Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
3. Contract of Sale; “Declaration of Heirship and Waiver of Rights” an Facts: Sometime in June 1989, Luna L. Sosa wanted to purchase a
extrajudicial settlement between heirs under Rule 74 of the Rules of Toyota Lite Ace. It was then a seller’s market and Sosa had difficulty
Court finding a dealer with an available unit for sale. But upon contracting
In a Contract of Sale, one of the contracting parties obligates himself to Toyota Shaw, Inc., he was told that there was an available unit. So on 14
transfer the ownership of and to deliver a determinate thing, and the June 1989, Sosa and his son, Gilbert, went to the Toyota Shaw
other party to pay a price certain in money or its equivalent. On the Boulevard, Pasig, Metro Manila. They met Popong Bernardo, a sales
other hand, a declaration of heirship and waiver of rights operates as a representative of Toyota. Sosa emphasized to Bernardo that he needed
public instrument when filed with the Registry of Deeds whereby the the Lite Ace not later than 17 June 1989 because he, his family, and a
intestate heirs adjudicate and divide the estate left by the decedent balikbayan guest would use it on 18 June 1989 to go Marinduque, his
among themselves as they see fit. It is in effect an extrajudicial home province, where he would celebrate his birthday on 19 June. He
settlement between the heirs under Rule 74 of the Rules of Court. In the added that if he does not arrive in his hometown with the new car, he
present case, the trial court erred in equating the nature and effect of would become a “laughing stock.” Bernardo assured Sosa that a unit
would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo
then signed a document entitled “Agreements Between Mr. Sosa & reciprocally demand performance, subject to the provisions of the law
Popong Bernardo of Toyota Shaw, Inc,” stipulating that all necessary governing the form of contracts.
documents will be submitted to Toyota Shaw (Popong Bernardo) a week
after, upon arrival of Mr. Sosa from the Province (Marinduque) where the 3. “Agreement between Mr. Sosa & Popong Bernardo of Toyota Shaw,
unit will be used on the 19 June; that the downpayment of P100,000.00 Inc.” not a contract of sale
will be paid by Mr. Sosa on 15 June 1989; and that the Toyota Shaw, Inc. The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw,
will be released a yellow Lite Ace unit. It was also agreed upon by the Inc.” executed on 4 June 1989, is not a contract of sale. No obligation on
parties that the balance of the purchase price would be paid by credit the part of Toyota to transfer ownership of a determinate thing to Sosa
financing through B.A. Finance, and for this Gilbert, on behalf of his and no correlative obligation on the part of the latter to pay therefor a
father, signed the documents of Toyota and B.A. Finance pertaining to price certain appears therein. The provision on the downpayment of
the application for financing. The next day, Sosa and Gilbert went to P100,000.00 made no specific reference to a sale, it could only refer to a
Toyota to deliver the downpayment of P100,000.00. They met Bernardo sale on installment basis, as the VSP executed the following day
who then accomplished a printed Vehicle Sales Proposal (VSP) 928, on confirmed. But nothing was mentioned about the full purchase price and
which Gilbert signed under the subheading “conforme”. This document the manner the installments were to be paid. Neither logic nor recourse
shows that the customer’s name is “Mr. Luna Sosa” with home address to one’s imagination can lead to the conclusion that such agreement is a
at 2316 Guijo Street, United Parañaque II; that the model series of the perfected contract of sale.
vehicle is a “Lite Ace 1500″ described as “4 Dr minibus”; that payment
is by “installment,” to be financed by “B.A.,” with the initial cash outlay 4. Definitive price is an essential element in the formation of a binding
of P100,000.00 (downpayment: P53,148.00; insurance: P13,970.00; BLT and enforceable contract of sale
registration fee: P1,067.00; CHMO fee: P2,715.00; Service fee: P500.00; A definite agreement on the manner of payment of the price is an
and accessories: P29,000.00) and the balance to be financed is essential element in the formation of a binding and enforceable contract
P274,137.00. The spaces provided for “delivery terms” were not filled- of sale. This is so because the agreement as to the manner of payment
up. It also contains conditions of sales providing that the sale is subject goes into the price such that a disagreement on the manner of payment
to the availability of the unit, and that the stated price is subject to is tantamount to a failure to agree on the price. Definiteness as to the
change without prior notice, and that the price prevailing and in effect price is an essential element of a binding agreement to sell personal
at time of selling will apply. Rodrigo Quirante, the Sales Supervisor of property.
Bernardo, checked and approved the VSP.
5. No meeting of the minds
On 17 June (9:30 a.m.), Bernardo called Gilbert to inform him that the The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw,
vehicle would not be ready for pick up at 10:00 a.m. as previously Inc.” shows the absence of a meeting of minds between Toyota and
agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Sosa. Sosa did not even sign it. Further, Sosa was well aware from its
Gilbert met Bernardo at the latter’s office. According to Sosa, Bernardo title, written in bold letters, and thus knew that he was not dealing with
informed them that the Lite Ace was being readied for delivery. After Toyota but with Popong Bernardo and that the latter did not
waiting for about an hour, Bernardo told them that the car could not be misrepresent that he had the authority to sell any Toyota vehicle.
delivered because it was acquired by a more influential person. Toyota
contends, however, that the Lite Ace was not delivered to Sosa because 6. Prudence and reasonable diligence in inquiring authority of agent
of the disapproval of B.A. Finance of the credit financing application of Sosa knew that Bernardo was only a sales representative of Toyota and
Sosa. It further alleged that a particular unit had already been reversed hence a mere agent of the latter. It was incumbent upon Sosa to act
and earmarked for Sosa but could not be released due to the with ordinary prudence and reasonable diligence to know the extent of
uncertainty of payment of the balance of the purchase price. Toyota Bernardo’s authority as an agent in respect of contracts to sell Toyota’s
then gave Sosa the option to purchase the unit by paying the full vehicles. A person dealing with an agent is put upon inquiry and must
purchase price in cash but Sosa refused. After it became clear that the discover upon his peril the authority of the agent.
Lite Ace would not be delivered to him, Sosa asked that his
downpayment be refunded. Toyota did so on the very same day by 7. Three stages in the contract of sale
issuing a Far East Bank check for the full amount of P100,000.00, the There are three stages in the contract of sale, namely (a) preparation,
receipt of which was shown by a check voucher of Toyota, which Sosa conception, or generation, which is the period of negotiation and
signed with the reservation, “without prejudice to our future claims for bargaining, ending at the moment of agreement of the parties; (b)
damages.” Thereafter, Sosa sent two letters to Toyota: one on 27 June perfection of birth of the contract, which is the moment when the parties
1989 demanding the refund, within 5 days from receipt, of the come to agree on the terms of the contract; and (c) consummation or
downpayment of P100,000.00 plus interest from the time he paid it and death, which is the fulfillment or performance of the terms agreed upon
the payment of damages with a warning that in case of Toyota’s failure in the contract. In the present case, the “Agreements between Mr. Sosa
to do so he would be constrained to take legal action; and the other on 4 & Popong Bernardo of Toyota Shaw, Inc.” may be considered as part of
November 1989 (signed by M.O. Caballes, Sosa’s counsel) demanding the initial phase of the generation of negotiation stage of a contract
P1M representing interest and damages, again, with a warning that legal sale. The second phase of the generation or negotiation stage was the
action would be taken if payment was not made within 3 days. Toyota’s execution of the VSP (the downpayment of the purchase price was
counsel answered through as letter dated 27 November 1989 8 refusing P53,148.00 while the balance to be paid on installment should be
to accede to the demands of Sosa. financed by B.A. Finance. It is assumed that B.A Finance was acceptable
to Toyota).
But even before the answer was made and received by Sosa, the latter
filed on 20 November 1989 with the RTC Marinduque (Branch 38) a 8. Financing companies defined
complaint against Toyota for damages under Articles 19 and 21 of the Financing companies are defined in Section 3(a) of RA 5980, as
Civil Code in the total amount of P1,230,000.00. After trial on the issue amended by PDs 1454 and 1793, as “corporations or partnerships,
agreed upon during the pre-trial session, the trial court rendered on 18 except those regulated by the Central Bank of the Philippines, the
February 1992 a decision in favor of Sosa. It ruled that the “Agreement Insurance Commission and the and the Cooperatives Administration
between Mr. Sosa and Popong Bernardo,” was a valid perfected and Office, which are primarily organized for the purpose of extending credit
contract of sale between Sosa and Toyota which bound Toyota to deliver facilities to consumers and to industrial, commercial, or agricultural
the vehicle to Sosa, and further agreed with Sosa that Toyota acted in enterprises, either by discounting or factoring commercial papers or
bad faith in selling to another the unit already reserved for him; that accounts receivable, or by buying and selling contracts, leases, chattel
Bernardo, as an authorized sales executive of Toyota Shaw, was the mortgages, or other evidence of indebtedness, or by leasing of motor
latter’s agent and thus bound Toyota Shaw; that Luna Sosa proved his vehicles, heavy equipment and industrial machinery, business and office
social standing in the community and suffered besmirched reputation, machines and equipment, appliances and other movable property.”
wounded feelings and sleepless nights for which he ought to be
compensated; and thus rendered judgment ordering Toyota Shaw to pay 9. Parties in a sale on installment basis financed by a financing
Sosa the sum of P75,000 as moral damages, P10,000 as exemplary company; No meeting of minds as financing application was
damages, P30,000 as attorney’s fees plus P2,000 lawyer’s disapproved
transportation fare per trip in attending to the hearing of the case, In a sale on installment basis which is financed by a financing company,
P2,000 for Sosa’s transportation fare per trip in attending the hearing of 3 parties are thus involved: (1) the buyer who executes a note or notes
the case, and to pay the cost of the suit. for the unpaid balance of the price of the thing purchased on
installment, (2) the seller who assigns the notes or discounts them with
Dissatisfied with the trial court’s judgment, Toyota appealed to the a financing company, and (3) the financing company which is
Court of Appeals (CA-GR CV 40043). In its decision promulgated on 29 subrogated in the place of the seller, as the creditor of the installment
July 1994, the Court of Appeals affirmed in toto the appealed decision. buyer. Since B.A. Finance did not approve Sosa’s application, there was
Hence the petition for review by certiorari by Toyota Shaw. then no meeting of minds on the sale on installment basis.
