emphasizing that they would abide by their original
agreement with XEI. CBM moved to withdraw its
complaint31 because of the issues raised.32
In the meantime, the CBM was renamed the Boston Bank of the
Philippines. After CBM filed its complaint against the spouses
Manalo, the latter filed a complaint for specific performance and
damages against the bank before the Regional Trial Court (RTC) of
Quezon City on October 31, 1989.
The plaintiffs alleged therein that they had always been ready, able
and willing to pay the installments on the lots sold to them by the
defendant’s remote predecessor-in-interest, as might be or
stipulated in the contract of sale, but no contract was forthcoming;
they constructed their house worth ₱2,000,000.00 on the property
in good faith; Manalo, Jr., informed the defendant, through its
counsel, on October 15, 1988 that he would abide by the terms and
conditions of his original agreement with the defendant’s
predecessor-in-interest; during the hearing of the ejectment case on
October 16, 1988, they offered to pay ₱313,172.34 representing the
balance on the purchase price of said lots; such tender of payment
was rejected, so that the subject lots could be sold at considerably
higher prices to third parties.
Plaintiffs further alleged that upon payment of the ₱313,172.34,
they were entitled to the execution and delivery of a Deed of
Absolute Sale covering the subject lots, sufficient in form and
substance to transfer title thereto free and clear of any and all liens
and encumbrances of whatever kind and nature.33 The plaintiffs
prayed that, after due hearing, judgment be rendered in their favor,
to wit:
WHEREFORE, it is respectfully prayed that after due hearing:
(a) The defendant should be ordered to execute and
deliver a Deed of Absolute Sale over subject lots in favor
of the plaintiffs after payment of the sum of ₱313,172.34,
sufficient in form and substance to transfer to them titles
thereto free and clear of any and all liens and
encumbrances of whatever kind or nature;
(b) The defendant should be held liable for moral and
exemplary damages in the amounts of ₱300,000.00 and
₱30,000.00, respectively, for not promptly executing and
delivering to plaintiff the necessary Contract of Sale,
notwithstanding repeated demands therefor and for
having been constrained to engage the services of
undersigned counsel for which they agreed to pay
attorney’s fees in the sum of ₱50,000.00 to enforce their
rights in the premises and appearance fee of ₱500.00;
(c) And for such other and further relief as may be just
and equitable in the premises.34
In its Answer to the complaint, the defendant interposed the
following affirmative defenses: (a) plaintiffs had no cause of action
against it because the August 22, 1972 letter agreement between
XEI and the plaintiffs was not binding on it; and (b) "it had no record
of any contract to sell executed by it or its predecessor, or of any
statement of accounts from its predecessors, or records of
payments of the plaintiffs or of any documents which entitled them
to the possession of the lots."35 The defendant, likewise, interposed
counterclaims for damages and attorney’s fees and prayed for the
eviction of the plaintiffs from the property.36
Meanwhile, in a letter dated January 25, 1993, plaintiffs, through
counsel, proposed an amicable settlement of the case by paying
₱942,648.70, representing the balance of the purchase price of the
two lots based on the current market value.37 However, the
defendant rejected the same and insisted that for the smaller lot,
they pay ₱4,500,000.00, the current market value of the
property.38 The defendant insisted that it owned the property since
there was no contract or agreement between it and the plaintiffs’
relative thereto.
During the trial, the plaintiffs adduced in evidence the separate
Contracts of Conditional Sale executed between XEI and Alberto
Soller;39 Alfredo Aguila,40 and Dra. Elena Santos-Roque41 to prove
that XEI continued selling residential lots in the subdivision as agent
of OBM after the latter had acquired the said lots.
For its part, defendant presented in evidence the letter dated
August 22, 1972, where XEI proposed to sell the two lots subject to
two suspensive conditions: the payment of the balance of the
downpayment of the property, and the execution of the
corresponding contract of conditional sale. Since plaintiffs failed to
pay, OBM consequently refused to execute the corresponding
contract of conditional sale and forfeited the ₱34,877.66
downpayment for the two lots, but did not notify them of said
forfeiture.42 It alleged that OBM considered the lots unsold because
the titles thereto bore no annotation that they had been sold under a
contract of conditional sale, and the plaintiffs were not notified of
XEI’s resumption of its selling operations.
On May 2, 1994, the RTC rendered judgment in favor of the
plaintiffs and against the defendant. The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and against the defendant –
(a) Ordering the latter to execute and deliver a Deed of
Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville
Estate Subdivision after payment of the sum of
₱942,978.70 sufficient in form and substance to transfer
to them titles thereto free from any and all liens and
encumbrances of whatever kind and nature.
(b) Ordering the defendant to pay moral and exemplary
damages in the amount of ₱150,000.00; and
(c) To pay attorney’s fees in the sum of ₱50,000.00 and
to pay the costs.
SO ORDERED.43
The trial court ruled that under the August 22, 1972 letter
agreement of XEI and the plaintiffs, the parties had a "complete
contract to sell" over the lots, and that they had already partially
consummated the same. It declared that the failure of the defendant
to notify the plaintiffs of the resumption of its selling operations and
to execute a deed of conditional sale did not prevent the
defendant’s obligation to convey titles to the lots from acquiring
binding effect. Consequently, the plaintiffs had a cause of action to
compel the defendant to execute a deed of sale over the lots in their
favor.
Boston Bank appealed the decision to the CA, alleging that the
lower court erred in (a) not concluding that the letter of XEI to the
spouses Manalo, was at most a mere contract to sell subject to
suspensive conditions, i.e., the payment of the balance of the
downpayment on the property and the execution of a deed of
conditional sale (which were not complied with); and (b) in awarding
moral and exemplary damages to the spouses Manalo despite the
44
absence of testimony providing facts to justify such awards.
On September 30, 2002, the CA rendered a decision affirming that
of the RTC with modification. The fallo reads:
WHEREFORE, the appealed decision is AFFIRMED with
MODIFICATIONS that (a) the figure "₱942,978.70" appearing [in]
par. (a) of the dispositive portion thereof is changed to
"₱313,172.34 plus interest thereon at the rate of 12% per annum
from September 1, 1972 until fully paid" and (b) the award of moral
and exemplary damages and attorney’s fees in favor of plaintiffs-
appellees is DELETED.
SO ORDERED.45
The appellate court sustained the ruling of the RTC that the
appellant and the appellees had executed a Contract to Sell over
the two lots but declared that the balance of the purchase price of
the property amounting to ₱278,448.00 was payable in fixed
amounts, inclusive of pre-computed interests, from delivery of the
possession of the property to the appellees on a monthly basis for
120 months, based on the deeds of conditional sale executed by
XEI in favor of other lot buyers.46 The CA also declared that, while
XEI must have resumed its selling operations before the end of
1972 and the downpayment on the property remained unpaid as of
December 31, 1972, absent a written notice of cancellation of the
contract to sell from the bank or notarial demand therefor as
required by Republic Act No. 6552, the spouses had, at the very
least, a 60-day grace period from January 1, 1973 within which to
pay the same.
Boston Bank filed a motion for the reconsideration of the decision
alleging that there was no perfected contract to sell the two lots, as
there was no agreement between XEI and the respondents on the
manner of payment as well as the other terms and conditions of the
sale. It further averred that its claim for recovery of possession of
the aforesaid lots in its Memorandum dated February 28, 1994 filed
before the trial court constituted a judicial demand for rescission
that satisfied the requirements of the New Civil Code. However, the
appellate court denied the motion.
Page 20 of 37
Boston Bank, now petitioner, filed the instant petition for review on
certiorari assailing the CA rulings. It maintains that, as held by the
CA, the records do not reflect any schedule of payment of the 80%
balance of the purchase price, or ₱278,448.00. Petitioner insists
that unless the parties had agreed on the manner of payment of the
principal amount, including the other terms and conditions of the
contract, there would be no existing contract of sale or contract to
sell.47 Petitioner avers that the letter agreement to respondent
spouses dated August 22, 1972 merely confirmed their reservation
for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square
meters, more or less, at the price of ₱200.00 per square meter (or
₱348,060.00), the amount of the downpayment thereon and the
application of the ₱34,887.00 due from Ramos as part of such
downpayment.
Petitioner asserts that there is no factual basis for the CA ruling that
the terms and conditions relating to the payment of the balance of
the purchase price of the property (as agreed upon by XEI and
other lot buyers in the same subdivision) were also applicable to the
contract entered into between the petitioner and the Respondents.
It insists that such a ruling is contrary to law, as it is tantamount to
compelling the parties to agree to something that was not even
discussed, thus, violating their freedom to contract. Besides, the
situation of the respondents cannot be equated with those of the
other lot buyers, as, for one thing, the respondents made a partial
payment on the downpayment for the two lots even before the
execution of any contract of conditional sale.
Petitioner posits that, even on the assumption that there was a
perfected contract to sell between the parties, nevertheless, it
cannot be compelled to convey the property to the respondents
because the latter failed to pay the balance of the downpayment of
the property, as well as the balance of 80% of the purchase price,
thus resulting in the extinction of its obligation to convey title to the
lots to the Respondents.
Another egregious error of the CA, petitioner avers, is the
application of Republic Act No. 6552. It insists that such law applies
only to a perfected agreement or perfected contract to sell, not in
this case where the downpayment on the purchase price of the
property was not completely paid, and no installment payments
were made by the buyers.
Petitioner also faults the CA for declaring that petitioner failed to
serve a notice on the respondents of cancellation or rescission of
the contract to sell, or notarial demand therefor. Petitioner insists
that its August 5, 1986 letter requiring respondents to vacate the
property and its complaint for ejectment in Civil Case No. 51618
filed in the Metropolitan Trial Court amounted to the requisite
demand for a rescission of the contract to sell. Moreover, the action
of the respondents below was barred by laches because despite
demands, they failed to pay the balance of the purchase price of the
lots (let alone the downpayment) for a considerable number of
years.
For their part, respondents assert that as long as there is a meeting
of the minds of the parties to a contract of sale as to the price, the
contract is valid despite the parties’ failure to agree on the manner
of payment. In such a situation, the balance of the purchase price
would be payable on demand, conformably to Article 1169 of the
New Civil Code. They insist that the law does not require a party to
agree on the manner of payment of the purchase price as a
prerequisite to a valid contract to sell. The respondents cite the
ruling of this Court in Buenaventura v. Court of Appeals48 to support
their submission.
They argue that even if the manner and timeline for the payment of
the balance of the purchase price of the property is an essential
requisite of a contract to sell, nevertheless, as shown by their letter
agreement of August 22, 1972 with the OBM, through XEI and the
other letters to them, an agreement was reached as to the manner
of payment of the balance of the purchase price. They point out that
such letters referred to the terms of the terms of the deeds of
conditional sale executed by XEI in favor of the other lot buyers in
the subdivision, which contained uniform terms of 120 equal
monthly installments (excluding the downpayment, but inclusive of
pre-computed interests). The respondents assert that XEI was a
real estate broker and knew that the contracts involving residential
lots in the subdivision contained uniform terms as to the manner
and timeline of the payment of the purchase price of said lots.
Respondents further posit that the terms and conditions to be
incorporated in the "corresponding contract of conditional sale" to
be executed by the parties would be the same as those contained
in the contracts of conditional sale executed by lot buyers in the
subdivision. After all, they maintain, the contents of the
corresponding contract of conditional sale referred to in the August
22, 1972 letter agreement envisaged those contained in the
contracts of conditional sale that XEI and other lot buyers executed.
Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v.
Manila E.R.R. & L. Co.49
The respondents aver that the issues raised by the petitioner are
factual, inappropriate in a petition for review on certiorari under Rule
45 of the Rules of Court. They assert that petitioner adopted a
theory in litigating the case in the trial court, but changed the same
on appeal before the CA, and again in this Court. They argue that
the petitioner is estopped from adopting a new theory contrary to
those it had adopted in the trial and appellate courts. Moreover, the
existence of a contract of conditional sale was admitted in the
letters of XEI and OBM. They aver that they became owners of the
lots upon delivery to them by XEI.
The issues for resolution are the following: (1) whether the factual
issues raised by the petitioner are proper; (2) whether petitioner or
its predecessors-in-interest, the XEI or the OBM, as seller, and the
respondents, as buyers, forged a perfect contract to sell over the
property; (3) whether petitioner is estopped from contending that no
such contract was forged by the parties; and (4) whether
respondents has a cause of action against the petitioner for specific
performance.
The rule is that before this Court, only legal issues may be raised in
a petition for review on certiorari. The reason is that this Court is not
a trier of facts, and is not to review and calibrate the evidence on
record. Moreover, the findings of facts of the trial court, as affirmed
on appeal by the Court of Appeals, are conclusive on this Court
unless the case falls under any of the following exceptions:
(1) when the conclusion is a finding grounded entirely on
speculations, surmises and conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) where there
is a grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its findings
went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings
are contrary to those of the trial court; (8) when the findings of fact
are conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition as well as in
the petitioners’ main and reply briefs are not disputed by the
respondents; and (10) when the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record.50
We have reviewed the records and we find that, indeed, the ruling
of the appellate court dismissing petitioner’s appeal is contrary to
law and is not supported by evidence. A careful examination of the
factual backdrop of the case, as well as the antecedental
proceedings constrains us to hold that petitioner is not barred from
asserting that XEI or OBM, on one hand, and the respondents, on
the other, failed to forge a perfected contract to sell the subject lots.
It must be stressed that the Court may consider an issue not raised
during the trial when there is plain error.51 Although a factual issue
was not raised in the trial court, such issue may still be considered
and resolved by the Court in the interest of substantial justice, if it
finds that to do so is necessary to arrive at a just decision,52 or
when an issue is closely related to an issue raised in the trial court
and the Court of Appeals and is necessary for a just and complete
resolution of the case.53 When the trial court decides a case in favor
of a party on certain grounds, the Court may base its decision upon
some other points, which the trial court or appellate court ignored or
erroneously decided in favor of a party.54
In this case, the issue of whether XEI had agreed to allow the
respondents to pay the purchase price of the property was raised
by the parties. The trial court ruled that the parties had perfected a
contract to sell, as against petitioner’s claim that no such contract
existed. However, in resolving the issue of whether the petitioner
was obliged to sell the property to the respondents, while the CA
declared that XEI or OBM and the respondents failed to agree on
the schedule of payment of the balance of the purchase price of the
property, it ruled that XEI and the respondents had forged a
contract to sell; hence, petitioner is entitled to ventilate the issue
before this Court.
We agree with petitioner’s contention that, for a perfected contract
of sale or contract to sell to exist in law, there must be an
Page 21 of 37
agreement of the parties, not only on the price of the property sold,
but also on the manner the price is to be paid by the vendee.
Under Article 1458 of the New Civil Code, in a contract of sale,
whether absolute or conditional, one of the contracting parties
obliges 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. A contract of sale is perfected at the
moment there is a meeting of the minds upon the thing which is the
object of the contract and the price. From the averment of
perfection, the parties are bound, not only to the fulfillment of what
has been expressly stipulated, but also to all the consequences
which, according to their nature, may be in keeping with good faith,
usage and law.55 On the other hand, when the contract of sale or to
sell is not perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation between the
parties.56
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.57
It is not enough for the parties to agree on the price of the property.
The parties must also agree on the manner of payment of the price
of the property to give rise to a binding and enforceable contract of
sale or contract to sell. This is so because the agreement as to the
manner of payment goes into the price, such that a disagreement
on the manner of payment is tantamount to a failure to agree on the
price.58
In a contract to sell property by installments, it is not enough that
the parties agree on the price as well as the amount of
downpayment. The parties must, likewise, agree on the manner of
payment of the balance of the purchase price and on the other
terms and conditions relative to the sale. Even if the buyer makes a
downpayment or portion thereof, such payment cannot be
considered as sufficient proof of the perfection of any purchase and
sale between the parties. Indeed, this Court ruled in Velasco v.
Court of Appeals59 that:
It is not difficult to glean from the aforequoted averments that the
petitioners themselves admit that they and the respondent still had
to meet and agree on how and when the down-payment and the
installment payments were to be paid. Such being the situation, it
cannot, therefore, be said that a definite and firm sales agreement
between the parties had been perfected over the lot in question.
Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an
essential element in the formation of a binding and enforceable
contract of sale. The fact, therefore, that the petitioners delivered to
the respondent the sum of ₱10,000.00 as part of the downpayment
that they had to pay cannot be considered as sufficient proof of the
perfection of any purchase and sale agreement between the parties
herein under article 1482 of the New Civil Code, as the petitioners
themselves admit that some essential matter – the terms of
payment – still had to be mutually covenanted.60
We agree with the contention of the petitioner that, as held by the
CA, there is no showing, in the records, of the schedule of payment
of the balance of the purchase price on the property amounting to
₱278,448.00. We have meticulously reviewed the records, including
Ramos’ February 8, 1972 and August 22, 1972 letters to
respondents,61 and find that said parties confined themselves to
agreeing on the price of the property (₱348,060.00), the 20%
downpayment of the purchase price (₱69,612.00), and credited
respondents for the ₱34,887.00 owing from Ramos as part of the
20% downpayment. The timeline for the payment of the balance of
the downpayment (₱34,724.34) was also agreed upon, that is, on or
before XEI resumed its selling operations, on or before December
31, 1972, or within five (5) days from written notice of such
resumption of selling operations. The parties had also agreed to
incorporate all the terms and conditions relating to the sale,
inclusive of the terms of payment of the balance of the purchase
price and the other substantial terms and conditions in the
"corresponding contract of conditional sale," to be later signed by
the parties, simultaneously with respondents’ settlement of the
balance of the downpayment.
The February 8, 1972 letter of XEI reads:
Mr. Carlos T. Manalo, Jr.
Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City
Dear Mr. Manalo:
We agree with your verbal offer to exchange the proceeds of your contract
with us to form as a down payment for a lot in our Xavierville Estate
Subdivision.
Please let us know your choice lot so that we can fix the price and terms of
payment in our conditional sale.
Sincerely yours,
XAVIERVILLE ESTATE, INC.
(Signed)
EMERITO B. RAMOS, JR.
President
CONFORME:
(Signed)
CARLOS T. MANALO, JR.
Hurricane Rotary Well Drilling62
The August 22, 1972 letter agreement of XEI and the respondents
reads:
Mrs. Perla P. Manalo
1548 Rizal Avenue Extensionbr>Caloocan City
Dear Mrs. Manalo:
This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our
consolidation-subdivision plan as amended, consisting of 1,740.3 square
meters more or less, at the price of ₱200.00 per square meter or a total price
of ₱348,060.00.
It is agreed that as soon as we resume selling operations, you must pay a
down payment of 20% of the purchase price of the said lots and sign the
corresponding Contract of Conditional Sale, on or before December 31, 1972,
provided, however, that if we resume selling after December 31, 1972, then
you must pay the aforementioned down payment and sign the aforesaid
contract within five (5) days from your receipt of our notice of resumption of
selling operations.
In the meanwhile, you may introduce such improvements on the said lots as
you may desire, subject to the rules and regulations of the subdivision.
If the above terms and conditions are acceptable to you, please signify your
conformity by signing on the space herein below provided.
Thank you.
Very truly yours,
XAVIERVILLE ESTATE, INC. CONFORME:
By:
(Signed) (Signed)
EMERITO B. RAMOS, JR. PERLA P. MANALO
President Buyer63
Based on these two letters, the determination of the terms of
payment of the ₱278,448.00 had yet to be agreed upon on or
before December 31, 1972, or even afterwards, when the parties
sign the corresponding contract of conditional sale.
Jurisprudence is that if a material element of a contemplated
contract is left for future negotiations, the same is too indefinite to
be enforceable.64 And when an essential element of a contract is
reserved for future agreement of the parties, no legal obligation
arises until such future agreement is concluded.65
So long as an essential element entering into the proposed
obligation of either of the parties remains to be determined by an
agreement which they are to make, the contract is incomplete and
unenforceable.66 The reason is that such a contract is lacking in the
necessary qualities of definiteness, certainty and mutuality.67
There is no evidence on record to prove that XEI or OBM and the
respondents had agreed, after December 31, 1972, on the terms of
payment of the balance of the purchase price of the property and
the other substantial terms and conditions relative to the sale.
Indeed, the parties are in agreement that there had been no
contract of conditional sale ever executed by XEI, OBM or
petitioner, as vendor, and the respondents, as vendees.68
The ruling of this Court in Buenaventura v. Court of Appeals has no
bearing in this case because the issue of the manner of payment of
the purchase price of the property was not raised therein.
We reject the submission of respondents that they and Ramos had
intended to incorporate the terms of payment contained in the three
contracts of conditional sale executed by XEI and other lot buyers in
the "corresponding contract of conditional sale," which would later
be signed by them.69 We have meticulously reviewed the
respondents’ complaint and find no such allegation
therein.70 Indeed, respondents merely alleged in their complaint that
they were bound to pay the balance of the purchase price of the
property "in installments." When respondent Manalo, Jr. testified, he
was never asked, on direct examination or even on cross-
examination, whether the terms of payment of the balance of the
purchase price of the lots under the contracts of conditional sale
executed by XEI and other lot buyers would form part of the
Page 22 of 37
"corresponding contract of conditional sale" to be signed by them
simultaneously with the payment of the balance of the
downpayment on the purchase price.
We note that, in its letter to the respondents dated June 17, 1976,
or almost three years from the execution by the parties of their
August 22, 1972 letter agreement, XEI stated, in part, that
respondents had purchased the property "on installment
basis."71 However, in the said letter, XEI failed to state a specific
amount for each installment, and whether such payments were to
be made monthly, semi-annually, or annually. Also, respondents, as
plaintiffs below, failed to adduce a shred of evidence to prove that
they were obliged to pay the ₱278,448.00 monthly, semi-annually
or annually. The allegation that the payment of the ₱278,448.00
was to be paid in installments is, thus, vague and indefinite. Case
law is that, for a contract to be enforceable, its terms must be
certain and explicit, not vague or indefinite.72
There is no factual and legal basis for the CA ruling that, based on
the terms of payment of the balance of the purchase price of the
lots under the contracts of conditional sale executed by XEI and the
other lot buyers, respondents were obliged to pay the ₱278,448.00
with pre-computed interest of 12% per annum in 120-month
installments. As gleaned from the ruling of the appellate court, it
failed to justify its use of the terms of payment under the three
"contracts of conditional sale" as basis for such ruling, to wit:
On the other hand, the records do not disclose the schedule of
payment of the purchase price, net of the downpayment.
Considering, however, the Contracts of Conditional Sale (Exhs. "N,"
"O" and "P") entered into by XEI with other lot buyers, it would
appear that the subdivision lots sold by XEI, under contracts to sell,
were payable in 120 equal monthly installments (exclusive of the
downpayment but including pre-computed interests) commencing
on delivery of the lot to the buyer.73
By its ruling, the CA unilaterally supplied an essential element to the
letter agreement of XEI and the Respondents. Courts should not
undertake to make a contract for the parties, nor can it enforce one,
the terms of which are in doubt.74 Indeed, the Court emphasized in
Chua v. Court of Appeals75 that it is not the province of a court to
alter a contract by construction or to make a new contract for the
parties; its duty is confined to the interpretation of the one which
they have made for themselves, without regard to its wisdom or
folly, as the court cannot supply material stipulations or read into
contract words which it does not contain.
Respondents, as plaintiffs below, failed to allege in their complaint
that the terms of payment of the ₱278,448.00 to be incorporated in
the "corresponding contract of conditional sale" were those
contained in the contracts of conditional sale executed by XEI and
Soller, Aguila and Roque.76 They likewise failed to prove such
allegation in this Court.
The bare fact that other lot buyers were allowed to pay the balance
of the purchase price of lots purchased by them in 120 or 180
monthly installments does not constitute evidence that XEI also
agreed to give the respondents the same mode and timeline of
payment of the ₱278,448.00.
Under Section 34, Rule 130 of the Revised Rules of Court,
evidence that one did a certain thing at one time is not admissible to
prove that he did the same or similar thing at another time, although
such evidence may be received to prove habit, usage, pattern of
conduct or the intent of the parties.
Similar acts as evidence. – Evidence that one did or did not do a
certain thing at one time is not admissible to prove that he did or did
not do the same or a similar thing at another time; but it may be
received to prove a specific intent or knowledge, identity, plan,
system, scheme, habit, custom or usage, and the like.
However, respondents failed to allege and prove, in the trial court,
that, as a matter of business usage, habit or pattern of conduct, XEI
granted all lot buyers the right to pay the balance of the purchase
price in installments of 120 months of fixed amounts with pre-
computed interests, and that XEI and the respondents had intended
to adopt such terms of payment relative to the sale of the two lots in
question. Indeed, respondents adduced in evidence the three
contracts of conditional sale executed by XEI and other lot buyers
merely to prove that XEI continued to sell lots in the subdivision as
sales agent of OBM after it acquired said lots, not to prove usage,
habit or pattern of conduct on the part of XEI to require all lot buyers
in the subdivision to pay the balance of the purchase price of said
lots in 120 months. It further failed to prive that the trial court
admitted the said deeds77 as part of the testimony of respondent
Manalo, Jr.78
Habit, custom, usage or pattern of conduct must be proved like any
other facts. Courts must contend with the caveat that, before they
admit evidence of usage, of habit or pattern of conduct, the offering
party must establish the degree of specificity and frequency of
uniform response that ensures more than a mere tendency to act in
a given manner but rather, conduct that is semi-automatic in nature.
The offering party must allege and prove specific, repetitive conduct
that might constitute evidence of habit. The examples offered in
evidence to prove habit, or pattern of evidence must be numerous
enough to base on inference of systematic conduct. Mere similarity
of contracts does not present the kind of sufficiently similar
circumstances to outweigh the danger of prejudice and confusion.
In determining whether the examples are numerous enough, and
sufficiently regular, the key criteria are adequacy of sampling and
uniformity of response. After all, habit means a course of behavior
of a person regularly represented in like circumstances. 79 It is only
when examples offered to establish pattern of conduct or habit are
numerous enough to lose an inference of systematic conduct that
examples are admissible. The key criteria are adequacy of
sampling and uniformity of response or ratio of reaction to
situations.80
There are cases where the course of dealings to be followed is
defined by the usage of a particular trade or market or profession.
As expostulated by Justice Benjamin Cardozo of the United States
Supreme Court: "Life casts the moulds of conduct, which will
someday become fixed as law. Law preserves the moulds which
have taken form and shape from life."81 Usage furnishes a standard
for the measurement of many of the rights and acts of men. 82 It is
also well-settled that parties who contract on a subject matter
concerning which known usage prevail, incorporate such usage by
implication into their agreement, if nothing is said to be contrary.83
However, the respondents inexplicably failed to adduce sufficient
competent evidence to prove usage, habit or pattern of conduct of
XEI to justify the use of the terms of payment in the contracts of the
other lot buyers, and thus grant respondents the right to pay the
₱278,448.00 in 120 months, presumably because of respondents’
belief that the manner of payment of the said amount is not an
essential element of a contract to sell. There is no evidence that
XEI or OBM and all the lot buyers in the subdivision, including lot
buyers who pay part of the downpayment of the property purchased
by them in the form of service, had executed contracts of
conditional sale containing uniform terms and conditions. Moreover,
under the terms of the contracts of conditional sale executed by XEI
and three lot buyers in the subdivision, XEI agreed to grant 120
months within which to pay the balance of the purchase price to two
of them, but granted one 180 months to do so.84 There is no
evidence on record that XEI granted the same right to buyers of two
or more lots.
Irrefragably, under Article 1469 of the New Civil Code, the price of
the property sold may be considered certain if it be so with
reference to another thing certain. It is sufficient if it can be
determined by the stipulations of the contract made by the parties
thereto85 or by reference to an agreement incorporated in the
contract of sale or contract to sell or if it is capable of being
ascertained with certainty in said contract;86 or if the contract
contains express or implied provisions by which it may be rendered
certain;87 or if it provides some method or criterion by which it can
be definitely ascertained.88 As this Court held in Villaraza v. Court of
Appeals,89 the price is considered certain if, by its terms, the
contract furnishes a basis or measure for ascertaining the amount
agreed upon.
We have carefully reviewed the August 22, 1972 letter agreement
of the parties and find no direct or implied reference to the manner
and schedule of payment of the balance of the purchase price of
the lots covered by the deeds of conditional sale executed by XEI
and that of the other lot buyers90 as basis for or mode of
determination of the schedule of the payment by the respondents of
the ₱278,448.00.
The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric
91
Railroad and Light Company is not applicable in this case
because the basic price fixed in the contract was ₱9.45 per long
ton, but it was stipulated that the price was subject to modification
"in proportion to variations in calories and ash content, and not
otherwise." In this case, the parties did not fix in their letters-
agreement, any method or mode of determining the terms of
Page 23 of 37
payment of the balance of the purchase price of the property
amounting to ₱278,448.00.
It bears stressing that the respondents failed and refused to pay the
balance of the downpayment and of the purchase price of the
property amounting to ₱278,448.00 despite notice to them of the
resumption by XEI of its selling operations. The respondents
enjoyed possession of the property without paying a centavo. On
the other hand, XEI and OBM failed and refused to transmit a
contract of conditional sale to the Respondents. The respondents
could have at least consigned the balance of the downpayment
after notice of the resumption of the selling operations of XEI and
filed an action to compel XEI or OBM to transmit to them the said
contract; however, they failed to do so.
As a consequence, respondents and XEI (or OBM for that matter)
failed to forge a perfected contract to sell the two lots; hence,
respondents have no cause of action for specific performance
against petitioner. Republic Act No. 6552 applies only to a perfected
contract to sell and not to a contract with no binding and
enforceable effect.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED.
The Decision of the Court of Appeals in CA-G.R. CV No. 47458 is
REVERSED and SET ASIDE. The Regional Trial Court of Quezon
City, Branch 98 is ordered to dismiss the complaint. Costs against
the Respondents.
SO ORDERED.
CASE 7 (1470)
G.R. No. 119857 July 28, 2010
GOLDEN APPLE REALTY AND DEVELOPMENT
CORPORATION AND ROSVIBON REALTY
CORPORATION, Petitioners,
vs.
SIERRA GRANDE REALTY CORPORATION, MANPHIL
INVESTMENT CORPORATION, RENAN V. SANTOS AND
PATRICIO MAMARIL, Respondents.
DECISION
PERALTA, J.:
This is a petition for review1 on certiorari under Rule 45 of the Rules
of Court seeking to nullify and set aside the Decision2 of the Court
3
of Appeals (CA) dated January 23, 1995 and the Resolution dated
March 28, 1995 in CA-G.R. CV No. 40961.
The antecedent facts are the following:
On December 1, 1981, Hayari Trading Corporation (Hayari),
through a Loan Agreement,4 borrowed from Manphil Investment
Corporation (Manphil) the amount of Two Million Five Hundred
Thousand Pesos (₱2,500,000.00) for the benefit of Filipinas Textile
Mills, Inc. (Filtex).
On the same date, Hayari President Yu Han Yat, Jr., his wife Terry
Villanueva Yu and the latter's uncle, Bernardino Villanueva,
executed an Assumption of Joint and Solidary Liability5 for and in
consideration of the loan granted to Hayari, assuming joint and
solidary liability with Hayari for the due and punctual payment of all
and/or any amortizations on the loan, as well as all amounts
payable to Manphil, in connection therewith and for the strict
performance and fulfillment of the obligation of Hayari.
In connection therewith, Valiant Realty and Development
Corporation, represented by its General Manager Bernardino
Villanueva, and Sierra Grande Realty Corporation (Sierra Grande),
represented by Terry Villanueva Yu, executed a Third Party Real
Estate Mortgage6 in favor of Manphil over a parcel of land,
otherwise known as the Roberts property.
Filtex also constituted a real estate mortgage over certain parcels of
land that it owned and also constituted a chattel mortgage over the
machinery of Hayari in order to secure payment of the loan.