The Supreme Court granted the petition, and dismissed the challenged 10. Toyota’s version of circumstances leading to non-release of
decision of the Court of Appeals and that of Branch 38 of the Regional vehicle more credible
Trial Court of Marinduque, and the counterclaim therein; without Toyota’s version that B.A. Finance disapproved Sosa’s application for
pronouncement as to costs. which reason it suggested to Sosa that he pay the full purchase price is
more credible. When the latter refused, Toyota cancelled the VSP and
1. Contract of sale defined; Kinds returned to him his P100,000.00. Sosa’s version, that the VSP was
Article 1458 of the Civil Code defines a contract of sale as “By the cancelled because the vehicle was delivered to another because of a
contract of the sale one of the contracting parties obligates himself to more influential client, is contradicted by paragraph 7 of his complaint
transfer the ownership of and to deliver a determinate thing, and the which states that Bernardo “for reasons known only to its
other to pay therefor a price certain in money or its equivalent. A representatives, refused and/or failed to release the vehicle to the
contract of sale may be absolute or conditional. plaintiff . Plaintiff demanded for an explanation, but nothing was given.”
2. Contract of sale, when perfected; Effect 11. VSP mere proposal and did not create demandable right in favor of
Article 1475 of the Civil Code specifically provides when the contract of Sosa when it was aborted
sale is deemed perfected, i.e. “The contract of sale is perfected at the The VSP was a mere proposal which was aborted in lieu of subsequent
moment there is a meeting of minds upon the thing which is the object events. Thus, the VSP created no demandable right in favor of Sosa for
of the contract and upon the price. From that moment, the parties may
the delivery of the vehicle to him, and its non-delivery did not cause any school having failed to materialize, the Sangguniang Bayan of the
legally indemnifiable injury. municipality of Talacogon enacted a resolution reverting the 2 hectares
of land donated back to the donors. In the meantime, Mondejar sold
12. Award of moral damages without legal basis portions of the land to Fernando Bautista, Rodolfo Goloran, Efren Guden,
The award of moral damages is without legal basis. The only ground and Ernesto Goloran.
upon which Sosa claimed moral damages is that since it was known to
his friends, townmates, and relatives that he was buying a Toyota Lite On 5 July 1988, the petitioners filed a complaint against private
Ace which they expected to see on his birthday, he suffered humiliation, respondents (Mondejar, Rodulfo and Ernesto Goloran, Asis, Ras, Abiso,
shame, and sleepless nights when the van was not delivered. The van Bautista, Macasero and Maguisay) for quieting of title, recovery of
became the subject matter of talks during his celebration that he may possession and ownership of parcels of land with claim for attorney’s
not have paid for it, and this created an impression against his business fees and damages. The trial court rendered judgment in favor of the
standing and reputation created an impression against his business petitioners, holding that Trinidad Quijada did not have legal title or right
standing and reputation. At the bottom of this claim is nothing but to sell the land to Mondejar as it belongs to the Municipality of
misplaced pride and ego. He should not have announced his plan to buy Talacogon at that time, and that the deed of sale in favor of Mondejar
Toyota Lite Ace knowing that he might not be able to pay the full did not carry the conformity and acquiescence of her children
purchase price. It was he who brought embarrassment upon himself by considering that Trinidad was already 63 years old and a widow. The
bragging about a thing which he did not own yet. trial court ordered the defendants (private respondents), and any person
acting in defendants’ behalf to return and vacate the 2 hectares of land
13. Award of exemplary damages without basis; Purpose of exemplary to the plaintiff, and to remove their improvements constructed on the
damages lot; ordered the cancellation of the deed of sale executed by Trinidad to
Since Sosa is not entitled to moral damages and there being no award Mondejar, as well as the deeds of sale/relinquishments executed by
for temperate, liquidated, or compensatory damages, he is likewise not Mondejar to the other defendants; and ordered the defendants to pay
entitled to exemplary damages. Under Article 2229 of the Civil Code, the plaintiffs, in solidum, the amount of P10,000, P8,000, and P30,000
exemplary or corrective damages are imposed by way of example or as attorney’s fees, expenses of litigation and moral damages,
correction for the public good, in addition to moral, temperate, respectively.
liquidated, or compensatory damages.
On appeal, the Court of Appeals reversed and set aside the judgment a
14. Award of attorney’s fees without basis quo ruling that the sale made by Trinidad Quijada to respondent
For attorney’s fees to be granted the court must explicitly state in the Mondejar was valid as the former retained an inchoate interest on the
body of the decision, and not only in the dispositive portion thereof, the lots by virtue of the automatic reversion clause in the deed of donation.
legal reason for the award of attorney’s fees. No such explicit Thereafter, petitioners filed a motion for reconsideration. When the CA
determination thereon was made in the body of the decision of the trial denied their motion, petitioners instituted a petition for review to the
court. Thus, no reason exists for such award. Supreme Court.
B. ESSENTIAL CHARACTERISTICS OF CONTRACT OF SALE The Supreme Court affirmed the assailed decision of the Court of
1. NOMINATE AND PRINCIPAL Appeals.
Held: The deed of sale, even if denominated as a deed of conditional 3. Condition to construct school is a resolutory condition
sale, may be treated as absolute in nature, especially if title to the The resolutory condition, in the present case, is the construction of the
property sold is not reserved in the vendor or if the vendor is not school. It has been ruled that when a person donates land to another on
granted the right to unilaterally rescind the contract predicated on the the condition that the latter would build upon the land a school, the
fulfillment or non-fulfillment of the prescribed condition. In determining condition imposed is not a condition precedent or a suspensive
the real character of contract, the substance and not the title given by condition but a resolutory one. So long as the resolutory condition
the party is more significant. Upon perfection, i.e. where the seller subsists and is capable of fulfillment, the donation remains effective and
obligates himself, for a price certain, to deliver and to transfer the donee continues to be the owner subject only to the rights of the
ownership of a specific thing or right to the buyer over which the latter donor or his successors-in-interest under the deed of donation. Since no
agrees, the parties are bound not only to the fulfillment of what was period was imposed by the donor on when must the donee comply with
expressly stipulated but also the consequences which may be in keeping the condition, the latter remains the owner so long as he has tried to
with good faith, usage and law. Being a perfected contract of sale, no comply with the condition within a reasonable period. Such period,
rescission can be had. The proper action is an action for damages. however, became irrelevant herein when the donee manifested that it
Arguendo that rescission is available as a remedy, as provide by Article cannot comply with the condition and the same was made known to the
1191 in reciprocal obligations, it may only be availed of by the injured donor. Only then, when the non-fulfillment of the resolutory condition
party. was brought to the donor’s knowledge, that ownership of the donated
property reverted to the donor as provided in the automatic reversion
2.CONSENSUAL clause of the deed of donation.
Quijada v. CA [G.R. No. 126444. December 4, 1998.] 4. Inchoate interest may be subject of contract including a contract of
Second Division, Martinez (J): 3 concur sale; Interest over property under conditional deed of donation, not the
land itself
Facts: Petitioners (Alfonso, Cresente, Reynalda, Demetrio, Eliuteria, The donor may have an inchoate interest in the donated property during
Eulalio, and Warlito) are the children of the late Trinidad Corvera Vda. de the time that ownership of the land has not reverted to her. Such
Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inchoate interest may be the subject of contracts including a contract of
inherited from the latter the 2-hectare parcel of land subject of the case, sale. In the present case, however, what the donor sold was the land
situated in the barrio of San Agustin, Talacogon, Agusan del Sur. On 5 itself which she no longer owns. It would have been different if the
April 1956, Trinidad Quijada together with her sisters Leonila Corvera donor-seller sold her interests over the property under the deed of
Vda. de Sequeña and Paz Corvera Cabiltes and brother Epapiadito donation which is subject to the possibility of reversion of ownership
Corvera executed a conditional deed of donation of the 2-hectare parcel arising from the non-fulfillment of the resolutory condition.
of land in favor of the Municipality of Talacogon, the condition being that
the parcel of land shall be used solely and exclusively as part of the 5. Laches, elements
campus of the proposed provincial high school in Talacogon. Apparently, Laches presupposes failure or neglect for an unreasonable and
Trinidad remained in possession of the parcel of land despite the unexplained length of time, to do that which, by exercising due
donation. On 29 July 1962, Trinidad sold 1 hectare of the subject parcel diligence, could or should have been done earlier; “it is negligence or
of land to Regalado Mondejar. Subsequently, Trinidad verbally sold the omission to assert a right within a reasonable time, thus, giving rise to a
remaining 1 hectare to Mondejar without the benefit of a written deed of presumption that the party entitled to assert it either has abandoned or
sale and evidenced solely by receipts of payment. In 1980, the heirs of declined to assert it.” Its essential elements of (a) Conduct on the part
Trinidad, who at that time was already dead, filed a complaint for of the defendant, or of one under whom he claims, giving rise to the
forcible entry against Mondejar, which complaint was, however, situation complained of; (b) Delay in asserting complainant’s right after
dismissed for failure to prosecute. In 1987, the proposed provincial high he had knowledge of the defendant’s conduct and after he has an
opportunity to sue; (c) Lack of knowledge or notice on the part of the the preparation of a deed of absolute sale while Fule and Dr. Cruz
defendant that the complainant would assert the right on which he attended to the safekeeping of the jewelry. The following day, Fule,
bases his suit; and, (d) Injury or prejudice to the defendant in the event together with Dichoso and Mendoza, arrived at the residence of Atty.