Thereafter, Bernardino Villanueva suggested that the Roberts
property be subdivided to make it easier for Sierra Grande to sell
the same. On June 22, 1985, as suggested, the Board of Directors
of Sierra Grande, composed of brothers and sisters Robert
Villanueva, Daniel Villanueva, Terry Villanueva Yu, Susan
Villanueva and Eden Villanueva, passed a resolution7 authorizing
General Manager Bernardino Villanueva, brother of their deceased
father, to hire a geodetic engineer and cause the subdivision plan to
be approved by the Land Registration Commission, and to sell the
subdivided lots after approval of the subdivision plan, if found to be
necessary and for which the corporation may need to carry its
purpose.
Eventually, on June 22, 1985, Bernardino Villanueva executed a
Contract to Sell8 the Roberts property with Golden Apple Realty and
Development, Inc. (Golden Apple), majority of its stocks are owned
by Elmer Tan, a first cousin of the Villanueva brothers and sisters,
and Rosvibon Realty Corporation (Rosvibon), majority of its stocks
are owned by Rosita So, another sister of the father of the
Villanueva brothers and sisters, for the amount of ₱441,032.00. The
amount of ₱10,000.00 of the purchase price will have to be paid to
the vendor upon the signing of the contract and the balance to be
paid to the mortgagee Manphil, on or before October 31, 1987.
On June 29, 1985, the Roberts property was surveyed and
subdivided into four lots,9 subject to the approval of the subdivision
plan.
On July 26, 1985, Sierra Grande, through Bernardino Villanueva,
finally executed a Deed of Sale10 of Lots 1, 2 and 3, with a total land
area of 1,402 square meters, to Golden Apple, for ₱382,080.00 and
another Deed of Sale11 of Lot 4, with a total land area of 499 sq. m.,
to Rosvibon for ₱119,760.00.
Meanwhile, Sierra Grande's Board, on August 29, 1985, passed a
resolution12 revoking the authority of Bernardo Villanueva to sell
the Roberts property. Hayari President Yu Han Yat, Jr., husband of
Sierra Grande director Terry Villanueva Yu, advised Manphil,
through a letter13 dated August 30, 1985, that all dealings with
respect to its loan or credit facility with Manphil shall be coursed
through or effected with the express knowledge, representation or
consent of the President of Hayari. Thereafter, a
resolution14 notarized on September 3, 1985 was passed by the
directors of Sierra Grande revoking the authority previously granted
to Bernardino Villanueva to negotiate and contract the sale of
the Roberts property and any other property, in behalf of the
corporation and place on notice all prospective buyers or vendees
not to negotiate or contract with any party other than the duly
authorized officer or officers of the corporation who are expressly
empowered to enter into such transaction and who can exhibit a
formal board resolution duly certified by the board secretary and
signed by the majority of the board of directors who are also the
majority stockholders representing at least 2/3 of the capital stock .
Nevertheless, on September 16, 1985, Elmer Tan, on behalf of the
buyer corporations, paid to Manphil for Hayari's account an
amortization of ₱57,819.72, for the principal sum due on July 27,
1985; ₱42,192.30, for Int.-CBP; ₱27,329.05, for interest; and
₱3,423.40, as penalties.15
Sometime in January 1986, Sierra Grande learned that Bernardino
Villanueva16 tried to secure the duplicate original title17 of the
subject parcel of land from Manphil claiming to be the President of
Hayari. As a result, on November 20, 1986, Sierra Grande, through
Susan Villanueva Tan, the Corporate Secretary, wrote18 Manphil
stating that Bernardino Villanueva was not in any way connected
officially with Sierra Grande and was not authorized to deal in any
way with the Roberts property nor borrow the transfer certificate title
to the same property. Susan Tan also wrote19 the Bangko Sentral
ng Pilipinas (BSP), as the subject property was already on
receivership, informing the latter of the following: that Hayari had
not made any request to borrow any duplicate original title; that
Bernardino Villanueva was not connected in any way with Hayari;
that Bernardino Villanueva had no authority to borrow any duplicate
original title; and that whatever authorization Bernardo Villanueva
had in dealing with the Roberts property had been withdrawn and
abrogated under a board resolution. The letter also requested that
even if payments were made on the loan of Hayari by a third party,
the subject duplicate original title must not be released without the
express consent of Hayari.
Later, on August 15, 1988, Terry Villanueva Yu, the President of
Sierra Grande at that time, informed20 Manphil that Bernardino
Villanueva and Elmer Tan had attempted to pre-terminate Hayari's
loan in order to obtain the duplicate original title of the subject lot. It
was also mentioned in the letter that Hayari may opt to pre-
terminate the loan itself and be subrogated in the right of action
against Bernardino Villanueva.
However, on October 20, 1988, Manphil allowed Elmer Tan to pre-
terminate Hayari's obligation after making total payments to Manphil
in the amount of ₱3,134,921.00.21
Hence, Golden Apple and Rosvibon, on November 28, 1988, filed
with the Regional Trial Court of Pasay City, a Complaint22 against
Sierra Grande and Manphil for specific performance and damages.
Page 24 of 37
On February 27, 1991, the trial court rendered its Decision, 23 the
dispositive portion of which reads:
WHEREFORE, the Court hereby renders judgment for the plaintiffs
and against the defendants, ordering,
1) all defendants to surrender and deliver to plaintiffs
corporations the owner's duplicate copy of TCT No.
19801 of the Registry of Deeds for Pasay City;
2) defendants Sierra Grande to pay plaintiffs the sums of
₱50,000.00 by way of moral and exemplary damages,
respectively;
3) defendant Sierra Grande to pay plaintiffs the sum of
₱50,000.00 as and for attorney's fees and costs of suit.
The Counterclaim is hereby DISMISSED.
SO ORDERED.
On April 3, 1991, Sierra Grande filed a Motion for
Reconsideration24 of the decision, which was eventually denied by
the trial court.25
The respondents herein filed their appeal with the CA, which
reversed the decision of the trial court in its Decision26 dated
January 23, 1995. The dispositive portion of the said Decision reads
as follows:
WHEREFORE, the Court REVERSES the appealed decision. We
DISMISS the plaintiffs' complaint and on defendant Sierra Grande's
counterclaim, we SENTENCE plaintiffs to pay defendant Sierra
Grande ₱20,000.00, as attorney's fees and costs.
SO ORDERED.
The Motion for Reconsideration27 dated February 3, 1995 filed by
herein petitioners was later on denied by the CA.28 Thus, the
present petition.
Petitioners raised the following assignment of errors:
ASSIGNMENT OF ERRORS
The respondent Court of Appeals grievously erred in:
4.1 invalidating the Deeds of Absolute Sale between
"Golden Apple" and "Rosvibon," as vendees, and "Sierra
Grande," as vendor, on the primordial premise that
"badges of fraud" attended their execution;
4.2 applying Article 1602 of the Civil Code to the case at
bar;
4.3 overextending Article 1602 of the Civil Code to
include lack of capacity, notarial infirmity, and conflict of
interest to the concept of "badges of fraud";
4.4 invalidating the contracts on the ground of
insufficiency of consideration;
4.5 invalidating the contracts on the ground of lack of
legal personality of vendee "Rosvibon Realty";
4.6 invalidating the contracts on the ground of irregularity
in its execution and in concluding that the deeds of sale
were ante-dated;
4.7 invalidating the contracts on the ground of conflict of
interest; and finally
4.8 disallowing damages awarded by the trial court to the
petitioners.
The petition is unmeritorious.
In reversing the decision of the trial court, the CA, in a short and
succinct manner, made factual conclusions that necessitated its
finding that the contracts in question were invalid.
The said ruling of the CA is contrary to the factual findings of the
trial court. In Guillang v. Bedania,29 this Court reiterated that it is not
a trier of facts, but certain exceptions apply, thus:
The principle is well-established that this Court is not a trier of facts.
Therefore, in an appeal by certiorari under Rule 45 of the Rules of
Court, only questions of law may be raised.1avvphi1 The resolution
of factual issues is the function of the lower courts whose findings
on these matters are received with respect and are, as a rule,
binding on this Court.30
However, this rule is subject to certain exceptions. One of these
is when the findings of the appellate court are contrary to
those of the trial court.31 Findings of fact of the trial court and the
Court of Appeals may also be set aside when such findings are not
supported by the evidence or where the lower courts' conclusions
are based on a misapprehension of facts.32
Obviously, the contrary findings of the trial court and the CA leave
this Court with no other alternative but to re-examine some of the
facts raised in the present petition.
Petitioners claim that the CA misused the term badges of fraud in
reaching its decision. According to them, Article 1602, upon which
the term badges of fraud refers to, is not applicable, because the
said article refers to a sale with a right to repurchase, whereas the
subject invalidated contracts were absolute sales. They cited a
case33 where this Court pronounced that, badges of fraud is a
circumstance in Article 1602 of the Civil Code, which, if present in
any given transaction, gives rise to the presumption that it is not a
sale but an equitable mortgage. Thus, according to petitioners, the
CA confused Article 1602 (1) with that of Article 1470, 34 because
both articles deal with sale in general and have inadequacy of price
as subject matter. Either way, they argue, the inadequacy of the
price does not result in the cancellation or invalidation of contracts.
However, the above argument of petitioners is speculative. A close
reading of the CA Decision would reveal that the said court used
the phrase badges of fraud to refer to certain fraudulent acts that
attended the execution of the Contract to Sell and the Deeds of
Absolute Sale which would eventually tend to prove that the same
transactions were indeed suspicious as the said contracts were
antedated, simulated and fraudulent. The said findings were pointed
out by the CA in this manner:
We declare the contracts invalid.
We find that there were badges of fraud showing that the contracts
were simulated and fraudulent.
First, one of the vendees, Rosvibon, was incorporated only on July
8, 1985 (Exhibit "17-A"). Thus, at the time the Contract to Sell was
executed, Rosvibon Realty Corporation had no legal personality to
purchase the property.
Second, the deeds of absolute sale were executed irregularly. The
notarial acknowledgment did not indicate the residence certificates
of the vendees which were in fact obtained subsequent to the date
of notarization. This is an anomaly which shows that the deeds of
sale were ante-dated to beat the resolution revoking the vendor's
authority to sell.
Third, there was no sufficient consideration paid for the property
involved and, worse, was attended with fraudulent conflict of
interest because the vendor, Bernardino Villanueva, was a
stockholder of the buyer corporations.35
This then refutes the whole discussion of petitioners as to the
misuse or misappreciation of the applicable laws by the CA in
arriving at its judgment. Again, an examination of the CA’s Decision
shows that the phrase did not refer to any particular provision of a
law, hence, the general and ordinary meaning of the phrase
prevails. In the same manner, this Court, in numerous
cases36 concerning various subjects, has used the same phrase in
its rulings referring to the said phrase's general and ordinary
meaning.
Petitioners also contend that whether or not one of the vendee
corporations is not yet in existence at the time the Contract to Sell
was executed cannot be directly questioned by any party to a suit
as the existence of a corporation may only be attacked by the
Government through the Solicitor General in a quo
warranto proceeding called for the purpose and not by a collateral
attack whereby the corporate existence is questioned in some
incidental proceedings not provided by law for the express purpose
of attacking the corporate existence.
That particular line of argument is an over-stretch. It is undisputed
that petitioner Rosvibon had no legal personality at the time of the
execution of the Contract to Sell. As stated by the petitioners
themselves in their petition:
x x x It is worthy to note at this juncture, that while it may be true
that one of the vendees corporation, Rosvibon, does not have
the personality to enter into a Contract to Sell on June 22,
1985, as it was only incorporated on July 8, 1985, it cannot be
said that said corporation does not have the personality to enter into
the Contract of Sale as the said contract was executed on 26 July
1985.37
It bears to stress, however, that the CA did not pass upon the
corporate personality of Rosvibon nor did it declare the same
corporation's franchise invalid. Thus, there is no need for a quo
warranto proceeding as claimed by petitioners. The CA merely
made the finding which is undisputed by the petitioners that
Rosbivon had no legal personality at the time of the execution of the
Contract to Sell. According to the CA, because of Rosbivon's lack of
personality at the time of the execution of the Contract to Sell, its
presence as a party to the same transaction is taken as another
indication that fraud was indeed attendant. This is one of the
situations included, and comprising the phrase badges of fraud.
As to the contention of petitioners that the CA erred in invalidating
the contracts on the ground of notarial infirmity and concluding that
Page 25 of 37
they were ante-dated, this Court finds the said argument devoid of
any merit.
Petitioners claim that, since the representative of the corporation
appeared before the Notary Public, the acknowledgment was
complied with, even if they admitted that the representatives of the
corporations which executed the Deeds of Absolute Sale did not
present their residence certificates nor indicate the number, date
and place of issue of the same residence certificates in the
acknowledgment. As shown in the records and in the testimony of
the Notary Public, Atty. Melanio L. Zoreta, the requirement of the
presentation of the residence certificate was missing. Thus, as
testified:
On Cross-examination:
Atty. Alindato
Q: But you are sure, of course, that this document was completed in
its form without any additional data to be filled up, Mr. Witness,
except your signature and the date and the document number, and
the page number, etc. And of course, the dry seal?
A: I could remember, sir, that it took upon me to see that the
residence certificate of the corporation being represented by Mrs.
Rosita So and Elmer Tan did not have the residence certificate.
But upon the assurance of Mr. Bernardino Villanueva that they will
just put it afterwards, I notarized it because as far as I am
concerned, as a notary public, as long as I know the persons who
appeared before me and they have so identified themselves the
company or entity that they are representing would be of legal
ground already.
Q: So you are changing your previous answer that this document
was represented to you was already complete when you said that in
your latest answer that there were numbers of residence certificate
which are lacking?
A: Actually, I am changing my answer but you asked again for me
for the second time. That is why I took note that the residence
certificate of the two corporations were not yet then typewritten or
given by the parties involved.38
The CA then had a basis in concluding the defect in the notarial
requirement of the transaction. The pertinent provisions of the
Notarial Law39 applicable at that time provides:
Sec. 251. Requirement as to notation of payment of cedula tax –
Every contract, deed, or other document acknowledged before a
notary public shall have certified thereon that the parties thereto
have presented their proper cedula certificates or are exempt from
the cedula tax, and these shall be entered by the notary public as a
part of such certification, the number, the place of issues, and date
of each cedula certificate as aforesaid.
Another issue raised by petitioners is that the CA erred in voiding
the contracts on the ground of insufficiency of consideration or
price, because the claim of inadequacy of price must be proven and
that the respondents belatedly questioned the contracts' validity.
They further claim that the consideration was substantial and
adequate.
It must be noted that the property in question, subject of the
Contract to Sell for the sum of ₱441,032.00, is a land with a
contained area of, more or less, One Thousand Nine Hundred and
One (1,901) sq. m. with a two-storey residential building located in
Pasay City. In claiming that the said price of the property is not
inadequate, petitioners stated that the payment of Elmer Tan to pre-
terminate Hayari's obligation amounting to Three Million One
Hundred Thirty-Four Thousand Nine Hundred Twenty-One Pesos
(₱3,134,921.00) as part of the consideration paid for the property
should be included. However, as correctly argued by respondent
Sierra Grande, the amortizations paid by Elmer Tan to Manphil was
for a loan incurred by Hayari and not by respondent Sierra Grande;
thus, any payment of the amortizations on the loan of Hayari cannot
be considered as part of the consideration for the sale of the land
owned by respondent Sierra Grande. It is then safe to declare that
respondent Sierra Grande did not benefit from the loan or from its
pre-termination. Moreover, the records are bereft of any evidence to
support the claim of petitioners that the sum of money paid by
Elmer Tan, on behalf of Hayari, was part of the consideration for the
same property. What only appears is that the only consideration
paid for the sale of the Roberts property was the sum contained in
the Contract to Sell, which was ₱441,032.00 which, considering the
size40 and location41 of the property, is inadequate. What prompted
Elmer Tan to pay the total amount of ₱3,134,921.00 cannot be
gleaned from the records, except that it was for the loan incurred by
Hayari, which is an independent juridical entity, separate and
distinct from Sierra Grande. Hence, the CA did not commit any error
in declaring that there was an insufficiency of consideration or price
as the same is shown on the very face of the Contract to Sell.
Anent the contention of petitioners that inadequacy of price does
not invalidate a contract, the said rule is not without an exception.
As provided in the Civil Code:
Art. 1355. Except in cases specified by law, lesion or inadequacy of
cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence.
The CA was clear as to its main reason for invalidating the
contracts in question – there was fraud. The inadequacy of price
was merely one of the circumstances upon which the CA was able
to find the existence of fraud and not the main cause for the
invalidation of the subject contracts.
All the other sub-issues raised by petitioners are rendered
inconsequential by the above disquisitions of this Court.
WHEREFORE, the petition for review on certiorari dated May 3,
1995 is DENIED. Consequently, the Decision dated January 23,
1995 and the Resolution dated March 28, 1995, of the Court of
Appeals, are hereby AFFIRMED.
SO ORDERED.
CASE 8 (1471)
G.R. No. 175483
VALENTINA S. CLEMENTE, Petitioner
vs.
THE COURT OF APPEALS, ANNIE SHOTWELL JALANDOON,
et al., Respondents
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the
Revised Rules of Court filed by Valentina S. Clemente ("petitioner")
from the Decision2 of August 23, 2005 and the Resolution3 dated
November 15, 2006 of the Court of Appeals (CA) Eighth Division in
CA-G.R. CV No. 70918.
Petitioner assails the Decision of the CA which ruled that two (2)
deeds of absolute sale executed between petitioner and Adela de
Guzman Shotwell ("Adela"), her grandmother, are void and
inexistent for being simulated and lacking consideration. The CA
affirmed the Decision of the Regional Trial Court (RTC) of Quezon
City, Branch 89, but deleted the holding of the latter that an implied
trust existed.
The Facts
Adela owned three (3) adjoining parcels of land in Scout Ojeda
Street, Diliman, Quezon City, subdivided as Lots 32, 34 and 35-B
(the "Properties"). Among the improvements on the Properties was
Adela’s house (also referred to as the "big house"). During her
lifetime, Adela allowed her children, namely, Annie Shotwell
Jalandoon, Carlos G. Shotwell ("Carlos Sr."), Anselmo G. Shotwell
and Corazon S. Basset, and her grandchildren,4 the use and
5
possession of the Properties and its improvements.
Sometime in 1985 and 1987, Adela simulated the transfer of Lots
32 and Lot 34 to her two grandsons from Carlos Sr., namely, Carlos
V. Shotwell, Jr. ("Carlos Jr.") and Dennis V. Shotwell.6 As a
consequence, Transfer Certificate of Title (TCT) No. 338708/PR
9421 was issued over Lot 32 under the name of Carlos Jr., while
TCT No. 366256/PR 9422 was issued over Lot 34 under the name
of Dennis.7 On the other hand, Lot 35-B remained with Adela and
was covered by TCT No. 374531. It is undisputed that the transfers
were never intended to vest title to Carlos Jr. and Dennis who both
will return the lots to Adela when requested.8
On April 18, 1989, prior to Adela and petitioner’s departure for the
United States, Adela requested Carlos Jr. and Dennis to execute a
deed of Reconveyance9 over Lots 32 and 34. The deed of
reconveyance was executed on the same day and was registered
with the Registry of Deeds on April 24, 1989.10
On April 25, 1989, Adela executed a deed of absolute sale11 over
Lots 32 and 34, and their improvements, in favor of petitioner,
bearing on its face the price of 250,000.00. On the same day, Adela
also executed a special power of attorney12 (SPA) in favor of
petitioner. Petitioner’s authority under the SPA included the power
to administer, take charge and manage, for Adela’s benefit, the
Properties and all her other real and personal properties in the
Philippines.13 The deed of absolute sale and the SPA were
Page 26 of 37
notarized on the same day by Atty. Dionilo D. Marfil in Quezon
City.14
On April 29, 1989, Adela and petitioner left for the United
States.15 When petitioner returned to the Philippines, she registered
the sale over Lots 32 and 34 with the Registry of Deeds on
September 25, 1989. TCT No. 19811 and TCT No. 19809 were
then issued in the name of petitioner over Lots 32 and 34,
respectively.16
On January 14, 1990, Adela died in the United States and was
succeeded by her four children.17
Soon thereafter, petitioner sought to eject Annie and Carlos Sr.,
who were then staying on the Properties. Only then did Annie and
Carlos Sr. learn of the transfer of titles to petitioner. Thus, on July 9,
1990, Annie, Carlos Sr. and Anselmo, represented by Annie,
("private respondents") filed a complaint for reconveyance of
property18 against petitioner before Branch 89 of the RTC of
Quezon City. It was docketed as Civil Case No. Q-90-6035 and
titled "Annie S. Jalandoon, et al. v. Valentina Clemente."19
In the course of the trial, private respondents discovered that Adela
and petitioner executed another deed of absolute sale 20 over Lot
35-B on April 25, 1989 (collectively with the deed of absolute sale
over Lots 32 and 34, "Deeds of Absolute Sale"), bearing on its face
the price of 60,000.00.21 This was notarized on the same date by
one Orancio Generoso in Manila, but it was registered with the
Registry of Deeds only on October 5, 1990.22 Thus, private
respondents amended their complaint to include Lot 35-B.23
In their amended complaint, private respondents sought nullification
of the Deeds of Absolute Sale. They alleged that Adela only wanted
to help petitioner travel to the United States, by making it appear
that petitioner has ownership of the Properties. They further alleged
that similar to the previous simulated transfers to Carlos Jr. and
Dennis, petitioner also undertook and warranted to execute a deed
of reconveyance in favor of the deceased over the Properties, if and
when Adela should demand the same. They finally alleged that no
consideration was given by petitioner to Adela in exchange for the
simulated conveyances.24
On October 3, 1997, Carlos Sr. died and was substituted only by
Dennis.25 In an order dated June 18, 1999, the case was dismissed
with respect to Annie after she manifested her intention to withdraw
as a partyplaintiff.26 Anselmo Shotwell also died without any
compulsory heir on September 7, 2000.
On February 26, 2001, the trial court promulgated a Decision27 in
favor of private respondents. Its decretal portion reads:
WHEREFORE, premises considered, judgment is hereby rendered
as follows:
1. Declaring null and void the Deeds of Absolute Sale
both dated April 25, 1989 between the late Adela De
Guzman Shotwell and the defendant;
2. Ordering the cancellation of Transfer Certificates of
Title Nos. 19809, 19811 and 26558, all of the Registry of
Deeds of Quezon City and in the name of defendant
Valentina Clemente; and
3. Ordering the defendant to execute a Deed of
Reconveyance in favor of the estate of the late Adela de
Guzman Shotwell over the three (3) subject lots,
respectively covered by Transfer Certificates of Title Nos.
19809, 19811 and 26558 of the Registry of Deeds of
Quezon City; With costs against defendant.
SO ORDERED.28
On appeal, the CA affirmed with modification the Decision. The CA
ruled that the Deeds of Absolute Sale were simulated. It also ruled
that the conveyances of the Properties to petitioner were made
without consideration and with no intention to have legal effect.29
The CA agreed with the trial court that the contemporaneous and
subsequent acts of petitioner and her grandmother are enough to
render the conveyances null and void on the ground of being
simulated.30 The CA found that Adela retained and continued to
exercise dominion over the Properties even after she executed the
conveyances to petitioner.31 By contrast, petitioner did not exercise
control over the properties because she continued to honor the
decisions of Adela. The CA also affirmed the court a quo’s finding
32
that the conveyances were not supported by any consideration.
Petitioner filed a Motion for Reconsideration33 dated September 12,
2005 but this was denied by the CA in its Resolution34 dated
November 15, 2006.
Hence, this petition. The petition raises the principal issue of
whether or not the CA erred in affirming the decision of the trial
court, that the Deeds of Absolute Sale between petitioner and her
late grandmother over the Properties are simulated and without
consideration, and hence, void and inexistent.35
Ruling of the Court
We deny the petition.
In a Petition for Review on Certiorari under Rule 45, only questions
of law may be entertained.
Whether or not the CA erred in affirming the decision of the RTC
that the Deeds of Absolute Sale between petitioner and her late
grandmother are simulated and without consideration, and hence,
void and inexistent, is a question of fact which is not within the
province of a petition for review on certiorari under Rule 45 of the
Revised Rules of Court.
Section 1, Rule 45 of the Revised Rules of Court states that the
petition filed shall raise only questions of law, which must be
distinctly set forth. We have explained the difference between a
question of fact and a question of law, to wit:
A question of law arises when there is doubt as to what the law is
on a certain state of facts, while there is a question of fact when the
doubt arises as to the truth or falsity of the alleged facts. For a
question to be one of law, the same must not involve an
examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely
on what the law provides on the given set of circumstances. Once it
is clear that the issue invites a review of the evidence presented,
the question posed is one of fact.36
Most of the issues raised by petitioner are questions of fact that
invite a review of the evidence presented by the parties below. We
have repeatedly ruled that the issue on the genuineness of a deed
of sale is essentially a question of fact.37 We are not a trier of facts
and do not normally undertake the re-examination of the evidence
presented by the contending parties during the trial of the
case.38 This is especially true where the trial court's factual findings
are adopted and affirmed by the CA as in the present
case.39 Factual findings of the trial court affirmed by the CA are final
and conclusive and may not be reviewed on appeal.40 While it is
true that there are recognized exceptions41 to the general rule that
only questions of law may be entertained in a Rule 45 petition, we
find that there is none obtaining in this case.
Nevertheless, and to erase any doubt on the correctness of the
assailed ruling, we examined the records below and have arrived at
the same conclusion.1âwphi1 Petitioner has not been able to show
that the lower courts committed error in appreciating the evidence
of record.
The Deeds of Absolute Sale between petitioner and the late Adela
Shotwell are null and void for lack of consent and consideration.
While the Deeds of Absolute Sale appear to be valid on their face,
the courts are not completely precluded to consider evidence
aliunde in determining the real intent of the parties. This is
especially true when the validity of the contracts was put in issue by
one of the parties in his pleadings.42 Here, private respondents
assail the validity of the Deeds of Absolute Sale by alleging that
they were simulated and lacked consideration.
A. Simulated contract
The Civil Code defines a contract as a meeting of minds between
two persons whereby one binds himself, with respect to the other,
to give something or to render some service.43 Article 1318 provides
that 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; and
(3) Cause of the obligation which is established.
All these elements must be present to constitute a valid contract;
the absence of one renders the contract void. As one of the
essential elements, consent when wanting makes the contract non-
existent. Consent is manifested by the meeting of the offer and the
acceptance of the thing and the cause, which are to constitute the
contract.44 A contract of sale is perfected at the moment there is a
meeting of the minds upon the thing that is the object of the
contract, and upon the price.45
Here, there was no valid contract of sale between petitioner and
Adela because their consent was absent. The contract of sale was
a mere simulation.
Simulation takes place when the parties do not really want the
contract they have executed to produce the legal effects expressed
46
by its wordings. Article 1345 of the Civil Code provides that the
simulation of a contract may either be absolute or relative. The
former takes place when the parties do not intend to be bound at
Page 27 of 37
all; the latter, when the parties conceal their true agreement. The
case of Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M.
Ureta47 is instructive on the matter of absolute simulation of
contracts, viz:
In absolute simulation, there is a colorable contract but it has no
substance as the parties have no intention to be bound by it. The
main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in
any way alter the juridical situation of the parties. As a result, an
absolutely simulated or fictitious contract is void, and the parties
may recover from each other what they may have given under the
contract...48 (Emphasis supplied)
In short, in absolute simulation there appears to be a valid contract
but there is actually none because the element of consent is
lacking.49 This is so because the parties do not actually intend to be
bound by the terms of the contract.
In determining the true nature of a contract, the primary test is the
intention of the parties. If the words of a contract appear to
contravene the evident intention of the parties, the latter shall
prevail. Such intention is determined not only from the express
terms of their agreement, but also from the contemporaneous and
subsequent acts of the parties.50 This is especially true in a claim of
absolute simulation where a colorable contract is executed.
In ruling that the Deeds of Absolute Sale were absolutely simulated,
the lower courts considered the totality of the prior,
contemporaneous and subsequent acts of the parties. The following
circumstances led the RTC and the CA to conclude that the Deeds
of Absolute Sale are simulated, and that the transfers were never
intended to affect the juridical relation of the parties:
a) There was no indication that Adela intended to alienate
her properties in favor of petitioner. In fact, the letter of
Adela to Dennis dated April 18, 198951 reveals that she
has reserved the ownership of the Properties in favor of
Dennis.
b) Adela continued exercising acts of dominion and
control over the properties, even after the execution of
the Deeds of Absolute Sale, and though she lived abroad
for a time. In Adela’s letter dated August 25, 198952 to a
certain Candy, she advised the latter to stay in the big
house. Also, in petitioner’s letter to her cousin Dennis
dated July 3, 1989,53 she admitted that Adela continued
to be in charge of the Properties; that she has no "say"
when it comes to the Properties; that she does not intend
to claim exclusive ownership of Lot 35-B; and that she is
aware that the ownership and control of the Properties
are intended to be consolidated in Dennis.
c) The SPA executed on the same day as the Deeds of
Absolute Sale appointing petitioner as administratrix of
Adela’s properties, including the Properties, is repugnant
to petitioner’s claim that the ownership of the same had
been transferred to her.
d) The previous sales of the Properties to Dennis and
Carlos, Jr. were simulated. This history, coupled with
Adela’s treatment of petitioner, and the surrounding
circumstances of the sales, strongly show that Adela only
granted petitioner the same favor she had granted to
Dennis and Carlos Jr.
The April 18, 1989 letter to Dennis convincingly shows Adela’s
intention to give him the Properties. Part of the letter reads:
"Dennis, the two lot [sic] 32-34 at your said lower house will be at
name yours [sic] plus the 35 part of Cora or Teens [sic] house are
all under your name."54 Petitioner claims this letter was not properly
identified and is thus, hearsay evidence. The records, however,
show that the letter was admitted by the trial court in its Order dated
February 24, 1993.55 While it is true that the letter is dated prior (or
six days before to be exact) to the execution of the Deeds of
Absolute Sale and is not conclusive that Adela did not change her
mind, we find that the language of the letter is more consistent with
the other pieces of evidence that show Adela never intended to
relinquish ownership of the Properties to petitioner. In this regard,
we see no compelling reason to depart from the findings of the trial
court as there appears no grave abuse of discretion in its admission
and consideration of the letter.
Petitioner’s letter to her cousin Dennis dated July 3, 1989 also
sufficiently establishes that Adela retained control over the
Properties, even after the execution of the Deeds of Absolute Sale.
Petitioner herself admitted that she was only following the orders of
Adela, and that she has no claim over the Properties. We quote in
verbatim the relevant part of the letter:
…Now, before I left going back here in Mla. Mommy Dela ask me to
read your letter about the big house and lot, and I explained it to
her. Now Mommy and Mommy Dela wants that the house is for
everyone who will need to stay, well that is what they say. Alam mo
naman, I have no "say" esp. when it comes with properties &
you know that. Now kung ano gusto nila that goes. Now, to be
honest Mommy was surprise [sic] bakit daw kailangan mawalan ng
karapatan sa bahay eh Nanay daw nila iyon at tayo apo lang, Eh
wala akong masasabi dyan, to be truthful to you, I only get the
orders… Tapos, sinisingil pa ako ng P1,000 – para sa gate na
pinapagawa nya sa lot 35-B, eh hindi na lang ako kumibo pero
nagdamdam ako, imagine minsan na lang sya nakagawa ng bien
sa akin at wala sa intention ko na suluhin ang 35-B, ganyan pa
sya… Now tungkol sa iyo, alam ko meron ka rin lupa tapos yung
bahay na malaki ikaw rin ang titira at magmamahala sa
lahat. Anyway, itong bahay ko sa iyo rin, alam mo naman na I’m
just making the kids grow a little older then we have to home in the
states…56 (Emphasis supplied)
Moreover, Adela’s letter to petitioner’s cousin Candy dated August
25, 1989 shows Adela’s retention of dominion over the Properties
even after the sales. In the letter, Adela even requested her
granddaughter Candy to stay in the house rent and expense
free.57 Petitioner claims that Candy and the house referred to in the
letter were not identified. Records show, however, that petitioner
has testified she has a cousin named Candy Shotwell who stayed
at the "big house" since February 1989.58
Clearly, the submission of petitioner to the orders of Adela does not
only show that the latter retained dominion over the Properties, but
also that petitioner did not exercise acts of ownership over it. If at
all, her actions only affirm the conclusion that she was merely an
administratrix of the Properties by virtue of the SPA.