relief is accorded to the complainant” are absent in this case. In the Belarmino to finally execute a deed of absolute sale. Fule signed the
present case, petitioners’ cause of action to quiet title commenced only deed and gave Atty. Belarmino the amount of P13,700.00 for necessary
when the property reverted to the donor and/or his successors-in- expenses in the transfer of title over the Tanay property; and issued a
interest in 1987, not in the 1960’s when they had no interest over the certification to the effect that the actual consideration of the sale was
property at that time except under the deed of donation to which P200,000.00 and not P80,000.00 as indicated in the deed of absolute
private respondents were not privy. Moreover, petitioners had sale (the disparity purportedly aimed at minimizing the amount of the
previously filed an ejectment suit against private respondents only that capital gains tax that Fule would have to shoulder). Since the jewelry
it did not prosper on a technicality. was appraised only at P160,000.00, the parties agreed that the balance
of P40,000.00 would just be paid later in cash. Thereafter, at the bank,
6. Sale, being a consensual contract, is perfected by mere consent; as pre-arranged, Dr. Cruz and the cashier opened the safety deposit
Seller need not own property when sold but when delivered box, and delivered the contents thereof to Fule. Fule inspected the
Sale, being a consensual contract, is perfected by mere consent, which jewelry, near the electric light at the bank’s lobby, for 10-15 minutes.
is manifested the moment there is a meeting of the minds as to the Fule expressed his satisfaction by nodding his head when asked by Dr.
offer and acceptance thereof on three (3) elements: subject matter, Cruz if the jewelry was okay. For services rendered, Fule paid the
price and terms of payment of the price. Ownership by the seller on the agents, Dichoso and Mendoza, the amount of US$300.00 and some
thing sold at the time of the perfection of the contract of sale is not an pieces of jewelry. He did not, however, give them half of the pair of
element for its perfection. What the law requires is that the seller has earrings in question, which he had earlier promised. Later in the
the right to transfer ownership at the time the thing sold is delivered. evening, Fule arrived at the residence of Atty. Belarmino complaining
Perfection per se does not transfer ownership which occurs upon the that the jewelry given him was fake. Dichoso, who borrowed the car of
actual or constructive delivery of the thing sold. A perfected contract of Dr. Cruz, called up Atty. Belarmino. Informed that Fule was at the
sale cannot be challenged on the ground of non-ownership on the part lawyer’s house, went there posthaste thinking that Fule had finally
of the seller at the time of its perfection; hence, the sale is still valid. agreed to give them half of the pair of earrings, only to find Fule
demonstrating with a tester that the earrings were fake. Fule then
7. Seller’s title passes by operation of law to the buyer accused Dichoso and Mendoza of deceiving him which they, however,
The consummation of the perfected contract is another matter. It occurs denied. They countered that Fule could not have been fooled because
upon the constructive or actual delivery of the subject matter to the he had vast experience regarding jewelry. Fule nonetheless took back
buyer when the seller or her successors-in-interest subsequently the US$300.00 and jewelry he had given them. Thereafter, the group
acquires ownership thereof. In the present case, such circumstance decided to go to the house of a certain Macario Dimayuga, a jeweler, to
happened in this case when petitioners (Trinidad’s heirs) became the have the earrings tested. Dimayuga, after taking one look at the
owners of the subject property upon the reversion of the ownership of earrings, immediately declared them counterfeit. At around 9:30 p.m.,
the land to them. Consequently, ownership is transferred to Mondejar Fule went to one Atty. Reynaldo Alcantara residing at Lakeside
and those who claim their right from him. Article 1434 of the New Civil Subdivision in San Pablo City, complaining about the fake jewelry. Upon
Code supports the ruling that the seller’s “title passes by operation of being advised by the latter, Fule reported the matter to the police
law to the buyer.” This rule applies not only when the subject matter of station where Dichoso and Mendoza likewise executed sworn
the contract of sale is goods, but also to other kinds of property, statements.
including real property.
On 26 October 1984, Fule filed a complaint before the RTC San Pablo
8. Article 1409 (4) does not provide that the properties of a City against private respondents praying, among other things, that the
municipality are outside the commerce of man; Objects outside of the contract of sale over the Tanay property be declared null and void on
commerce of man are those which cannot be appropriated the ground of fraud and deceit. On 30 October 1984, the lower court
Nowhere in Article 1409 (4) is it provided that the properties of a issued a temporary restraining order directing the Register of Deeds of
municipality, whether it be those for public use or its patrimonial Rizal to refrain from acting on the pertinent documents involved in the
property, are outside the commerce of men; so as to render the contract transaction. On 20 November 1984, however, the same court lifted its
involving the same inexistent and void from the beginning when sold. In previous order and denied the prayer for a writ of preliminary injunction.
the present case, the lots were conditionally owned by the municipality. After trial, the lower court rendered its decision on 7 March 1989;
To rule that the donated properties are outside the commerce of men holding that the genuine pair of earrings used as consideration for the
would render nugatory the unchallenged reasonableness and justness of sale was delivered by Dr. Cruz to Fule, that the contract was valid even
the condition which the donor has the right to impose as owner thereof. if the agreement between the parties was principally a barter contract,
Moreover, the objects referred to as outside the commerce of man are that the agreement has been consummated at the time the principal
those which cannot be appropriated, such as the open seas and the parties parted ways at the bank, and that damages are due to the
heavenly bodies. defendants. From the trial court’s adverse decision, petitioner elevated
the matter to the Court of Appeals. On 20 October 1992, the Court of
9. No factual or legal basis for the award of fees and damages Appeals, however, rendered a decision affirming in toto the lower court’s
There is neither factual nor legal basis for the trial court’s award of decision. His motion for reconsideration having been denied on 19
attorney’s fees, litigation expenses and moral damages. Attorney’s fees October 1993. Hence, the petition for review on certiorari.
and expenses of litigation cannot, following the general rule in Article
2208 of the New Civil Code, be recovered in the present case, there The Supreme Court affirmed in toto the decision of the Court of Appeals,
being no stipulation to that effect and the case does not fall under any but ordered Dr. Cruz to pay Fule the balance of the purchase price of
of the exceptions. It cannot be said that private respondents had P40,000 within 10 days from the finality of the decision; with costs
compelled petitioners to litigate with third persons. Neither can it be against petitioner.
ruled that the former acted in “gross and evident bad faith” in refusing
to satisfy the latter’s claims considering that private respondents were 1. New factual issues cannot be examined as it unduly transcends the
under an honest belief that they have a legal right over the property by limits of the Supreme Court’s review power
virtue of the deed of sale. Moral damages cannot likewise be justified as The Supreme Court cannot entertain a factual issue, and thus examine
none of the circumstances enumerated under Articles 2219 27 and 2220 and weigh anew the facts regarding the genuineness of the earrings
28 of the New Civil Code concur in this case. bartered in exchange for the Tanay property, as this would unduly
transcend the limits of the Court’s review power in petitions of this
Fule v. CA [G.R. No. 112212. March 2, 1998.] nature which are confined merely to pure questions of law. As a general
Third division, Romero (J): 3 concur rule, the Supreme Court accords conclusiveness to a lower court’s
findings of fact unless it is shown, inter alia, that: (1) the conclusion is a
Facts: Fr. Antonio Jacobe initially mortgage a 10-hectare property in finding grounded on speculations, surmises or conjectures; (2) the
Tanay, Rizal (covered by TCT 320725) to the Rural Bank of Alaminos, inference is manifestly mistaken, absurd and impossible; (3) when there
Laguna to secure a loan in the amount of P10,000. Said mortgage was is a grave abuse of discretion; (4) when the judgment is based on a
later foreclosed and the property offered for public auction upon his misapprehension of facts; (5) when the findings of fact are conflicting;
default. In June 1984, Gregorio Fule, as corporate secretary of the bank, and (6) when the Court of Appeals, in making its findings, went beyond
asked Remelia Dichoso and Olivia Mendoza to look for a buyer who the issues of the case and the same is contrary to the admission of both
might be interested in the Tanay property. The two found one in the parties. To reiterate, the Supreme Court’s jurisdiction is only limited to
person of Ninevetch Cruz. It so happened that in January of said year, reviewing errors of law in the absence of any showing that the findings
Gregorio Fule, also a jeweler, has shown interest in buying a pair of complained of are totally devoid of support in the record or that they are
emerald-cut diamond earrings owned by Dr. Cruz. Dr. Cruz has declined glaringly erroneous as to constitute serious abuse of discretion.
Fule’s offer to buy said jewelry for P100,000; and a subsequent bid by
Fule to buy them for US$6,000 at $1 to P25 while making a sketch of 2. Immediate rendition of decision not anomalous
said jewelry during an inspection at the lobby of Prudential Bank (the No proof has been adduced that Judge Jaramillo was motivated by a
latter instance was declined, since the exchange rate appreciated to P19 malicious or sinister intent in disposing of the case with dispatch.
per dollar). Subsequently, however, negotiations for the barter of the Neither is there proof that someone else wrote the decision for him. The
jewelry and the Tanay property ensued. Atty. Belarmino was requested immediate rendition of the decision was no more than Judge Jaramillo’s
by Dr. Cruz to check the property and found out that no sale or barter compliance with his duty as a judge to “dispose of the court’s business
was feasible as the 1-year period of redemption has not expired. In an promptly and decide cases within the required periods.” The two-year
effort to cut through any legal impediment, Fule executed on 19 October period within which Judge Jaramillo handled the case provided him with
1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the all the time to study it and even write down its facts as soon as these
amount of P15,987.78, and on even date, Fr. Jacobe sold the property to were presented to court. In fact, the Supreme Court does not see
Fule for P75,000.00. The haste with which the two deeds were executed anything wrong in the practice of writing a decision days before the
is shown by the fact that the deed of sale was notarized ahead of the scheduled promulgation of judgment and leaving the dispositive portion
deed of redemption. As Dr. Cruz had already agreed to the proposed for typing at a time close to the date of promulgation, provided that no
barter, Fule went to Prudential Bank to take a look at the jewelry. malice or any wrongful conduct attends its adoption. The practice serves
the dual purposes of safeguarding the confidentiality of draft decisions
On 23 October 1984, Fule met Atty. Belarmino at the latter’s residence and rendering decisions with promptness. Neither can Judge Jaramillo be
to prepare the documents of sale. Atty. Belarmino accordingly caused made administratively answerable for the immediate rendition of the
decision. The acts of a judge which pertain to his judicial functions are ownership and possession of the things exchanged considering the fact
not subject to disciplinary power unless they are committed with fraud, that their contract is silent as to when it becomes due and demandable.
dishonesty, corruption or bad faith. Hence, in the absence of sufficient
proof to the contrary, Judge Jaramillo is presumed to have performed his 10 No interest due if it is not stipulated
job in accordance with law and should instead be commended for his Failure to pay the balance of the purchase price does not result in the
close attention to duty. payment of interest thereon. Article 1589 of the Civil Code prescribes
the payment of interest by the vendee “for the period between the
3. Contract perfected by mere consent, binds parties to stipulation and delivery of the thing and the payment of the price” in cases “(1) Should
all the consequences; Contract of sale perfected upon meeting of minds it have been so stipulated; (2) Should the thing sold and delivered
upon the thing object of the contract and upon price; Embodiment of produce fruits or income; (3) Should he be in default, from the time of
contract in public instrument only for convenience, and registration only judicial or extrajudicial demand for the payment of the price.”
to affect third parties; Lack of formal requirements does not invalidate
the contract 11. Case distinguished from de la Cruz v Legaspi
The Civil Code provides that contracts are perfected by mere consent. The present case should be distinguished from De la Cruz v. Legaspi,
From this moment, the parties are bound not only to the fulfillment of where the court held that failure to pay the consideration after the
what has been expressly stipulated but also to all the consequences notarization of the contract as previously promised resulted in the
which, according to their nature, may be in keeping with good faith, vendee’s liability for payment of interest. In the present, there is no
usage and law. A contract of sale is perfected at the moment there is a stipulation for the payment of interest in the contract of sale nor proof
meeting of the minds upon the thing which is the object of the contract that the Tanay property produced fruits or income. Neither did petitioner
and upon the price. Being consensual, a contract of sale has the force of demand payment of the price as in fact he filed an action to nullify the
law between the contracting parties and they are expected to abide in contract of sale.
good faith by their respective contractual commitments.
Article 1358 of the Civil Code which requires the embodiment of certain 12 Award of moral and exemplary damages
contracts in a public instrument, is only for convenience, and Moral and exemplary damages may be awarded without proof of
registration of the instrument only adversely affects third parties. pecuniary loss. In awarding such damages, the court shall take into
Formal requirements are, therefore, for the benefit of third parties. Non- account the circumstances obtaining in the case and assess damages
compliance therewith does not adversely affect the validity of the according to its discretion. To warrant the award of damages, it must be
contract nor the contractual rights and obligations of the parties shown that the person to whom these are awarded has sustained injury.
thereunder. He must likewise establish sufficient data upon which the court can
properly base its estimate of the amount of damages. Statements of
4. Voidable or annullable contracts facts should establish such data rather than mere conclusions or
Contracts that are voidable or annullable, even though there may have opinions of witnesses. Thus, for moral damages to be awarded, it is
been no damage to the contracting parties are: (1) those where one of essential that the claimant must have satisfactorily proved during the
the parties is incapable of giving consent to a contract; and (2) those trial the existence of the factual basis of the damages and its causal
where the consent is vitiated by mistake, violence, intimidation, undue connection with the adverse party’s acts. If the court has no proof or
influence or fraud. The contract can be voided in accordance with law so evidence upon which the claim for moral damages could be based, such
as to compel the parties to restore to each other the things that have indemnity could not be outrightly awarded. The same holds true with
been the subject of the contract with their fruits, and the price with respect to the award of exemplary damages where it must be shown
interest. that the party acted in a wanton, oppressive or malevolent manner.
5. Fraud; No inducement made by the private respondents 13. Rule that moral damages cannot be recovered from person who
There is fraud when, through the insidious words or machinations of one filed a complaint does not apply in present case
of the contracting parties, the other is induced to enter into a contract While, as a rule, moral damages cannot be recovered from a person who
which, without them, he would not have agreed to. In the present case, has filed a complaint against another in good faith because it is not
the records, are bare of any evidence manifesting that private sound policy to place a penalty on the right to litigate, the same,
respondents employed such insidious words or machinations to entice however, cannot apply in the present case. This is not a situation where
petitioner into entering the contract of barter. Neither is there any petitioner’s complaint was simply found later to be based on an
evidence showing that Dr. Cruz induced petitioner to sell his Tanay erroneous ground which, under settled jurisprudence, would not have
property or that she cajoled him to take the earrings in exchange for been a reason for awarding moral and exemplary damages. Instead, the
said property. On the contrary, Dr. Cruz did not initially accede to cause of action of the instant case appears to have been contrived by
petitioner’s proposal to buy the said jewelry. Rather, it appears that it petitioner himself. The factual findings of the courts a quo to the effect
was petitioner, through his agents, who led Dr. Cruz to believe that the that petitioner filed this case because he was the victim of fraud; that he
Tanay property was worth exchanging for her jewelry as he represented could not have been such a victim because he should have examined
that its value was P400,000.00 or more than double that of the jewelry the jewelry in question before accepting delivery thereof, considering
which was valued only at P160,000.00. If indeed petitioner’s property his exposure to the banking and jewelry businesses; and that he filed
was truly worth that much, it was certainly contrary to the nature of a the action for the nullification of the contract of sale with unclean hands,
businessman-banker like him to have parted with his real estate for half all deserve full faith and credit to support the conclusion that petitioner
its price. In short, it was in fact petitioner who resorted to machinations was motivated more by ill will than a sincere attempt to protect his
to convince Dr. Cruz to exchange her jewelry for the Tanay property. rights in commencing suit against respondents. It must be noted that
before petitioner was able to convince Dr. Cruz to exchange her jewelry
7. Mistake; Mistake caused by manifest negligence cannot invalidate a for the Tanay property, petitioner took pains to thoroughly examine said
judicial act jewelry, even going to the extent of sketching their appearance. Why at
To invalidate a contract, mistake must “refer to the substance of the the precise moment when he was about to take physical possession
thing that is the object of the contract, or to those conditions which have thereof he failed to exert extra efforts to check their genuineness
principally moved one or both parties to enter into the contract.” An despite the large consideration involved has never been explained at all
example of mistake as to the object of the contract is the substitution of by petitioner. His acts thus failed to accord with what an ordinary
a specific thing contemplated by the parties with another. In the present prudent man would have done in the same situation.
case, the petitioner failed to prove the fact that prior to the delivery of
the jewelry to him, private respondents endeavored to make such 4. ONEROUS
substitution of an inferior one or one with Russian diamonds for the
jewelry he wanted to exchange with his 10-hectare land. Further, on Gaite v. Fonacier [G.R. No. L-11827. July 31, 1961.]
account of his work as a banker-jeweler, it can be rightfully assumed En Banc, Reyes JBL (J): 9 concur
that he was an expert on matters regarding gems. He had the
intellectual capacity and the business acumen as a banker to take Facts: Isabelo Fonacier was the owner and/or holder of 11 iron lode
precautionary measures to avert such a mistake, considering the value mineral claims (Dawahan Group), situated in Jose Panganiban,
of both the jewelry and his land. A mistake caused by manifest Camarines Norte. By a “Deed of Assignment” dated 29 September
negligence cannot invalidate a juridical act. As the Civil Code provides, 1952, Fonacier constituted and appointed Fernando A. Gaite as his true
“(t)here is no mistake if the party alleging it knew the doubt, and lawful attorney-in-fact to enter into a contract with any individual or
contingency or risk affecting the object of the contract.” juridical person for the exploration and development of the mining
claims on a royalty basis of not less than P0.50 per ton of ore that might
8. Contract of sale absolute if no stipulation that title to property is be extracted therefrom. On 19 March 1954, Gaite in turn executed a
reserved to seller until full payment; Ownership transferred upon actual general assignment conveying the development and exploitation of said
or constructive delivery mining claims unto the Larap Iron Mines, owned solely by him.