On the SPA, petitioner claims the lower courts erred in holding that
it is inconsistent with her claim of ownership. Petitioner claims that
she has sufficiently explained that the SPA is not for the
administration of the Properties, but for the reconstitution of their
titles.
We agree with the lower courts that the execution of an SPA for the
administration of the Properties, on the same day the Deeds of
Absolute Sale were executed, is antithetical to the relinquishment of
ownership. The SPA shows that it is so worded as to leave no
doubt that Adela is appointing petitioner as the administratrix of her
properties in Scout Ojeda. Had the SPA been intended only to
facilitate the processing of the reconstitution of the titles, there
would have been no need to confer other powers of administration,
such as the collection of debts, filing of suit, etc., to petitioner. 59 In
any case, the explanation given by petitioner that the SPA was
executed so as only to facilitate the reconstitution of the titles of the
Properties is not inconsistent with the idea of her being the
administratrix of the Properties. On the other hand, the idea of
assigning her as administratrix is not only inconsistent, but also
repugnant, to the intention of selling and relinquishing ownership of
the Properties.
Petitioner next questions the lower courts’ findings that the Deeds
of Absolute Sale are simulated because the previous transfers to
Adela’s other grandchildren were also simulated. It may be true
that, taken by itself, the fact that Adela had previously feigned the
transfer of ownership of Lots 32 and 34 to her other grandchildren
would not automatically mean that the subject Deeds of Absolute
Sale are likewise void. The lower courts, however, did not rely
solely on this fact, but considered it with the rest of the evidence,
the totality of which reveals that Adela’s intention was merely to
feign the transfer to petitioner.
The fact that unlike in the case of Dennis and Carlos, Jr., she was
not asked by Adela to execute a deed of reconveyance, is of no
moment. There was a considerable lapse of time from the moment
of the transfer to Dennis and Carlos, Jr. of Lots 32 and 34 in 1985
and in 1987, respectively, and until the execution of the deed of
reconveyance in 1989. Here, the alleged Deeds of Absolute Sale
were executed in April 1989. Adela died in January 1990 in the
United States. Given the short period of time between the alleged
execution of the Deeds of Absolute Sale and the sudden demise of
Adela, the fact that petitioner was not asked to execute a deed of
reconveyance is understandable. This is because there was no
chance at all to do so. Thus, the fact that she did not execute a
deed of reconveyance does not help her case.
Page 28 of 37
We affirm the conclusion reached by the RTC and the CA that the
evidence presented below prove that Adela did not intend to
alienate the Properties in favor of petitioner, and that the transfers
were merely a sham to accommodate petitioner in her travel
abroad.
Petitioner claims that we should consider that there is only one heir
of the late Adela who is contesting the sale, and that out of the
many transactions involving the decedent’s other properties, the
sale to petitioner is the only one being questioned. We are not
convinced that these are material to the resolution of the case. As
aptly passed upon by the CA in its assailed Resolution:
In a contest for the declaration of nullity of an instrument for being
simulated, the number of contestants is not determinative of the
propriety of the cause. Any person who is prejudiced by a simulated
contract may set up its inexistence. In this instant case, it does not
matter if the contest is made by one, some or all of the heirs.
Neither would the existence of other contracts which remain
unquestioned deter an action for the nullity of an instrument. A
contract is rendered meaningful and forceful by the intention of the
parties relative thereto, and such intention can only be relevant to
that particular contract which is produced or, as in this case, to that
which is not produced. That the deed of sale in [petitioner’s] favor
has been held to be simulated is not indicative of the simulation of
any other contract executed by the deceased Adela de Guzman
Shotwell during her lifetime.60
To this we add that other alleged transactions made by Adela
cannot be used as evidence to prove the validity of the
conveyances to petitioner.
For one, we are not aware of any of these transactions or whether
there are indeed other transactions. More importantly, the validity of
these transactions does not prove directly or indirectly the validity of
the conveyances in question.
B. No consideration for the sale
We also find no compelling reason to depart from the court a quo's
finding that Adela never received the consideration stipulated in the
simulated Deeds of Absolute Sale.
Although on their face, the Deeds of Absolute Sale appear to be
supported by valuable consideration, the RTC and the CA found
that there was no money involved in the sale. The consideration in
the Deeds of Absolute Sale was superimposed on the spaces
therein, bearing a font type different from that used in the rest of the
document.61 The lower courts also found that the duplicate originals
of the Deeds of Absolute Sale bear a different entry with regard to
the price.62
Article 1471 of the Civil Code provides that "if the price is simulated,
the sale is void." Where a deed of sale states that the purchase
price has been paid but in fact has never been paid, the deed of
sale is null and void for lack of consideration.63 Thus, although the
contracts state that the purchase price of 250,000.00 and 60,000.00
were paid by petitioner to Adela for the Properties, the evidence
shows that the contrary is true, because no money changed hands.
Apart from her testimony, petitioner did not present proof that she
paid for the Properties.
There is no implied trust.
We also affirm the CA’s deletion of the pronouncement of the trial
court as to the existence of an implied trust. The trial court found
that a resulting trust, a form of implied trust based on Article
145364 of the Civil Code, was created between Adela and petitioner.
Resulting trusts65 arise from the nature or circumstances of the
consideration involved in a transaction whereby one person
becomes invested with legal title but is obligated in equity to hold
his title for the benefit of another.66 It is founded on the equitable
doctrine that valuable consideration and not legal title is
determinative of equitable title or interest and is always presumed
to have been contemplated by the parties.67 Since the intent is not
expressed in the instrument or deed of conveyance, it is to be found
in the nature of the parties’ transaction.68 Resulting trusts are thus
describable as intention-enforcing trusts.69 An example of a
resulting trust is Article 1453 of the Civil Code.
We, however, agree with the CA that no implied trust can be
generated by the simulated transfers because being fictitious or
simulated, the transfers were null and void ab initio – from the very
beginning – and thus vested no rights whatsoever in favor of
petitioner. That which is inexistent cannot give life to anything at
70
all.
Article 1453 contemplates that legal titles were validly vested in
petitioner. Considering, however, that the sales lack not only the
element of consent for being absolutely simulated, but also the
element of consideration, these transactions are void and inexistent
and produce no effect. Being null and void from the beginning, no
transfer of title, both legal and beneficial, was ever effected to
petitioner.
In any case, regardless of the presence of an implied trust, this will
not affect the disposition of the case. As void contracts do not
produce any effect, the result will be the same in that the Properties
will be reconveyed to the estate of the late Adela de Guzman
Shotwell.
WHEREFORE, the petition is DENIED.
SO ORDERED.
CASE 9 (1475)
G.R. No. 200602 December 11, 2013
ACE FOODS, INC., Petitioner,
vs.
MICRO PACIFIC TECHNOLOGIES CO., LTD.1, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari2are the
Decision3 dated October 21, 2011 and Resolution4 dated February
8, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89426
which reversed and set aside the Decision5 dated February 28,
2007 of the Regional Trial Court of Makati, Branch 148 (RTC) in
Civil Case No. 02-1248, holding petitioner ACE Foods, Inc. (ACE
Foods) liable to respondent Micro Pacific Technologies Co., Ltd.
(MTCL) for the payment of Cisco Routers and Frame Relay
Products (subject products) amounting to ₱646,464.00 pursuant to
a perfected contract of sale.
The Facts
ACE Foods is a domestic corporation engaged in the trading and
distribution of consumer goods in wholesale and retail bases,6 while
MTCL is one engaged in the supply of computer hardware and
equipment.7
On September 26, 2001, MTCL sent a letter-proposal8 for the
delivery and sale of the subject products to be installed at various
offices of ACE Foods. Aside from the itemization of the products
offered for sale, the said proposal further provides for the following
9
terms, viz.:
TERMS : Thirty (30) days upon delivery
VALIDITY : Prices are based on current dollar rate and subject to
changes without prior notice.
DELIVERY : Immediate delivery for items on stock, otherwise thirty
(30) to forty-five days upon receipt of [Purchase Order]
WARRANTY : One (1) year on parts and services. Accessories not
included in warranty.
On October 29, 2001, ACE Foods accepted MTCL’s proposal and
accordingly issued Purchase Order No. 10002310 (Purchase Order)
for the subject products amounting to ₱646,464.00 (purchase
price). Thereafter, or on March 4, 2002, MTCL delivered the said
products to ACE Foods as reflected in Invoice No. 7733 11 (Invoice
Receipt). The fine print of the invoice states, inter alia, that "[t]itle to
sold property is reserved in MICROPACIFIC TECHNOLOGIES
CO., LTD. until full compliance of the terms and conditions of above
and payment of the price"12 (title reservation stipulation). After
delivery, the subject products were then installed and configured in
ACE Foods’s premises. MTCL’s demands against ACE Foods to
pay the purchase price, however, remained unheeded.13 Instead of
paying the purchase price, ACE Foods sent MTCL a Letter14 dated
September 19, 2002, stating that it "ha[s] been returning the
[subject products] to [MTCL] thru [its] sales representative Mr. Mark
Anteola who has agreed to pull out the said [products] but had
failed to do so up to now."
Eventually, or on October 16, 2002, ACE Foods lodged a
Complaint15 against MTCL before the RTC, praying that the latter
pull out from its premises the subject products since MTCL
breached its "after delivery services" obligations to it, particularly,
to: (a) install and configure the subject products; (b) submit a cost
benefit study to justify the purchase of the subject products; and (c)
train ACE Foods’s technicians on how to use and maintain the
16
subject products. ACE Foods likewise claimed that the subject
products MTCL delivered are defective and not working.17
Page 29 of 37
For its part, MTCL, in its Answer with Counterclaim,18 maintained
that it had duly complied with its obligations to ACE Foods and that
the subject products were in good working condition when they
were delivered, installed and configured in ACE Foods’s premises.
Thereafter, MTCL even conducted a training course for ACE
Foods’s representatives/employees; MTCL, however, alleged that
there was actually no agreement as to the purported "after delivery
services." Further, MTCL posited that ACE Foods refused and
failed to pay the purchase price for the subject products despite the
latter’s use of the same for a period of nine (9) months. As such,
MTCL prayed that ACE Foods be compelled to pay the purchase
price, as well as damages related to the transaction.19
The RTC Ruling
On February 28, 2007, the RTC rendered a Decision, 20 directing
MTCL to remove the subject products from ACE Foods’s premises
and pay actual damages and attorney fees in the amounts of
₱200,000.00 and ₱100,000.00, respectively.21
At the outset, it observed that the agreement between ACE Foods
and MTCL is in the nature of a contract to sell. Its conclusion was
based on the fine print of the Invoice Receipt which expressly
indicated that "title to sold property is reserved in MICROPACIFIC
TECHNOLOGIES CO., LTD. until full compliance of the terms and
conditions of above and payment of the price," noting further that in
a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, and said transfer is
conditioned upon the full payment of the purchase price.22 Thus,
notwithstanding the execution of the Purchase Order and the
delivery and installation of the subject products at the offices of
ACE Foods, by express stipulation stated in the Invoice Receipt
issued by MTCL and signed by ACE Foods, i.e., the title reservation
stipulation, it is still the former who holds title to the products until
full payment of the purchase price therefor. In this relation, it noted
that the full payment of the price is a positive suspensive condition,
the non-payment of which prevents the obligation to sell on the part
of the seller/vendor from materializing at all.23 Since title remained
with MTCL, the RTC therefore directed it to withdraw the subject
products from ACE Foods’s premises. Also, in view of the
foregoing, the RTC found it unnecessary to delve into the
allegations of breach since the non-happening of the aforesaid
suspensive condition ipso jure prevented the obligation to sell from
arising.24
Dissatisfied, MTCL elevated the matter on appeal.25
The CA Ruling
In a Decision26 dated October 21, 2011, the CA reversed and set
aside the RTC’s ruling, ordering ACE Foods to pay MTCL the
amount of ₱646,464.00, plus legal interest at the rate of 6% per
annum to be computed from April 4, 2002, and attorney’s fees
amounting to ₱50,000.00.27
It found that the agreement between the parties is in the nature of a
contract of sale, observing that the said contract had been
perfected from the time ACE Foods sent the Purchase Order to
MTCL which, in turn, delivered the subject products covered by the
Invoice Receipt and subsequently installed and configured them in
28
ACE Foods’s premises. Thus, considering that MTCL had already
complied with its obligation, ACE Foods’s corresponding obligation
arose and was then duty bound to pay the agreed purchase price
within thirty (30) days from March 5, 2002.29 In this light, the CA
concluded that it was erroneous for ACE Foods not to pay the
purchase price therefor, despite its receipt of the subject products,
because its refusal to pay disregards the very essence of reciprocity
in a contract of sale.30 The CA also dismissed ACE Foods’s claim
regarding MTCL’s failure to perform its "after delivery services"
obligations since the letter-proposal, Purchase Order and Invoice
Receipt do not reflect any agreement to that effect.31
Aggrieved, ACE Foods moved for reconsideration which was,
however, denied in a Resolution 32 dated February 8, 2012, hence,
this petition.
The Issue Before the Court
The essential issue in this case is whether ACE Foods should pay
MTCL the purchase price for the subject products.
The Court’s Ruling
The petition lacks merit.
A contract is what the law defines it to be, taking into consideration
its essential elements, and not what the contracting parties call
33
it. The real nature of a contract may be determined from the
express terms of the written agreement and from the
contemporaneous and subsequent acts of the contracting parties.
However, in the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued. The
denomination or title given by the parties in their contract is not
conclusive of the nature of its contents.34
The very essence of a contract of sale is the transfer of
ownership in exchange for a price paid or promised. 35 This
may be gleaned from Article 1458 of the Civil Code which defines a
contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional. (Emphasis
supplied)
Corollary thereto, a contract of sale is classified as a consensual
contract, which means that the sale is perfected by mere consent.
No particular form is required for its validity. Upon perfection of the
contract, the parties may reciprocally demand performance, i.e., the
vendee may compel transfer of ownership of the object of the sale,
and the vendor may require the vendee to pay the thing sold.36
In contrast, a contract to sell is defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the property despite delivery thereof to the prospective
buyer, binds himself to sell the property exclusively to the
prospective buyer upon fulfillment of the condition agreed
upon, i.e., the full payment of the purchase price. A contract to sell
may not even be considered as a conditional contract of
sale where the seller may likewise reserve title to the property
subject of the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the happening of
a contingent event which may or may not occur.37
In this case, the Court concurs with the CA that the parties have
agreed to a contract of sale and not to a contract to sell as
adjudged by the RTC. Bearing in mind its consensual nature, a
contract of sale had been perfected at the precise moment ACE
Foods, as evinced by its act of sending MTCL the Purchase Order,
accepted the latter’s proposal to sell the subject products in
consideration of the purchase price of ₱646,464.00. From that point
in time, the reciprocal obligations of the parties – i.e., on the one
hand, of MTCL to deliver the said products to ACE Foods, and, on
the other hand, of ACE Foods to pay the purchase price therefor
within thirty (30) days from delivery – already arose and
consequently may be demanded. Article 1475 of the Civil Code
makes this clear:
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract
and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts.