A contract of sale being absolute in nature, title passed to the vendee Thereafter Gaite embarked upon the development and exploitation of
upon delivery of the thing sold since there was no stipulation in the the mining claims, opening and paving roads within and outside their
contract that title to the property sold has been reserved in the seller boundaries, making other improvements and installing facilities therein
until full payment of the price or that the vendor has the right to for use in the development of the mines, and in time extracted
unilaterally resolve the contract the moment the buyer fails to pay therefrom what he claimed and estimated to be approximately 24,000
within a fixed period. Such stipulations are not manifest in the contract metric tons of iron ore.
of sale. In the present case, both the trial and appellate courts,
therefore, correctly ruled that there were no legal bases for the For some reason or another, Isabelo Fonacier decided to revoke the
nullification of the contract of sale. Ownership over the parcel of land authority granted by him to Gaite, and Gaite assented thereto subject to
and the pair of emerald-cut diamond earrings had been transferred to certain conditions. As a result, a document entitled “Revocation of
Dr. Cruz and Fule, respectively, upon the actual and constructive Power of Attorney and Contract” was executed on 8 December 1954,
delivery thereof. wherein Gaite transferred to Fonacier, for the consideration of P20,000,
plus 10% of the royalties that Fonacier would receive from the mining
9. Contract silent when balance is due and demandable; non-payment claims, all his rights and interests on all the roads, improvements, and
does not invalidate the contract facilities in or outside said claims, the right to use the business name
While it is true that the amount of P40,000.00 forming part of the “Larap Iron Mines” and its goodwill, and all the records and documents
consideration was still payable to Fule, its nonpayment by Dr. Cruz is not relative to the mines. In the same document, Gaite transferred to
a sufficient cause to invalidate the contract or bar the transfer of Fonacier all his rights and interests over the “24,000 tons of iron ore,
more or less” that the former had already extracted from the mineral reciprocity of interests” and there can be no question that greater
claims, in consideration of the sum of P75,000, P10,000, of which was reciprocity obtains if the buyer’s obligation is deemed to be actually
paid upon the signing of the agreement, and the balance to be paid out existing, with only its maturity (due date) postponed or deferred, than if
of the first letter of credit covering the first shipment of iron ores or the such obligation were viewed as non-existent or not binding until the ore
first amount derived from the local sale of iron ore made by the Larap was sold.
Mines & Smelting Co. To secure the payment of the balance, Fonacier
promised to execute in favor of Gaite a surety bond; delivered on 8 6. Sale of ore to Fonacier was a sale on credit, not an aleatory contract
December 1954 with Fonacier as principal and the Larap Mines and The sale of the ore to Fonacier was a sale on credit, and not an aleatory
Smelting Co. and its stockholders as sureties. A second bond was contract where the transferor, Gaite, would assume the risk of not being
executed by the parties to the first bond, on the same day, with the Far paid at all; and that the previous sale or shipment of the ore was not a
Eastern Surety and Insurance Co. as additional surety, but it provided suspensive condition for the payment of the balance of the agreed price,
that the liability of the surety company would attach only when there but was intended merely to fix the future date of the payment.
had been an actual sale of iron ore by the Larap Mines & Smelting Co.
for an amount of not less than P65,000. Both bond were attached and 7. Non-renewal of bond impaired the securities given to the creditor
made integral parts of the “Revocation of Power of Attorney and Appellants have forfeited the right to compel Gaite to wait for the sale of
Contract.” On the same day that Fonacier revoked the power of the ore before receiving payment of the balance of P65,000, because of
attorney, Fonacier entered into a “Contract of Mining Operation” with their failure to renew the bond of the Far Eastern Surety Company or
Larap Mines and Smelting Co., Inc. to grant it the right to develop, else replace it with an equivalent guarantee. The expiration of the
exploit, and explore the mining claims, together with the improvements bonding company’s undertaking on 8 December 1955 substantially
therein and the use of the name “Larap Iron Mines” and its goodwill, in reduced the security of the vendor’s rights as creditor for the unpaid
consideration of certain royalties. Fonacier likewise transferred, in the P65,000, a security that Gaite considered essential and upon which he
same document, the complete title to the approximately 24,000 tons of had insisted when he executed the deed of sale of the ore to Fonacier.
iron ore which he acquired from Gaite, to the Larap Mines & Smelting The case squarely comes under paragraphs 2 and 3 of Article 1198 of
Co., in consideration for the signing by the company and its the Civil Code of the Philippines which provides “(2) When he does not
stockholders of the surety bonds delivered by Fonacier to Gaite. On 8 furnish to the creditor the guaranties or securities which he has
December 1955, the bond with respect to the Far Eastern Surety and promised. (3) When by his own acts he has impaired said guaranties or
Insurance Company expired with no sale of the approximately 24,000 securities after their establishment, and when through fortuitous event
tons of iron ore, nor had the 65,000 balance of the price of said ore been they disappear, unless he immediately gives new ones equally
paid to Gaite by Fonacier and his sureties. Whereupon, Gaite demanded satisfactory.” Appellants’ failure to renew or extend the surety
from Fonacier and his sureties payment of said amount. company’s bond upon its expiration plainly impaired the securities given
to the creditor (appellee Gaite), unless immediately renewed or
When Fonacier and his sureties failed to pay as demanded by Gaite, the replaced.
latter filed a complaint against them in the CFI Manila (Civil Case 29310)
for the payment of the P65,000 balance of the price of the ore, 8. No waiver intended by creditor
consequential damages, and attorney’s fees. Judgment was, Gaite’s acceptance of the surety company’s bond with full knowledge
accordingly, rendered in favor of plaintiff Gaite ordering defendants to that on its face it would automatically expire within one year was not a
pay him, jointly and severally, P65,000 with interest at 6% per annum waiver of its renewal after the expiration date. No such waiver could
from 9 December 1955 until full payment, plus costs. From this have been intended, for Gaite stood to lose and had nothing to gain
judgment, defendants jointly appealed to the Supreme Court as the thereby; and if there was any, it could be rationally explained only if the
claims involved aggregate to more than P200,000. appellants had agreed to sell the ore and pay Gaite before the surety
company’s bond expired on 8 December 1955. But in the latter case the
The Supreme Court affirmed the decision appealed from, with costs defendants- appellants’ obligation to pay became absolute after 1 year
against appellants. from the transfer of the ore to Fonacier by virtue of the deed.
1. Shipment or local sale of ore not a condition precedent but a 9. No short-delivery made by Gaite
suspensive period or term This is a case of a sale of a specific mass of fungible goods for a single
The shipment or local sale of the iron ore is not a condition precedent price or a lump sum, the quantity of “24,000 tons of iron ore, more or
(or suspensive) to the payment of the balance of P65,000, but was only less”, stated in the contract, being a mere estimate by the parties of the
a suspensive period or term. What characterizes a conditional obligation total tonnage weight of the mass; and second, that the evidence shows
is the fact that its efficacy or obligatory force (as distinguished from its that neither of the parties had actually measured or weighed the mass,
demandability) is subordinated to the happening of a future and so that they both tried to arrive at the total quantity by making an
uncertain event; so that if the suspensive condition does not take place, estimate of the volume thereof in cubic meters and then multiplying it
the parties would stand as if the conditional obligation had never by the estimated weight per ton of each cubic meter. The sale between
existed. the parties is a sale of a specific mass of iron ore because no provision
was made in their contract for the measuring or weighing of the ore sold
2. The words of the contract express no contingency in the buyer’s in order to complete or perfect the sale, nor was the price of P75,000
obligation to pay. agreed upon by the parties based upon any such measurement (see Art.
The contract stipulates that “the balance of Sixty-Five Thousand Pesos 1480, second par., New Civil Code). The subject-matter of the sale is,
(P65,000) will be paid out of the first letter of credit covering the first therefore, a determinate object, the mass, and not the actual number of
shipment of iron ore . . .” etc. There is no uncertainty that the payment units or tons contained therein, so that all that was required of the seller
will have to be made sooner or later; what is undetermined is merely the Gaite was to deliver in good faith to his buyer all of the ore found in the
exact date at which it will be made. By the very terms of the contract, mass, notwithstanding that the quantity delivered is less than the
therefore, the existence of the obligation to pay is recognized; only its amount estimated by them (Mobile Machinery & Supply Co., Inc. vs.
maturity or demandability is deferred. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the
Luisiana Civil Code). The contract expressly stated the amount to be
3. Contract of sale commutative and onerous; Each party assume 24,000 tons, more or less. Applying the tonnage factor provided by the
correlative obligation and anticipate performance from the other chief of Mines and Metallurgical Division of the Bureau of Mines which
A contract of sale is normally commutative and onerous: not only does was between 3 metric tons minimum to 5 metric tons maximum, which
each one of the parties assume a correlative obligation (the seller to was near the 3.3 metric ton tonnage factor adopted by Engr. Gamatero
deliver and transfer ownership of the thing sold and the buyer to pay the (at the request of Krakower, a stockholder of Larap), and if appellant’s
price), but each party anticipates performance by the other from the witness is correct in his estimate of 6,609 cubic meters of ore, the
very start. While in a sale the obligation of one party can be lawfully product is 21,809.7 tons which is not far from the 24,000 tons estimate.
subordinated to an uncertain event, so that the other understands that (cf. Pine River Logging & Improvement Co. vs. U. S., 186 U.S. 279, 46, L.
he assumes the risk of receiving nothing for what he gives (as in the Ed. 1164). Thus, there was no short-delivery as would entitle appellants
case of a sale of hopes or expectations, emptio spei), it is not in the to the payment of damages, nor could Gaite have been guilty of any
usual course of business to do so; hence, the contingent character of the fraud in making any misrepresentation to appellants as to the total
obligation must clearly appear. In the present case, nothing is found in quantity of ore in the stockpiles of the mining claims in question since
the record to evidence that Gaite desired or assumed to run the risk of Gaite’s estimate appears to be substantially correct.
losing his rights over the ore without getting paid for it, or that Fonacier
understood that Gaite assumed any such risk. The fact that appellants 6. SALES IS TITLE, NOT MODE
did put up such bonds indicates that they admitted the definite
existence of their obligation to pay the balance of P65,000. Equatorial Realty vs. Mayfair Theater [G.R. No. 106063. November 21,
1996.]
4. To consider sale as a condition precedent leaves the payment at En Banc, Hermosisima Jr. (J): 13 concur, 1 took no part
the discretion o fthe debtor
To subordinate the obligation to pay the remaining P65,000 to the sale Facts: Carmelo & Bauermann Inc. (Carmelo) owned a parcel of land,
or shipment of the ore as a condition precedent, would be tantamount together with two 2-storey buildings constructed thereon located at
to leaving the payment at the discretion of the debtor, for the sale or Claro M Recto Avenue, Manila (TCT 18529, Register of Deeds of Manila).
shipment could not be made unless the appellants took steps to sell the On 1 June 1967, Carmelo entered into a contract of lease with Mayfair
ore. Appellants would thus be able to postpone payment indefinitely. Theater for the latter’s lease of a portion of Carmelo’s property, i.e. a
Such construction of the contract should be avoided. portion of the 2/F of the two-storey building with floor area of 1610
sq.ms. and the second floor and mezzanine of the two-storey building
5. Interpretation incline in favor of the “greatest reciprocity of situated at CM Recto Avenue, Manila with a floor area of 150 sq.ms. for
interests” use by Mayfair as a motion picture theater and for a term of 20 years.
Assuming that there could be doubt whether by the wording of the Mayfair thereafter constructed on the leased property a movie house
contract the parties intended a suspensive condition or a suspensive known as Maxim Theatre. On 31 March 1969, Mayfair entered into a
period (dies ad quem) for the payment of the P65,000, the rules of second contract of lease with Carmelo for the lease of another portion of
interpretation would incline the scales in favor of “the greatest Carmelo’s property, i.e. a portion of the 2/F of the two-storey building
reciprocity of interests”, since sale is essentially onerous. The Civil Code with floor area of 1064 sq.ms. and two store spaces at the ground floor
of the Philippines, Article 1378, paragraph 1, in fine, provides “if the and mezzanine of the two-storey building situated at CM Recto Avenue,
contract is onerous, the doubt shall be settled in favor of the greatest Manila with a floor area of 300 sq.ms. and bearing street numbers 1871
and 1875 for similar use as a movie theater and for a similar term of 20 consistent course of action not to pre-empt the administrative
years. Mayfair put up another movie house known as ‘Miramar Theatre’ proceedings to be undertaken respecting the said irregularities. A
on this leased property. Both contracts of lease provide identically discussion of such in the present case would entail a finding on the
worded paragraph 8, which reads “That if the LESSOR should desire to merits as to the real nature of the questioned procedures and the true
sell the leased premises, the lessee shall be given 30-days exclusive intentions and motives of the players therein.
option to purchase the same. In the event, however, that the leased
premises is sold to someone other than the Lessee, the lessor is bound 2. Paragraph 8 of lease contracts provides for a right of first refusal, and
and obligated, as it hereby binds and obligates itself, to stipulate in the is not an option clause nor an option contract
Deed of Sale thereof that the purchaser shall recognize this lease and The contractual stipulation (Paragraph 8) provides for a right of first
be bound by all the terms and conditions thereof.” Sometime in August refusal in favor of Mayfair. It is not an option clause or an option contact.
1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President It is a contract of a right of first refusal. The true nature of the paragraph
of Mayfair, through a telephone conversation that Carmelo was desirous 8 is ascertained to be that of a contractual grant of the right of first
of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang refusal to Mayfair.
that a certain Jose Araneta was offering to buy the whole property for
US$1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to 3. Option contract; Validity based on a separate and distinct
buy the property for P6 million to P7 million. Mr. Yang replied that he consideration
would let Mr. Pascal know of his decision. On 23 August 1974, Mayfair As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was
replied through a letter confirming the correspondence between Pascual our characterization of an option contract as one necessarily invoking
and Yang and reiterating paragraph 8 of the two contracts of lease. the choice granted to another for a distinct and separate consideration
Carmelo did no reply to this letter. On 18 September 1974, Mayfair sent as to whether or not to purchase a determinate thing at a
another letter to Carmelo purporting to express interest in acquiring not predetermined fixed price. T he deed of option or option clause in a
only the leased premises but the entire building and other contract, in order to be valid and enforceable, must, among other
improvements if the price is reasonable. However, both Carmelo and things, indicate the definite price at which the person granting the
Equatorial questioned the authenticity of the second letter. Four years option, is willing to sell.
later, on 30 July 1978, Carmelo sold its entire CM. Recto Avenue land
and building, which included the leased premises housing the ‘Maxim’ 4. Option contract, according to Bouvier Law Dictionary
and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of Absolute Bouvier, in his Law Dictionary (edition of 1897) defines an option as a
Sale, for the total sum of P1,300,000. contract, “a contract by virtue of which A, in consideration of the
payment of a certain sum to B, acquires the privilege of buying from, or
In September 1978, Mayfair instituted the action for specific selling to B, certain securities or properties within a limited time at a
performance and annulment of the sale of the leased premises to specified price. (Story vs Salamon, 71 N.Y. 420.)”
Equatorial. In its Answer, Carmelo alleged as special and affirmative
defense that it had informed Mayfair of its desire to sell the entire CM. 5. Option contract, according to “Words and Phrases”
Recto Avenue property and offered the same to Mayfair, but the latter An agreement in writing to give a person the option to purchase lands
answered that it was interested only in buying the areas under lease, within a given time at a named price is neither a sale nor an agreement
which was impossible since the property was not a condominium; and to sell. It is simply a contract by which the owner of property agrees with
that the option to purchase invoked by Mayfair is null and void for lack another person that he shall have the right to buy his property at a fixed
of consideration. Equatorial, in its Answer, pleaded as special and price within a certain time. He does not sell his land, he does not then
affirmative defense that the option is void for lack of consideration and agree to sell it; but he does sell something; that is, the right or privilege
is unenforceable by reason of its impossibility of performance because to buy at the election or option of the other party. The second party gets
the leased premises could not be sold separately from the other portions in praesenti, not lands, nor an agreement that he shall have lands, but
of the land and building. It counterclaimed for cancellation of the he does get something of value, that is, the right to call for and receive
contracts of lease, and for increase of rentals in view of alleged lands if he elects The owner parts with his right to sell his lands, except
supervening extraordinary devaluation of the currency. Equatorial to the second party, for a limited period The second party receives this
likewise cross-claimed against codefendant Carmelo for indemnification right, or, rather, from his point of view, he receives the right to elect to
in respect of Mayfair’s claims. After assessing the evidence, the court buy. (Vol. 6, page 5001, of the work ‘Words and Phrases, ‘ citing the
rendered decision dismissing the complaint with costs against Mayfair; case of Ide vs. Leiser [24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17]).
ordering Mayfair to pay Carmelo & Bauermann P40,000.00 by way of
attorneys’s fees on its counterclaim; and ordering Mayfair to pay 6. Cases involving option contracts
Equatorial Realty P35,000.00 per month as reasonable compensation for In Tuason vs. de Asis (107 PHIL 131 [1960]), it was held that the lessee
the use of areas not covered by the contracts of lease from 31 July 1979 loses his right to buy the leased property for a named price per square
until Mayfair vacates said areas plus legal interest from 31 July 1978; meter upon failure to make the purchase within the time specified. In
P70,000.00 per month as reasonable compensation for the use of the Mendoza vs. Comple (15 SCRA 162), the Court freed the landowner from
premises covered by the contracts of lease dated (1 June 1967 from 1 her promise to sell her land if the prospective buyer could raise
June 1987 until Mayfair vacates the premises plus legal interest from 1 P4,500.00 in 3 weeks because such option was not supported by a
June 1987; P55,000.00 per month as reasonable compensation for the distinct consideration. In the same vein, in Sanchez vs. Rigos (45 SCRA
use of the premises covered by the contract of lease dated 31 March 368 [1972]), the Court also invalidated an instrument entitled, “Option
1969 from 30 March 1989 until Mayfair vacates the premises plus legal to Purchase” a parcel of land for the sum of P1,510.00 because of lack
interest from 30 March 1989; and P40,000.00 as attorney’s fees; and of consideration. And as an exception to the doctrine enumerated in the
dismissing Equatorial’s crossclaim against Carmelo & Bauermann. The two preceding cases, in Vda de Quirino vs. Palarca (29 SCRA 1 [1969]), it
trial court adjudged the identically worded paragraph 8 found in both was ruled that the option to buy the leased premises for P12,000.00 as
lease contracts to be an option clause which however cannot be stipulated in the lease contract, is not without consideration for in
deemed to be binding on Carmelo because of lack of distinct reciprocal contracts, like lease, the obligation or promise of each party is
consideration therefor. the consideration for that of the other. In all these cases, the selling
price of the object thereof is always predetermined and specified in the
Mayfair taking exception to the decision of the trial court, appealed to option clause in the contract or in the separate deed of option.
the Court of Appeals. The appellate court reversed the trial court and
rendered judgment reversing and setting aside the appealed Decision; Ang Yu Asuncion case:
directing Mayfair to pay and return to Equatorial the amount of
P11,300,000.00 within 15 days from notice of this Decision, and 7. Perfection of a contract of sale
ordering Equatorial to accept such payment; directing Equatorial, upon In sales, the contract is perfected when a person, called the seller,
payment of the sum of P11,300,000, to execute the deeds and obligates himself, for a price certain, to deliver and to transfer
documents necessary for the issuance and transfer of ownership to ownership of a thing or right to another, called the buyer, over which the
Mayfair of the lot registered under TCT 17350, 118612, 60936, and latter agrees. Article 1458 of the Civil Code provides that “By the
52571; and should Mayfair be unable to pay the amount as adjudged, contract of sale one of the contracting parties obligates himself to
declaring the Deed of Absolute Sale between Carmelo and Equatorial as transfer the ownership of and to deliver a determinate thing, and the
valid and binding upon an the parties. Hence, the petition for review. other to pay therefor a price certain in money or its equivalent. A
contract of sale may be absolute or conditional.”