At this juncture, the Court must dispel the notion that the stipulation
anent MTCL’s reservation of ownership of the subject products as
reflected in the Invoice Receipt, i.e., the title reservation stipulation,
changed the complexion of the transaction from a contract of sale
into a contract to sell. Records are bereft of any showing that the
said stipulation novated the contract of sale between the parties
which, to repeat, already existed at the precise moment ACE Foods
accepted MTCL’s proposal. To be sure, novation, in its broad
concept, may either be extinctive or modificatory. It is extinctive
when an old obligation is terminated by the creation of a new
obligation that takes the place of the former; it is merely
modificatory when the old obligation subsists to the extent it
remains compatible with the amendatory agreement. In either case,
however, novation is never presumed, and the animus novandi,
whether totally or partially, must appear by express agreement of
the parties, or by their acts that are too clear and unequivocal to be
mistaken.38
In the present case, it has not been shown that the title reservation
stipulation appearing in the Invoice Receipt had been included or
had subsequently modified or superseded the original agreement of
the parties. The fact that the Invoice Receipt was signed by a
representative of ACE Foods does not, by and of itself,
prove animus novandi since: (a) it was not shown that the signatory
was authorized by ACE Foods (the actual party to the transaction)
to novate the original agreement; (b) the signature only proves that
the Invoice Receipt was received by a representative of ACE Foods
Page 30 of 37
to show the fact of delivery; and (c) as matter of judicial notice,
invoices are generally issued at the consummation stage of the
contract and not its perfection, and have been even treated as
documents which are not actionable per se, although they may
prove sufficient delivery. 39 Thus, absent any clear indication that
the title reservation stipulation was actually agreed upon, the Court
must deem the same to be a mere unilateral imposition on the part
of MTCL which has no effect on the nature of the parties’ original
agreement as a contract of sale. Perforce, the obligations arising
thereto, among others, ACE Foods’s obligation to pay the
purchase price as well as to accept the delivery of the
goods,40 remain enforceable and subsisting.1âwphi1
As a final point, it may not be amiss to state that the return of the
subject products pursuant to a rescissory action41 is neither
warranted by ACE Foods’s claims of breach – either with respect to
MTCL’s breach of its purported "after delivery services" obligations
or the defective condition of the products - since such claims were
not adequately proven in this case. The rule is clear: each party
must prove his own affirmative allegation; one who asserts the
affirmative of the issue has the burden of presenting at the trial such
amount of evidence required by law to obtain a favorable judgment,
which in civil cases, is by preponderance of evidence. 42 This,
however, ACE Foods failed to observe as regards its allegations of
breach. Hence, the same cannot be sustained.
WHEREFORE, the petition is DENIED. Accordingly, the Decision
dated October 21, 2011 and Resolution dated February 8, 2012 of
the Court of Appeals in CA-G.R. CV No. 89426 are
hereby AFFIRMED.
SO ORDERED.
CASE10 (1476)
G.R. No. 156539 September 5, 2007
DOMINGO A. DIZON, petitioner,
vs.
ELPIDIO R. DIZON, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is the instant Petition for Review on Certiorari under Rule
45 of the 1997 Rules of Civil Procedure, as amended, assailing the
1 2
Decision dated October 18, 2002 and Resolution dated January 7,
2003 rendered by the Court of Appeals in CA-G.R. SP No. 45492,
entitled "Elpidio R. Dizon, petitioner, v. The Honorable Presiding
Judge, Regional Trial Court, Manila, Branch 41, Deputy Sheriff
Cesar Q. Cabildo and Domingo A. Dizon, respondents."
Domingo A. Dizon, petitioner, purchased from his nephew, Elpidio
R. Dizon (herein respondent), a house and lot located on Limay St.,
Tondo, Manila. However, respondent failed to deliver the house and
lot to petitioner. It appears that the co-owner of the lot, respondent’s
brother Ricardo, did not give said respondent a written authority to
sell his ½ share. Consequently, petitioner filed with the Regional
Trial Court (RTC), Branch 41, Manila a complaint for specific
performance and sum of money with damages against respondent,
docketed as Civil Case No. 90-51838.
On March 20, 1992, the trial court rendered a Decision rescinding
the contract of sale between the parties, thus:
PREMISES CONSIDERED, judgment is hereby
rendered:
1) declaring the contract of sale entered into by and
between plaintiff and defendant over that undivided
portion of Lot 27-B-3 in the name of Ricardo Dizon and
the building constructed thereon rescinded;
2) ordering defendant to pay plaintiff as follows:
a) a sum of P207,000.00 with interest thereon at the legal
rate from January 29, 1990 until the same is fully paid;
b) the sum of P350,000.00 with interest thereon at the
rate of 3% a month from January 29, 1990 until the same
is fully paid; and
c) the sum of P50,000.00 as and by way of attorney’s
3
fees and expenses of litigation.
On January 13, 1997, the trial court issued a writ of execution
implemented by sheriff Cesar Cabildo. He scheduled the auction
sale of respondent’s properties for the satisfaction of the above
judgment on April 3, 1997 at 10:00 a.m.
Petitioner’s attorney-in-fact as well as respondent and his counsel
participated in the sale. Petitioner emerged as the highest bidder,
having offered P180,000.00 for the two (2) parcels of land owned by
respondent which were attached by the sheriff.
The proceedings at the auction sale were duly recorded in the
Minutes of Sheriff’s Sale4 signed by the parties and their counsels.
In the afternoon of the same date, the sheriff went to the house of
respondent and showed him the "Supplemental Minutes on Sheriff’s
Sale" specifying that petitioner’s counsel arrived at 10:45 a.m. (after
the auction sale at 10:25 a.m.) and offered a new bid
of P1,690,074.41 covering the same properties in lieu of the earlier
bid of P180,000.00.
Respondent refused to sign the supplemental sale contending that
it will be difficult for him to redeem the property. Besides, the
auction sale had already been perfected and, therefore, the
subsequent sale is "a new or second sale." Consequently, he filed a
motion to quash the "Supplemental Minutes on Sheriff’s Sale"
alleging inter alia that the supplemental sale is void because it was
prepared at 10:25 a.m. after the auction sale at 10:00 a.m.
In an Order dated May 5, 1997, the trial court denied respondent’s
motion to quash "it appearing that the subject supplemental sale
redounds to the benefit of movant-defendant as it obviates the
execution and/or garnishment of any other property, income, or
deposits of movant-defendant."5
Respondent filed a motion for reconsideration, but it was also
denied by the trial court in its Order dated August 12, 1997. He then
filed a petition for certiorari and prohibition with the Court of Appeals
alleging that the RTC judge committed grave abuse of discretion in
upholding the validity of the "Supplemental Minutes on Sheriff’s
Sale."
In its assailed Decision dated October 18, 2002, the appellate court
granted the petition and set aside the questioned Orders of the RTC
dated May 5, 1997 and August 12, 1997, thus:
The record shows that the auction sale begun on time,
that is 10:00 AM of April 3, 1997, wherein both parties
as well as their respective counsels appeared and
participated in the bid as reflected in the Minutes of
Sheriff’s Sale. As certified by the respondent sheriff
himself, the said sale was finished at exactly 10:25
o’clock in the morning of said date. The amended bid
therefore of private respondent’s counsel made at 10:45
AM of even date could not be considered as valid as the
same was made after the perfection of the auction sale.
xxx
Consequently, the respondent judge is considered to
have gravely abused his discretion in upholding the
validity of the Supplemental Minutes on Sheriff’s Sale.6
Petitioner filed a motion for reconsideration but it was denied by the
appellate court in its Resolution dated January 7, 2003.
Hence, the instant petition.
Petitioner contends that as the highest bidder, he has the option to
amend his bid in order to conform to the amounts awarded in his
favor by the trial court.
Respondent maintains that since the auction sale had been
perfected, its consideration can no longer be modified; and that it
will be difficult for him to redeem his properties valued
at P1,690,074.41 instead of only P180,000.00.
Article 1476, paragraph 2 of the Civil Code provides:
Article 1476. In the case of a sale by auction:
xxx
(2) A sale by auction is perfected when the auctioneer
announces its perfection by the fall of the hammer, or in
other customary manner. Until such announcement is
made, any bidder may retract his bid; and the auctioneer
may withdraw the goods from the sale unless the auction
has been announced to be without reserve.
During the public auction conducted on April 3, 1997 which ended
at 10:25 a.m., the sheriff declared petitioner the highest bidder.
Considering that the auction sale had already been perfected, a
supplemental sale with higher consideration at the instance of only
one party (herein petitioner) could no longer be validly executed.
We therefore rule that in denying respondent’s motion to quash the
"Supplemental Minutes on Sheriff’s Sale," and declaring the
supplemental sale valid, the trial court gravely abused its discretion.
WHEREFORE, we DENY the petition and AFFIRM the challenged
Decision and Resolution of the Court of Appeals in CA-G.R. SP No.
45492. Costs against petitioner.
Page 31 of 37
SO ORDERED.
CASE11 (1477)
G.R. No. 211065, June 15, 2016
HEIRS OF JOSE EXTREMADURA, REPRESENTED BY ELENA
H. EXTREMADURA, Petitioners, v. MANUEL EXTREMADURA
AND MARLON EXTREMADURA,1 Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari 2 are the
Decision dated September 24, 2013 and the Resolution4 dated
3
December 12, 2013 of the Court of Appeals (CA) in CA-G.R. CV
No. 99082, which reversed the Decision5 dated November 23, 2011
of the Regional Trial Court of Sorsogon City, Branch 52 (RTC) in
Civil Case No. 2005-7552 declaring Jose Extremadura (Jose) as
the rightful owner of the land occupied by respondents Manuel and
Marlon Extremadura (respondents).
The Facts
Jose, now deceased,6 filed Civil Case No. 2005-7552 for quieting of
title with recovery of possession, rendition of accounting, and
damages,7 against his brother, Manuel Extremadura (Manuel), and
his nephew, Marlon Extremadura (Marlon), claiming that he (Jose)
purchased three (3) parcels of agricultural land located in Sitio
Ponong, Barrio Rizal, Casiguran, Sorsogon from his aunt, Corazon
S. Extremadura (Corazon), the widow of his uncle, Alfredo H.
Extremadura (Alfredo), through a Deed of Absolute Sale dated
December 18, 1984.8 Since Jose resided in Manila, he placed one
parcel, with an area of 3.4945 square meters (subject land), in
Manuel's care, in exchange for which, the latter and his son,
Marlon, religiously delivered the produce of said land from 1984
until 1995. Unfortunately, respondents (Manuel and Marlon)
continuously refused to deliver the produce of the land or vacate the
same despite his repeated demands;9 hence, the complaint.
In their defense,10 respondents averred that they have been in
open, continuous, peaceful, adverse, and uninterrupted possession
of the subject land, where their residential house stands, and in the
concept of owner for almost fifty (50) years; thus, Jose's action was
already barred by prescription or laches. They further claimed that
the fact that they gave Jose portions of the land's produce was
merely in keeping with the Filipino culture of sharing blessings with
siblings and relatives. Also, they argued that the deed of absolute
sale presented by Jose is not the legal or beneficial title
contemplated by Article 47611 of the Civil Code.12
The RTC Ruling
In a Decision13 dated November 23, 2011, the RTC rendered
judgment declaring Jose as the owner of the subject land, and
thereby directed respondents to immediately relinquish and
surrender possession thereof to the former.14 It ruled that Jose had
a better right over the land as proven by the deed of absolute sale
executed in his favor, which was notarized and, therefore, enjoys
the presumption of regularity. Respondents, on the other hand,
were declared to have failed to substantiate their claim, finding,
among others, that their possession was not in the concept of an
owner.15
Aggrieved, respondents elevated their case on appeal16 before the
CA.
The CA Ruling
In a Decision17 dated September 24, 2013, the CA granted
respondents' appeal and, thus, dismissed Civil Case No. 2005-
7552.18 It held that Jose failed to establish legal and equitable title
over the subject land, observing that the notarized deed of sale
executed in Jose's favor did not transfer the land's ownership to him
given that he was never placed in possession and control thereof.
Moreover, having found that the subject land was not in the
possession of the alleged vendor, Corazon, the C A debunked
Jose's claim that he is a buyer in good faith, charging him of failing
to probe the rights of the actual possessors of the land and to clarify
the true nature of the latter's possession before purchasing the
same. The motion for reconsideration20 filed by the heirs of Jose,
represented by Elena Extremadura (petitioners), was denied by the
21
CA in a Resolution dated December 12, 2013 for lack of merit;
hence, the instant petition.
The Issue Before the Court
The issue for the Court's resolution is whether or not the CA
correctly dismissed Civil Case No. 2005-7552 filed by Jose.
The Court's Ruling
The petition is impressed with merit.
In order for an action for quieting of title to prosper, it is essential
that the plaintiff must have legal or equitable title to, or interest in,
the property which is the subject matter of the action. Legal title
denotes registered ownership, while equitable title means beneficial
ownership.22 In the case of Mananquil v. Moico,23 the Court
expounded that:
An action for quieting of title is essentially a common law remedy
grounded on equity. The competent court is tasked to determine the
respective rights of the complainant and other claimants, not only to
place things in their proper place, to make the one who has no
rights to said immovable respect and not disturb the other, but also
for the benefit of both, so that he who has the right would see every
cloud of doubt over the property dissipated, and he could
afterwards without fear introduce the improvements he may desire,
to use, and even to abuse the property as he deems best. But "for
an action to quiet tide to prosper, two indispensable requisites must
concur, namely: (1) the plaintiff or complainant has a legal or an
equitable title to or interest in the real property subject of the action;
and (2) the deed, claim, encumbrance, or proceeding claimed to be
casting cloud on his title must be shown to be in fact invalid or
inoperative despite its prima facie appearance of validity or legal
efficacy."
Contrary to the position taken by the CA, the Court finds that Jose
satisfactorily established his equitable title over the subject land
entitling him - and now, petitioners as his successors-in-interest - to
the removal of the cloud or doubt thereon, particularly, the claim of
respondents that they are the owners thereof.
Based on jurisprudence, equitable title has been defined as "[a] title
derived through a valid contract or relation, and based on.
recognized equitable principles; the right in the party, to whom it
belongs, to have the legal title transferred to him. x x x. In order that
a plaintiff may draw to himself an equitable title, he must show that
the one from whom he derives his right had himself a right to
transfer. x x x."
In this case, Jose's title to the subject land was derived through a
contract of sale, as evidenced by a notarized document
denominated as Deed of Absolute Sale26 dated December 18,
1984, whereby the previous owner/s, Corazon, the widow of
Alfredo, transferred the subject land and two (2) other adjoining
parcels to Jose for and in consideration of P6,000.00, for which
Jose duly paid27 the required capital gains tax. That Corazon had
the right to transfer the land by virtue of her ownership thereof was
clearly established during the trial. As Manuel himself admitted:
Q: You say, you were borne (sic) on that land. When you grew up who were
the persons the one occupying that iand to be considered you as owner
(sic)?
A: My uncle and auntie.
Q: Can you name them?
28
A: Alfredo Extremadura and Trinidad [Corazon] Extremadura.
29
xxxx
Q: Now, as the former owners of that property were your uncle and aunts
(sic), Alfredo Extremadura and his wife, Trinidad [Corazon] Extremadura,
what did they do or in what mode did they transferred (sic) that property to
you?
xxxx
A: I lived in that property.
xxxx
Q: And, you were saying that they did not sell to you, donate it to you or that
they executed any document to transfer ownership of that property to you?
xxxx
A: None, Your Honor
xxxx
Q: You said, your uncle and aunt are the owners of that property, despite
that, did you pay the taxes thereto?
Page 32 of 37
A: Yes, sir.
COURT:
Q: In whose name was the taxes named? Q: In kind?
A: In the name of Alfredo Extremadura and his wife, Trinidad [Corazon] A: Yes, Your Honor.
Extremadura.
xxxx
xxxx
ATTY. DE ALBAN:
Q: Why was it in the name of Alfredo Extremadura?
A: The payment of taxes was in the name of Alfredo Extremadura xxxx
because he is the owner of the property, the husband and wife.