The Supreme Court denied the petition for review of the decision of the
Court of Appeals (23 June 1992, in CA-GR CV 32918), declaring the Deed 8. Contract to sell is conditional; Effect of breach of condition
of Absolute Sale between Equatorial and Carmelo as deemed rescinded; When the sale is not absolute but conditional, such as in a “Contract to
ordering Carmelo to return to Equatorial the purchase price; directing Sell” where invariably the ownership of the thing sold is retained until
Equatorial to execute the deeds and documents necessary to return the fulfillment of a positive suspensive condition (normally, the full
ownership to Carmelo of the disputed lots; and ordering Carmelo to payment of the purchase price), the breach of the condition will prevent
allow Mayfair to buy the lots for P11,300,000. the obligation to convey title from acquiring an obligatory force.
1. Issue on irregularities in Court of Appeals passed upon so as not to 9. Unconditional mutual promise to buy and sell obligatory on the
preempt the administrative proceedings related thereto parties
It was raised that the Court of Appeals violated its own internal rules in An unconditional mutual promise to buy and sell, as long as the object is
the assignment of appealed cases when it allowed the same Division XII, made determinate and the price is fixed, can be obligatory on the
particularly Justice Manuel Herrera, to resolve all the motions in the parties, and compliance therewith may accordingly be exacted.
“Completion Process” and to still resolve the merits of the case in the
“Decision Stage.” This was related to letter complaint written by the 10. Perfected contract of option
counsel for Equatorial on 20 September 1992 to the Supreme Court An accepted unilateral promise which specifies the thing to be sold and
alleging certain irregularities and infractions committed by certain the price to be paid, when coupled with a valuable consideration distinct
lawyers, and Justices of the Court of Appeals and of the Supreme Court and separate from the price, is what may properly be termed a
in connection with case CA-GR CV 32918 (GR 106063). This partakes of perfected contract of option. This contract is legally binding, and in
the nature of an administrative complaint for misconduct, against sales, it conforms with the second paragraph of Article 1479 of the Civil
members of the judiciary. While the letter-complaint arose as an Code, which provides that “An accepted unilateral promise to buy or to
incident in said case, the disposition thereof should be separate and sell a determinate thing for a price certain is binding upon the promissor
independent from case GR 106063. It would be correct, prudent and
if the promise is supported by a consideration distinct from the price. obligation or promise of each party is the consideration for that of the
(1451a)” other.
11. Option not the contract of sale itself 19. Difference to Ang Yu Asuncion case: Equatorial Realty and Carmelo
The option is not the contract of sale itself. The optionee has the right, acted in bad faith
but not the obligation, to buy. Once the option is exercised timely, i.e., Carmelo and Equatorial Realty acted in bad faith to render Paragraph 8
the offer is accepted before a breach of the option, a bilateral promise “inutile.” What Carmelo and Mayfair agreed to, by executing the two
to sell and to buy ensues and both parties are then reciprocally bound to lease contracts, was that Mayfair will have the right of first refusal in the
comply with their respective undertakings. event Carmelo sells the leased premises. It is undisputed that Carmelo
did recognize this right of Mayfair, for it informed the latter of its
12. Offer intention to sell the said property in 1974. There was an exchange of
A negotiation is formally initiated by an offer. An imperfect promise letters evidencing the offer and counter-offers made by both parties.
(policitacion) is merely an offer. Public advertisements or solicitations Carmelo, however, did not pursue the exercise to its logical end. While it
and the like are ordinarily construed as mere invitations to make offers initially recognized Mayfair’s right of first refusal, Carmelo violated such
or only as proposals. These relations, until a contract is perfected, are right when without affording its negotiations with Mayfair the full
not considered binding commitments. Thus, at any time prior to the process to ripen to at least an interface of a definite offer and a possible
perfection of the contract, either negotiating party may stop the corresponding acceptance within the “30-day exclusive option” time
negotiation. The offer, at this stage, may be withdrawn; the withdrawal granted Mayfair, Carmelo abandoned negotiations, kept a low profile for
is effective immediately after its manifestation, such as by its mailing some time, and then sold, without prior notice to Mayfair, the entire
and not necessarily when the offeree learns of the withdrawal (Laudico Claro M. Recto property to Equatorial.
vs. Arias, 43 Phil. 270).
20. Rescission lies when the purchase is in bad faith
13. Offer with a period; Effects of withdrawal Equatorial (being aware of the lease contracts because its lawyers had,
(1) If the period is not itself founded upon or supported by a prior to the sale, studied the said contracts) is a buyer in bad faith, and
consideration, the offeror is still free and has the right to withdrawal the thus renders the sale to it of the property in question rescissible.
offer before its acceptance, or, if an acceptance has been made, before
the offeror’s coming to know of such fact, by communicating that
withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Guzman, Bocaling & Co. vs. Bonnevie case
Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous 21. Rescission as remedy
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Rescission is a remedy granted by law to the contracting parties and
Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 even to third persons, to secure reparation for damages caused to them
SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, by a contract, even if this should be valid, by means of the restoration of
however, must not be exercised whimsically or arbitrarily; otherwise, it things to their condition at the moment prior to the celebration of said
could give rise to a damage claim under Article 19 of the Civil Code contract. It is a relief allowed for the protection of one of the contracting
which ordains that “every person must, in the exercise of his rights and parties and even third persons from all injury and damage the contract
in the performance of his duties, act with justice, give everyone his due, may cause, or to protect some incompatible and preferential right
and observe honesty and good faith.” (2) If the period has a separate created by the contract. Rescission implies a contract which, even if
consideration, a contract of “option” is deemed perfected, and it would initially valid, produces a lesion or pecuniary damage to someone that
be a breach of that contract to withdraw the offer during the agreed justifies its invalidation for reasons of equity.
period. The option, however, is an independent contract by itself, and it
is to be distinguished from the projected main agreement (subject 22. Purchaser not considered a third party
matter of the option) which is obviously yet to be concluded. If, in fact, It is true that the acquisition by a third person of the property subject of
the optioner-offeror withdraws the offer before its acceptance (exercise the contract is an obstacle to the action for its rescission where it is
of the option) by the optionee-offeree, the latter may not sue for specific shown that such third person is in lawful possession of the subject of the
performance on the proposed contract (”object” of the option) since it contract and that he did not act in bad faith. However, this rule is not
has failed to reach its own stage of perfection. The optioner-offeror, applicable in the case before us because the petitoner is not considered
however, renders himself liable for damages for breach of the option. In a third party in relation to the Contract of Sale nor may its possession of
these cases, care should be taken of the real nature of the consideration the subject property be regarded as acquired lawfully and in good faith.
given, for if, in fact, it has been intended to be part of the consideration
for the main contract with a right of withdrawal on the part of the 23. Purchaser in good faith defined
optionee, the main contract could be deemed perfected; a similar A purchaser in good faith and for value who buys the property of
instance would be an “earnest money” in a contract of sale that can another without notice that some other person has a right to or interest
evidence its perfection (Art. 1482, Civil Code). in such property and pays a full and fair price for the same at the time
of such purchase or before he has notice of the claim or interest of some
other person in the property. Good faith connotes an honest intention to
14. Requirement for separate consideration has no applicability as abstain from taking unconscientious advantage of another. Tested by
paragraph 8 is not an option contract but a right of first refusal these principles, the petitioner cannot tenably claim to be a buyer in
No option to purchase in contemplation of the second paragraph of good faith as it had notice of the lease of the property and such
Article 1479 of the Civil Code, has been granted to Mayfair under the knowledge should have cautioned it to look deeper into the agreement
said lease contracts. Paragraph 8 grants the right of first refusal to to determine if it involved stipulations that would prejudice its own
Mayfair and is not an option contract. The requirement of a separate interests.
consideration for the option, thus, has no applicability in the case. There
is nothing in paragraph “8″ of the contracts which would bring them into 24. Purchaser required to know term of lease contract when buying
the ambit of the usual offer or option requiring an independent property under lease
consideration. Having known that the property it was buying was under lease, it
behooved it as a prudent person to have required the owner of the
15. Option and Right of First Refusal distinguished property or the broker to show to it the Contract of Lease in which the
An option is a contract granting a privilege to buy or sell within an right of first refusal is contained.
agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by consideration. In 25. Indivisibility of the property
the instant case, the right of first refusal is an integral part of the Common sense and fairness dictate that instead of nullifying the
contracts of lease. The consideration is built into the reciprocal agreement on the basis that the entire property is indivisible property,
obligations of the parties. the stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the right of
16. Right of First Refusal inutile if governed by Article 1324 on first refusal. A valid and legal contract where the ascendant or the more
withdrawal of the offer on Article 1479 on promise to buy and sell important of the two parties is the landowner should be given effect, if
To rule that a contractual stipulation such as that found in paragraph 8 possible, instead of being nullified on a selfish pretext posited by the
of the contracts is governed by Article 1324 on withdrawal of the offer owner. Following the arguments of petitioners and the participation of
on Article 1479 on promise to buy and sell would render ineffectual or the owner in the attempt to strip Mayfair of its rights; the right of first
“inutile” the provisions on right of first refusal so commonly inserted in refusal should include not only the property specified in the contracts
leases of real estate nowadays. Paragraph 8 was incorporated into the but also the appurtenant portions sold to Equatorial which are claimed
contracts of lease for the benefit of Mayfair which wanted to be assured by petitioners to be indivisible.