Q: Were there instances while your brother was in Manila that you also send
xxxx him some products?
A: Yes, sir.
Q: Up to when Alfredo Extremadura was the owner of that property?
A: When he was still alive. Q: Through whom?
While the CA did not express any misgivings on the existence and execution A: I gave him personally.
of the deed of sale in Jose's favor, it nonetheless found that "despite the
notarized Deed of Absolute Sale x x x, this [did] not constitute constructive Q: What I mean, where did you give him?
31
delivery, as to affect the transfer of ownership from the seller to the buyer." A: Here in Ponong, sir.

The CA is mistaken. Q: When he comes here?

Article 1477 of the Civil Code recognizes that the "ownership of the
thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof." Related to this article is Article 1497
of the same Code which provides that "[t]he thing sold shall be
understood as delivered, when it is placed in the control and
possession of the vendee."32
Article 1498 of the Civil Code lays down the general rule that the
execution of a public instrument "shall be equivalent to the delivery
of the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred." However,
the execution of a public instrument gives rise only to a prima
facie presumption of delivery, which is negated by the failure of the
vendee to take actual possession of the land sold. A person who
does not have actual possession of the thing sold cannot transfer
constructive possession by the execution and delivery of a public
instrument.
A: Yes, sir because I never went to Manila.
Q: There were instances that you sent him products through other people?
A: Yes, sir.
Not only did Jose exercise his right as owner of the subject land by
receiving the fruits thereof, he likewise performed his duties by
paying taxes therefor, evidence of which he presented in court
during trial.37 "Although tax declarations or realty tax payments of
property are not conclusive evidence of ownership, nevertheless,
they are good indicia of possession in the concept of owner for no
one in his right mind would be paying taxes for a property that is not
in his actual or at least constructive possession. They constitute at
least proof that the holder has a claim of title over the property. The
voluntary declaration of a piece of property for taxation purposes
manifests not only one's sincere and honest desire to obtain title to
the property and announces his adverse claim against the State
and all other interested parties, but also the intention to contribute
needed revenues to the Government. Such an act strengthens
one's bona fide claim of acquisition of ownership."

In this case, the prima facie presumption of constructive delivery to On the other hand, Manuel merely claimed that he paid taxes on
Jose was not successfully negated by proof that the subject land the land but he never presented proof of the alleged payments. In
was not actually placed in the latter's control and possession. addition, the weakness of his case is further exposed by his faulty
Primarily, it should be stressed that "[possession is acquired by supposition that he has become the owner of the land only because
the material occupation of a thing or the exercise of a right, or he was born on the same and had lived thereon.
by the fact that it is subject to the action of our will, or by the
proper acts and legal formalities established for acquiring Q: You said, you are a brother of Jose Extremadura, is that correct?
such right."34 Jose exercised possession of the subject
land through Manuel (and eventually, his son, Marlon) whom he A: Yes, sir.
allowed to stay and care for the land in exchange for the delivery of
the produce thereof. Article 524 of the Civil Code states:
Art. 524. Possession may be exercised in one's own name or in that Q: You also stated, that you are the owner of the subject property, is that
of another. also correct?
In this relation, case law teaches that "[i]t is not necessary that the
owner of a parcel of land should himself occupy the property as A: Yes, sir.
someone in his name may perform the act. In other words, the
owner of real estate has possession, either when he himself is
physically in occupation of the property, or when another person
who recognizes his rights as owner is in such occupancy,"35 as the Q: How did you acquire that property?
parties in this case.
A: Because I lived in that property and I was borned (sic) in that property.
Notably, the fact that respondents delivered the produce of the land
to Jose, which Manuel admitted in open court, can only be
construed as his recognition of Jose's ownership of the land despite Q: Now, by living in that property and by being borne (sic) in that
his tenuous claim that he merely did so because Jose is his brother, property, you believed you can (sic) acquired the ownership of
thus: that land?
ATTY. DE ALBAN:
39
A: Yes, sir.
Q: According to the plaintiff, he owns this land and that you were delivering
products to him since 1984 to 1995?
A: I was giving him products being my brother, sir.
COURT:
xxxx

Q: And you said that you have been giving him products because he is your
brother. How many times, if you can recall, that you have been giving him?
A: Whenever he comes home from Manila, I gave him products, sir.
Q: What did you give him?
A: Products and sometimes, chicken.
Q: You said, you were the owner after the death of Alfredo
Extremadura, what would you show to the Court to prove that the
land was transferred to you or that you inherited the land or it was
donated to you or was given to you by the spouses, Alfredo and
Trinidad [Corazon] Extremadura?

Page 33 of 37

Q: That is a very simple question?
40
A: Because I live there, Your Honor.
Thus, by sheer preponderance of evidence, the Court concludes
that Jose - not only through the execution of the Deed of Absolute
Sale in his favor, but also as evinced by his exercise of the rights
and obligations as owner thereof- was able to prove his title over
the subject land. Therefore, the action for quieting of title in Civil
Case No. 2005-7552 should prosper to the benefit of his heirs,
herein petitioners.
WHEREFORE, the petition is GRANTED. The Decision dated
September 24, 2013 and the Resolution dated December 12, 2013
of the Court of Appeals in CA-G.R. CV No. 99082 are
hereby REVERSED and SET ASIDE. Accordingly, the Decision
dated November 23, 2011 of the Regional Trial Court of Sorsogon
City, Branch 52 in Civil Case No. 2005-7552 is REINSTATED.
SO ORDERED.
CASE 12 (1479)
G.R. No. 202050
PHILIPPINE NATIONAL OIL COMPANY and PNOC DOCKYARD
& ENGINEERING CORPORATION, Petitioners
vs.
KEPPEL PHILIPPINES HOLDINGS, INC., Respondent
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari filed under
Rule 45 of the Rules of Court, appealing the decision dated 19
De.cember 20111 and resolution dated 14 May 20122 of the Court
of Appeals (CA) in CA-G.R. CV No. 86830. These assailed CA
rulings affirmed in toto the decision dated 12 January 20063 of the
Regional Trial Court (RTC) of Batangas City, Branch 84, in Civil
Case No. 7364.
THE FACTS
The 1976 Lease Agreement and Option to Purchase
Almost 40 years ago or on 6 August 1976, the respondent Keppel
Philippines Holdings, Inc.4 (Keppel) entered into a lease
agreement5 (the agreement) with Luzon Stevedoring
Corporation (Lusteveco) covering 11 hectares of land located in
Bauan, Batangas. The lease was for a period of 25 years for a
consideration of P2.1 million.6 At the option of Lusteveco, the rental
fee could be totally or partially converted into equity shares in
Keppel.7
At the end of the 25-year lease period, Keppel was given the "firm
and absolute option to purchase"8 the land for ₱4.09
million, provided that it had acquired the necessary
qualification to own land under Philippine laws at the time the
option is exercised.9 Apparently, when the lease agreement was
executed, less than 60% of Keppel’s shareholding was Filipino-
owned, hence, it was not constitutionally qualified to acquire private
lands in the country.10
If, at the end of the 25-year lease period (or in 2001), Keppel
remained unqualified to own private lands, the agreement provided
that the lease would be automatically renewed for another 25
years.11 Keppel was further allowed to exercise the option to
purchase the land up to the 30th year of the lease (or in 2006), also
on the condition that, by then, it would have acquired the requisite
12
qualification to own land in the Philippines.
Together with Keppel’s lease rights and option to purchase,
Lusteveco warranted not to sell the land or assign its rights to the
land for the duration of the lease unless with the prior written
consent of Keppel.13 Accordingly, when the petitioner Philippine
National Oil Corporation14 (PNOC) acquired the land from
Lusteveco and took over the rights and obligations under the
agreement, Keppel did not object to the assignment so long as the
agreement was annotated on PNOC’s title.15 With PNOC’s consent
and cooperation, the agreement was recorded as Entry No. 65340
on PNOC’s Transfer of Certificate of Title No. T-50724.16
The Case and the Lower Court Rulings
On 8 December 2000, Keppel wrote PNOC informing the latter that
at least 60% of its shares were now owned by
Filipinos.17 Consequently, Keppel expressed its readiness to
exercise its option to purchase the land. Keppel reiterated its
demand to purchase the land several times, but on every occasion,
PNOC did not favourably respond.18
To compel PNOC to comply with the Agreement, Keppel instituted
a complaint for specific performance with the RTC on 26
September 2003 against PNOC.19 PNOC countered Keppel’s
claims by contending that the agreement was illegal for
circumventing the constitutional prohibition against aliens holding
lands in the Philippines.20 It further asserted that the option contract
was void, as it was unsupported by a separate valuable
consideration.21 It also claimed that it was not privy to the
agreement.22
After due proceedings, the RTC rendered a decision23 in favour
of Keppel and ordered PNOC to execute a deed of absolute
sale upon payment by Keppel of the purchase price of ₱4.09
million.24
PNOC elevated the case to the CA to appeal the RTC
decision.25 Affirming the RTC decision in toto, the CA upheld
Keppel’s right to acquire the land.26 It found that since the option
contract was embodied in the agreement – a reciprocal contract –
the consideration was the obligation that each of the contracting
party assumed.27 Since Keppel was already a Filipino-owned
corporation, it satisfied the condition that entitled it to purchase the
land.28
Failing to secure a reconsideration of the CA decision,29 PNOC filed
the present Rule 45 petition before this Court to assail the CA
rulings.
THE PARTIES’ ARGUMENTS and THE ISSUES
PNOC argues that the CA failed to resolve the constitutionality of
the agreement. It contends that the terms of the agreement
amounted to a virtual sale of the land to Keppel who, at the time of
the agreement’s enactment, was a foreign corporation and, thus,
violated the 1973 Constitution.
Specifically, PNOC refers to (a) the 25-year duration of the lease
that was automatically renewable for another 25 years 30; (b) the
option to purchase the land for a nominal consideration of ₱100.00
if the option is exercised anytime between the 25th and the 30th
year of the lease31; and (c) the prohibition imposed on Lusteveco to
sell the land or assign its rights therein during the lifetime of the
lease.32 Taken together, PNOC submits that these provisions
amounted to a virtual transfer of ownership of the land to an alien
which act the 1973 Constitution prohibited.
PNOC claims that the agreement is no different from the lease
contract in Philippine Banking Corporation v. Lui She,33 which the
Court struck down as unconstitutional. In Lui She, the lease
contract allowed the gradual divestment of ownership rights by the
Filipino owner-lessor in favour of the foreigner-lessee.34 The
arrangement in Lui She was declared as a scheme designed to
enable the parties to circumvent the constitutional
prohibition.35 PNOC posits that a similar intent is apparent from the
terms of the agreement with Keppel and accordingly should also be
nullified.36
PNOC additionally contends the illegality of the option contract for
lack of a separate consideration, as required by Article 1479 of the
Civil Code.37 It claims that the option contract is distinct from the
main contract of lease and must be supported by a consideration
other than the rental fees provided in the agreement.38
On the other hand, Keppel maintains the validity of both the
agreement and the option contract it contains. It opposes the claim
that there was "virtual sale" of the land, noting that the option is
subject to the condition that Keppel becomes qualified to own
private lands in the Philippines.39 This condition ripened in 2000,
when at least 60% of Keppel’s equity became Filipino-owned.
Keppel contends that the agreement is not a scheme designed to
circumvent the constitutional prohibition. Lusteveco was not
proscribed from alienating its ownership rights over the land but
was simply required to secure Keppel’s prior written
consent.40 Indeed, Lusteveco was able to transfer its interest to
PNOC without any objection from Keppel.41
Keppel also posits that the requirement of a separate consideration
for an option to purchase applies only when the option is granted in
a separate contract.42 In the present case, the option is embodied in
a reciprocal contract and, following the Court’s ruling in Vda. De
43
Quirino v. Palarca, the option is supported by the same
consideration supporting the main contract.
From the parties’ arguments, the following ISSUES emerge:
Page 34 of 37
First, the constitutionality of the Agreement, i.e., whether the terms
of the Agreement amounted to a virtual sale of the land to Keppel
that was designed to circumvent the constitutional prohibition on
aliens owning lands in the Philippines.
Second, the validity of the option contract, i.e., whether the option to
purchase the land given to Keppel is supported by a separate
valuable consideration.
If these issues are resolved in favour of Keppel, a third issue
emerges – one that was not considered by the lower courts, but is
critical in terms of determining Keppel’s right to own and acquire full
title to the land, i.e., whether Keppel’s equity ownership meets the
60% Filipino-owned capital requirement of the Constitution, in
accordance with the Court’s ruling in Gamboa v. Teves.44
THE COURT’S RULING
I. The constitutionality of the Agreement
The Court affirms the constitutionality of the Agreement.
Preserving the ownership of land, whether public or private, in
Filipino hands is the policy consistently adopted in all three of our
constitutions.45 Under the 1935,46 1973,47 and 198748 Constitutions,
no private land shall be transferred, assigned, or conveyed except
to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain. Consequently, only Filipino
citizens, or corporations or associations whose capital is 60%
owned by Filipinos citizens, are constitutionally qualified to own
private lands.
Upholding this nationalization policy, the Court has voided not only
outright conveyances of land to foreigners,49 but also arrangements
where the rights of ownership were gradually transferred to
foreigners.50 In Lui Shui,51 we considered a 99-year lease
agreement, which gave the foreigner-lessee the option to buy the
land and prohibited the Filipino owner-lessor from selling or
otherwise disposing the land, amounted to –
a virtual transfer of ownership whereby the owner divests himself
in stages not only of the right to enjoy the land (jus possidendi, jus
utendi, jus fruendi, and jus abutendi) but also of the right to dispose
of it (jus disponendi) — rights the sum total of which make up
ownership.52 [emphasis supplied]
In the present case, PNOC submits that a similar scheme is
apparent from the agreement’s terms, but a review of the overall
circumstances leads us to reject PNOC’s claim.
The agreement was executed to enable Keppel to use the land for
its shipbuilding and ship repair business.53 The
industrial/commercial purpose behind the agreement differentiates
the present case from Lui She where the leased property was
primarily devoted to residential use.54 Undoubtedly, the
establishment and operation of a shipyard business involve
significant investments. Keppel’s uncontested testimony showed
that it incurred P60 million costs solely for preliminary activities to
make the land suitable as a shipyard, and subsequently introduced
improvements worth P177 million.55 Taking these investments into
account and the nature of the business that Keppel conducts on the
land, we find it reasonable that the agreement’s terms provided for
an extended duration of the lease and a restriction on the rights of
Lusteveco.
We observe that, unlike in Lui She,56 Lusteveco was not completely
denied its ownership rights during the course of the lease. It could
dispose of the lands or assign its rights thereto, provided it secured
Keppel’s prior written consent.57 That Lusteveco was able to convey
the land in favour of PNOC during the pendency of the lease58
should negate a finding that the agreement’s terms amounted to a
virtual transfer of ownership of the land to Keppel.
II. The validity of the option contract
II.A An option contract must be supported by a separate
consideration that is either clearly specified as such in the
contract or duly proven by the offeree/promisee.
An option contract is defined in the second paragraph of Article
1479 of the Civil Code:
Article 1479. x x x An accepted 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.
An option contract is a contract where one person (the
offeror/promissor) grants to another person (the offeree/promisee)
the right or privilege to buy (or to sell) a determinate thing at a fixed
price, if he or she chooses to do so within an agreed period.59
As a contract, it must necessarily have the essential elements of
subject matter, consent, and consideration.60 Although an option
contract is deemed a preparatory contract to the principal contract
of sale,61 it is separate and distinct therefrom,62 thus, its essential
elements should be distinguished from those of a sale.63
In an option contract, the subject matter is the right or privilege to
buy (or to sell) a determinate thing for a price certain,64 while in a
sales contract, the subject matter is the determinate thing
itself.65 The consent in an option contract is the acceptance by the
offeree of the offeror’s promise to sell (or to buy) the determinate
thing, i.e., the offeree agrees to hold the right or privilege to buy (or
to sell) within a specified period. This acceptance is different from
the acceptance of the offer itself whereby the offeree asserts his or
her right or privilege to buy (or to sell), which constitutes as his or
her consent to the sales contract. The consideration in an option
contract may be anything of value, unlike in a sale where the
purchase price must be in money or its equivalent.66 There is
sufficient consideration for a promise if there is any benefit to the
offeree or any detriment to the offeror.67
In the present case, PNOC claims the option contract is void for
want of consideration distinct from the purchase price for the
land.68 The option is incorporated as paragraph 5 of the Agreement
and reads as
5. If within the period of the first [25] years [Keppel] becomes
qualified to own land under the laws of the Philippines, it has the
firm and absolute option to purchase the above property for a total
price of [₱4,090,000.00] at the end of the 25th year, discounted at
16% annual for every year before the end of the 25th year, which
amount may be converted into equity of [Keppel] at book value
prevailing at the time of sale, or paid in cash at Lusteveco’s option.
However, if after the first [25] years, [Keppel] is still not qualified to
own land under the laws of the Republic of the Philippines,
[Keppel’s] lease of the above stated property shall be automatically
renewed for another [25] years, under the same terms and
conditions save for the rental price which shall be for the sum of
₱4,090,000.00... and which sum may be totally converted into
equity of [Keppel] at book value prevailing at the time of conversion,
or paid in cash at Lusteveco’s option.
If anytime within the second [25] years up to the [30th] year from
the date of this agreement, [Keppel] becomes qualified to own land
under the laws of the Republic of the Philippines, [Keppel] has the
firm and absolute option to buy and Lusteveco hereby undertakes
to sell the above stated property for the nominal consideration of
[₱100.00.00]...69
Keppel counters that a separate consideration is not necessary to
support its option to buy because the option is one of the
stipulations of the lease contract. It claims that a separate
consideration is required only when an option to buy is embodied in
an independent contract.70 It relies on Vda. de Quirino v.
Palarca,71 where the Court declared that the option to buy the
leased property is supported by the same consideration as that of
the lease itself: "in reciprocal contracts [such as lease], the
obligation or promise of each party is the consideration for that of
the other."72
In considering Keppel’s submission, we note that the Court’s ruling
in 1969 in Vda. de Quirino v. Palarca has been taken out of context
and erroneously applied in subsequent cases. In 2004,
through Bible Baptist Church v. CA,73 we revisited Vda. de Quirino
v. Palarca and observed that the option to buy given to the lessee
Palarca by the lessor Quirino was in fact supported by a separate
consideration: Palarca paid a higher amount of rent and, in the
event that he does not exercise the option to buy the leased
property, gave Quirino the option to buy the improvements he
introduced thereon. These additional concessions were separate
from the purchase price and deemed by the Court as sufficient
consideration to support the option contract.
Vda. de Quirino v. Palarca, therefore, should not be regarded as
authority that the mere inclusion of an option contract in a reciprocal
lease contract provides it with the requisite separate consideration
for its validity. The reciprocal contract should be closely
scrutinized and assessed whether it contains additional
concessions that the parties intended to constitute as a
consideration for the option contract, separate from that of the
purchase price.
In the present case, paragraph 5 of the agreement provided that
should Keppel exercise its option to buy, Lusteveco could opt to
convert the purchase price into equity in Keppel. May Lusteveco’s
option to convert the price for shares be deemed as a sufficient
separate consideration for Keppel’s option to buy?
Page 35 of 37
As earlier mentioned, the consideration for an option contract does
not need to be monetary and may be anything of
value.74 However, when the consideration is not monetary, the
consideration must be clearly specified as such in the option
contract or clause.75
In Villamor v. CA,76 the parties executed a deed expressly
acknowledging that the purchase price of ₱70.00 per square meter
"was greatly higher than the actual reasonable prevailing value of
lands in that place at that time."77 The difference between the
purchase price and the prevailing value constituted as the
consideration for the option contract. Although the actual amount of
the consideration was not stated, it was ascertainable from the
contract whose terms evinced the parties’ intent to constitute this
amount as consideration for the option contract.78 Thus, the Court
upheld the validity of the option contract.79 In the light of the
offeree’s acceptance of the option, the Court further declared that a
bilateral contract to sell and buy was created and that the parties’
respective obligations became reciprocally demandable.80
When the written agreement itself does not state the
consideration for the option contract, the offeree or promisee
bears the burden of proving the existence of a separate
consideration for the option.81 The offeree cannot rely on Article
1354 of the Civil Code,82 which presumes the existence of
consideration, since Article 1479 of the Civil Code is a specific
provision on option contracts that explicitly requires the existence of
a consideration distinct from the purchase price.83
In the present case, none of the above rules were observed. We
find nothing in paragraph 5 of the Agreement indicating that the
grant to Lusteveco of the option to convert the purchase price for
Keppel shares was intended by the parties as the consideration for
Keppel’s option to buy the land; Keppel itself as the offeree
presented no evidence to support this finding. On the contrary, the
option to convert the purchase price for shares should be deemed
part of the consideration for the contract of sale itself, since the
shares are merely an alternative to the actual cash price.1âwphi1
There are, however cases where, despite the absence of an
express intent in the parties’ agreements, the Court considered the
additional concessions stipulated in an agreement to constitute a
sufficient separate consideration for the option contract.
In Teodoro v. CA,84 the sub-lessee (Teodoro) who was given the
option to buy the land assumed the obligation to pay not only her
rent as sub-lessee, but also the rent of the sub-lessor (Ariola) to the
85
primary lessor (Manila Railroad Company). In other words,
Teodoro paid an amount over and above the amount due for her
own occupation of the property, and this amount was found by the
Court as sufficient consideration for the option contract.86
In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan
with the bank, allowing the latter to foreclose the mortgage.88 Since
the spouses Dijamco did not exercise their right to redeem, the
bank consolidated its ownership over the mortgaged property.89 The
spouses Dijamco later proposed to purchase the same property by
paying a purchase price of ₱622,095.00 (equivalent to their
principal loan) and a monthly amount of ₱13,478.00 payable for 12
months (equivalent to the interest on their principal loan). They
further stated that should they fail to make a monthly payment, the
proposal should be automatically revoked and all payments be
treated as rentals for their continued use of the property. 90 The
Court treated the spouses Dijamco’s proposal to purchase the
property as an option contract, and the consideration for which was
the monthly interest payments.91 Interestingly, this ruling was made
despite the categorical stipulation that the monthly interest
payments should be treated as rent for the spouses Dijamco’s
continued possession and use of the foreclosed property.
At the other end of the jurisprudential spectrum are cases where the
Court refused to consider the additional concessions stipulated in
agreements as separate consideration for the option contract.
In Bible Baptist Church v. CA,92 the lessee (Bible Baptist Church)
paid in advance ₱84,000.00 to the lessor in order to free the
property from an encumbrance. The lessee claimed that the
advance payment constituted as the separate consideration for its
option to buy the property.93 The Court, however, disagreed noting
that the ₱84,000.00 paid in advance was eventually offset against
the rent due for the first year of the lease, "such that for the entire
year from 1985 to 1986 the [Bible Baptist Church] did not pay
94
monthly rent." Hence, the Court refused to recognize the
existence of a valid option contract.95
What Teodoro, Dijamco, and Bible Baptist Church show is that the
determination of whether the additional concessions in agreements
are sufficient to support an option contract, is fraught with danger; in
ascertaining the parties’ intent on this matter, a court may read too
much or too little from the facts before it.
For uniformity and consistency in contract interpretation, the better
rule to follow is that the consideration for the option contract
should be clearly specified as such in the option contract or
clause. Otherwise, the offeree must bear the burden of proving
that a separate consideration for the option contract exists.
Given our finding that the Agreement did not categorically refer to
any consideration to support Keppel’s option to buy and for
Keppel’s failure to present evidence in this regard, we cannot
uphold the existence of an option contract in this case.
II.B. An option, though unsupported by a separate
consideration, remains an offer that, if duly accepted,
generates into a contract to sell where the parties’ respective
obligations become reciprocally demandable
The absence of a consideration supporting the option contract,
however, does not invalidate an offer to buy (or to sell). An option
unsupported by a separate consideration stands as an
unaccepted offer to buy (or to sell) which, when properly
accepted, ripens into a contract to sell. This is the rule
established by the Court en banc as early as 1958 in Atkins v. Cua
Hian Tek,96 and upheld in 1972 in Sanchez v. Rigos.97
Sanchez v. Rigos reconciled the apparent conflict between Articles
1324 and 1479 of the Civil Code, which are quoted below:
Article 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or
promised.
Article 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
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. [emphases supplied]
The Court en banc declared that there is no distinction between
these two provisions because the scenario contemplated in the
second paragraph of Article 1479 is the same as that in the last
clause of Article 1324.98 Instead of finding a conflict, Sanchez v.
Rigos harmonised the two provisions, consistent with the
established rules of statutory construction.99
Thus, when an offer is supported by a separate consideration, a
valid option contract exists, i.e., there is a contracted offer100 which
the offeror cannot withdraw from without incurring liability in
damages.
On the other hand, when the offer is not supported by a separate
consideration, the offer stands but, in the absence of a binding
contract, the offeror may withdraw it any time.101 In either case,
once the acceptance of the offer is duly communicated before the
withdrawal of the offer, a bilateral contract to buy and sell is
generated which, in accordance with the first paragraph of Article
1479 of the Civil Code, becomes reciprocally demandable.102
Sanchez v. Rigos expressly overturned the 1955 case
of Southwestern Sugar v. AGPC,103 which declared that
a unilateral promise to buy or to sell, even if accepted, is only
binding if supported by a consideration... In other words, an
accepted unilateral promise can only have a binding effect if
supported by a consideration, which means that the option can
still be withdrawn, even if accepted, if the same is not
supported by any consideration.104 [emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning that
Article 1479 of the Civil Code is distinct from Article 1324 of the Civil
Code and is a provision that specifically governs options to buy (or
to sell).105 As mentioned, Sanchez v. Rigos found no conflict
between these two provisions and accordingly abandoned
the Southwestern Sugar doctrine.
Unfortunately, without expressly overturning or abandoning
the Sanchez ruling, subsequent cases reverted back to
106
the Southwestern Sugar doctrine. In 2009, Eulogio v.
Apeles107 referred to Southwestern Sugar v. AGPC as the
controlling doctrine108 and, due to the lack of a separate
consideration, refused to recognize the option to buy as an offer
that would have resulted in a sale given its timely acceptance by the
offeree. In 2010, Tuazon v. Del Rosario-Suarez109 referred
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to Sanchez v. Rigos but erroneously cited as part of its ratio showing the nature and composition of Keppel' s
decidendi that portion of the Southwestern Sugar doctrine shareholdings, i.e., whether its shareholdings are divided into
that Sanchez had expressly abandoned.110 different classes, and 60% of each share class is legally and
Given that the issue raised in the present case involves the beneficially owned by Filipinos - understandably because when
application of Article 1324 and 1479 of the Civil Code, it becomes Keppel exercised its option to buy the land in 2000,
imperative for the Court [en banc] to clarify and declare here which the Gamboa ruling had not yet been promulgated. The Court cannot
between Sanchez and Southwestern Sugar is the controlling deny Keppel its option to buy the land by retroactively applying
doctrine. the Gamboa ruling without violating Keppel's vested right. Thus,
The Constitution itself declares that "no doctrine or principle of law Keppel's failure to prove the nature and composition of its
laid down by the court in a decision rendered en banc or in division shareholdings in 2000 could not prevent it from validly exercising its
may be modified or reversed except by the court sitting en option to buy the land.
banc."111 Sanchez v. Rigos was an en banc decision which was Nonetheless, the Court cannot completely disregard the effect of
affirmed in 1994 in Asuncion v. CA,112 also an en banc decision, the Gamboa ruling; the 60% Filipino equity proportion is a
while the decisions citing the Southwestern Sugar doctrine are all continuing requirement to hold land in the Philippines. Even
division cases.113 Based on the constitutional rule (as well as the in Gamboa, the Court prospectively applied its ruling, thus enabling
inherent logic in reconciling Civil Code provisions), there should be the public utilities to meet the nationality requirement before the
no doubt that Sanchez v. Rigos remains as the controlling Securities and Exchange Commission commences administrative
doctrine. investigation and cases, and imposes sanctions for noncompliance
Accordingly, when an option to buy or to sell is not supported by a on erring corporations.128 In this case, Keppel must be allowed to
consideration separate from the purchase price, the option prove whether it meets the required Filipino equity ownership and
constitutes as an offer to buy or to sell, which may be withdrawn by proportion in accordance with the Gamboa ruling before it can
the offeror at any time prior to the communication of the offeree’s acquire full title to the land.
acceptance. When the offer is duly accepted, a mutual promise to In view of the foregoing, the Court AFFIRMS the decision dated 19
buy and to sell under the first paragraph of Article 1479 of the Civil December 2011 and the resolution dated 14 May 2012 of the CA in
Code ensues and the parties’ respective obligations become CA-G.R. CV No. 86830 insofar as these rulings uphold the
reciprocally demandable. respondent Keppel Philippines Holdings, Inc.' s option to buy the
Applied to the present case, we find that the offer to buy the land land, and REMANDS the case to the Regional Trial Court of
was timely accepted by Keppel. Batangas City, Branch 84, for the determination of whether the
As early as 1994, Keppel expressed its desire to exercise its option respondent Keppel Philippines Holdings, Inc. meets the required
to buy the land. Instead of rejecting outright Keppel’s acceptance, Filipino equity ownership and proportion in accordance with the
PNOC referred the matter to the Office of the Government Court's ruling in Gamboa v. Teves, to allow it to acquire full title to
Corporate Counsel (OGCC). In its Opinion No. 160, series of 1994, the land.SO ORDERED.
the OGCC opined that Keppel "did not yet have the right to
purchase the Bauan lands."114 On account of the OGCC opinion,
the PNOC did not agree with Keppel’s attempt to buy the
land;115 nonetheless, the PNOC made no categorical withdrawal of
the offer to sell provided under the Agreement.
By 2000, Keppel had met the required Filipino equity proportion and
duly communicated its acceptance of the offer to buy to
PNOC.116 Keppel met with the board of directors and officials of
PNOC who interposed no objection to the sale.117 It was only when
the amount of purchase price was raised that the conflict between
118
the parties arose, with PNOC backtracking in its position and
questioning the validity of the option.119
Thus, when Keppel communicated its acceptance, the offer to
purchase the Bauan land stood, not having been withdrawn by
PNOC. The offer having been duly accepted, a contract to sell
the land ensued which Keppel can rightfully demand PNOC to
comply with.
III. Keppel’s constitutional right to acquire full title to the land
Filipinization is the spirit that pervades the constitutional provisions
on national patrimony and economy. The Constitution has reserved
the ownership of public and private lands,120 the ownership and
121 122
operation of public utilities, and certain areas of investment to
Filipino citizens, associations, and corporations. To qualify, sixty per
cent (60%) of the association or corporation’s capital must be
owned by Filipino citizens. Although the 60% Filipino equity
proportion has been adopted in our Constitution since 1935, it was
only in 2011 that the Court interpreted what the
term capital constituted.
In Gamboa v. Teves,123 the Court declared that the "legal and
beneficial ownership of 60 percent of the outstanding capital stock
must rest in the hands of Filipino nationals."124 Clarifying the ruling,
the Court decreed that the 60% Filipino ownership
requirement applies separately to each class of shares, whether
with or without voting rights,125 thus:
Applying uniformly the 60-40 ownership requirement in favour of
Filipino citizens to each class of shares, regardless of differences in
voting rights, privileges and restrictions, guarantees effective
Filipino control of public utilities, as mandated by the Constitution. 126
Although the ruling was made in the context of ownership and
operation of public utilities, the same should be applied to the
ownership of public and private lands, since the same proportion of
Filipino ownership is required and the same nationalist policy
pervades.
The uncontested fact is that, as of November 2000, Keppel's capital
is 60% Filipino-owned.127 However, there is nothing in the records

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