that it shall be given the first crack or the first option to buy the
property at the price which Carmelo is willing to accept. 26. Boundaries of the property sold
Mayfair is authorized to exercise its right of first refusal under the
17. Consideration in an agreement of right of first refusal: Consideration contract to include the entirety of the indivisible property. The
for lease boundaries of the property sold should be the boundaries of the offer
It is not correct to say that there is no consideration in an agreement of under the right of first refusal.
right of first refusal. The stipulation is part and parcel of the entire
contract of lease. The consideration for the lease includes the 27. Doctrine in Ang Yu Asuncion deemed modified
consideration for the right of first refusal. As to the remedy to enforce Mayfair’s right, the Court disagrees to a
certain extent with the concluding part of the dissenting opinion of
18. Consideration in an agreement of right of first refusal: Consideration Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of
is obligation or promise (reciprocal contract) Appeals should be modified, it not amplified under the peculiar facts of
Mayfair is in effect stating that it consents to lease the premises and to the present case.
pay the price agreed upon provided the lessor also consents that,
should it sell the leased property, then, Mayfair shall be given the right 28. Multiplicity of suits frowned upon by Court; Relief: (1) Contract
to match the offered purchase price and to buy the property at that between Equatorial and Carmelo rescinded, (2) Price fixed
price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the
The Supreme Court has always been against multiplicity of suits where while he was attending to its registration in his name, agents of the
all remedies according to the facts and the law can be included. Since Philippine Constabulary seized and confiscated the same in
Mayfair has a right of first refusal, it can exercise the right only if the consequence of the report to them by Teodoro that the said car was
fraudulent sale is first set aside or rescinded. All of these matters are unlawfully taken from him.
now before us and so there should be no piecemeal determination of
this case and leave festering sores to deteriorate into endless litigation. Aznar filed a complaint for replevin before the CFI Quezon City (Branch
Since Carmelo sold the property for P11,300,000 to Equatorial, the price IV) against Captain Rafael Yapdiangco, the head of the Philippine
at which Mayfair could have purchased the property is, therefore, fixed. Constabulary unit which seized the car. Claiming ownership of the
The damages which Mayfair suffered are in terms of actual injury and vehicle, he prayed for its delivery to him. In the course of the litigation,
lost opportunities. The fairest solution would be to allow Mayfair to however, Teodoro Santos moved and was allowed to intervene by the
exercise its right of first refusal at the price which it was entitled to lower court. At the end of the trial, the lower court rendered a decision
accept or reject which is P11,300,000. To follow an alternative solution awarding the disputed motor vehicle to Santos. From the decision, Aznar
that Carmelo and Mayfair may resume negotiations for the sale to the appealed.
latter of the disputed property would be unjust and unkind to Mayfair
because it is once more compelled to litigate to enforce its right. The Supreme Court dismissed the appeal and affirmed the decision of
the lower court in full; with costs against Aznar.
29. Present case covered by law on contracts, not merely by codal
provisions on human relations 1. Article 559 of the Civil Code; Santos entitled to recovery of personal
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court property
stated that there was nothing to execute because a contract over the Santos had been unlawfully deprived of his personal property by
right of first refusal belongs to a class of preparatory juridical relations Marella, from whom Aznar traces his right. Consequently, although
governed not by the law on contracts but by the codal provisions on Aznar acquired the car in good faith and for a valuable consideration
human relations. This may apply if the contract is limited to the buying from Marella, the said decision concluded, still Santos was entitled to its
and selling of the real property. However, the obligation of Carmelo to recovery on the mandate of Article 559 of the New Civil Code which
first offer the property to Mayfair is embodied in a contract. It is provides: ” The possession of movable property acquired in good faith is
Paragraph 8 on the right of first refusal which created the obligation. It equivalent to title. Nevertheless, one who has lost any movable or has
should be enforced according to the law on contracts instead of the been unlawfully deprived thereof, may recover it from the person in
panoramic and indefinite rule on human relations. The latter remedy possession of the same. If the possessor of a movable lost or of which
encourages multiplicity of suits. There is something to execute and that the owner has been unlawfully deprived, has acquired it in good faith at
is for Carmelo to comply with its obligation to the property under the a public sale, the owner cannot obtain its return without reimbursing the
right of the first refusal according to the terms at which they should price paid therefor.” Under Article 559, the rule is to the effect that if the
have been offered then to Mayfair, at the price when that offer should owner has lost the thing, or if he has been unlawfully deprived of it, he
have been made. Also, Mayfair has to accept the offer. This juridical has a right to recover it, not only from the finder, thief or robber, but
relation is not amorphous nor is it merely preparatory. Paragraphs 8 of also from the third person who may have acquired it in good faith from
the two leases can be executed according to their terms. such finder, thief or robber.
30. No interest due 2. Seller’s title, voidable at least, essential in Article 1506; Article 559
Carmelo and Equatorial cannot avail of considerations based on equity applies
which might warrant the grant of interests. The vendor received as Article 1506 provides:” Where the seller of goods has a voidable title
payment from the vendee what, at the time, was a full and fair price for thereto, but his title has not been voided at the time of the sale, the
the property. It has used the P11,300,000.00 all these years earning buyer acquires a good title to the goods, provided he buys them in good
income or interest from the amount. Equatorial, on the other hand, has faith, for value, and without notice of the seller’s defect of title.” Under
received rents and otherwise profited from the use of the property the provision, it is essential that the seller should have a voidable title at
turned over to it by Carmelo. In fact, during all the years that this least. It is very clearly inapplicable where the seller had no title at all.
controversy was being litigated, Mayfair paid rentals regularly to the
buyer who had an inferior right to purchase the property. Mayfair is 3. Ownership or title acquired only by tradition or delivery; Article 712
under no obligation to pay any interests arising from this judgment to of the Civil Code
either Carmelo or Equatorial. Under Article 712 of the Civil Code, “ownership and other real rights
over property are acquired and transmitted by law, by donation, by
Aznar vs. Yapdiangco [G.R. No. L-18536. March 31, 1965.] testate and intestate succession, and in consequence of certain
En Banc, Regala (J): 10 concurring contracts, by tradition.” As interpreted by this Court in a host of cases,
by this provision, ownership is not transferred by contract merely but by
Facts: In May 1959, Teodoro Santos advertised in two metropolitan tradition or delivery. Contracts only constitute titles or rights to the
papers the sale of his Ford Fairlane 500. In the afternoon of 28 May transfer or acquisition of ownership, while delivery or tradition is the
1959, a certain L. De Dios, claiming to be a nephew of Vicente Marella, mode of accomplishing the same. (Gonzales vs. Rojas, 16 Phil. 51;
went to the Santos residence to answer the ad. However, Teodoro was Ocejo, Perez and Co. vs. International Bank, 37 Phil. 631; Fidelity and
out during this call and only the latter’s son, Irineo received and talked Deposit Co. vs. Wilson, 8 Phil. 51; Kuenzle & Streiff vs. Wacke &
with De Dios. The latter told the young Santos that he had come in Chandler, 14 Phil. 610; Easton vs. Diaz & Co., 32 Phil. 180). For the legal
behalf of his uncle, Marella, who was interested to buy the advertised acquisition and transfer of ownership and other property rights, the
car. On being informed of the above, Teodoro instructed his son to see thing transferred must be delivered, inasmuch as, according to settled
Marella the following day at his given address: 1642 Crisostomo Street, jurisprudence the tradition of the thing is a necessary and indispensable
Sampaloc, Manila. And so, in the morning of 29 May 1959, Irineo went to requisite in the acquisition of said ownership by virtue of a contract.
said address. At this meeting, Marella agreed to buy the car for (Walter Easton vs. E. Diaz & Co. & the Provincial Sheriff of Albay, supra.)
P14,700.00 on the understanding that the price would be paid only after So long as property is not delivered, the ownership over it is not
the car had been registered in his name. Irineo then fetched his father transferred by contract merely but by delivery. Contracts only constitute
who, together with De Dios, went to the office of a certain Atty. Jose titles or rights to the transfer or acquisition of ownership, while delivery
Padolina where the deed of sale for the car was executed in Marella’s or tradition is the method of accomplishing the same, the title and the
favor. The parties to the contract thereafter proceeded to the Motor method of acquiring it being different in our law.” (Gonzales vs. Rojas,
Vehicles’ Office in Quezon City where the registration of the car in 16 Phil. 51) In the present case, the car was never delivered to the
Marella’s name was effected. Up to that stage of the transaction, the vendee by the vendor as to complete or consummate the transfer of
purchase price had not been paid. From the Motor Vehicles Office, ownership by virtue of the contract. It should be recalled that while
Teodoro returned to his house. He gave the registration papers and a there was indeed a contract of sale between Vicente Marella and
copy of the deed of sale to his son and instructed him not to part with Teodoro Santos, the former, as vendee, took possession of the subject
them until Marella shall have given the full payment for the car. Irineo matter thereof by stealing the same while it was in the custody of the
and De Dios then proceeded to 1642 Crisostomo Street, Sampaloc in latter’s son.
Manila where the former demanded for the payment from Marella.
Marella said that the amount he had on hand then was short by some 4. Delivery of key not delivery contemplated by Article 712; Intent
P2,000.00 and begged off to be allowed to secure the shortage from a must be present
sister supposedly living somewhere in Azcarraga Street, also in Manila. There is no adequate evidence on record as to whether Irineo Santos
Thereafter, he ordered De Dios to go to the said sister and suggested voluntarily delivered the key to the car to the unidentified person who
that Irineo to go with him. At the same time, he requested for the went with him and L. De Dios to the place in Azcarraga where a sister of
registration papers and the deed of sale from Ireneo on the pretext that Marella allegedly lived. But even if Irineo Santos did, it was not the
he would like to show them to his lawyers. Trusting the good faith of delivery contemplated by Article 712 of the Civil Code. For then, it would
Marella, Ireneo handed over the same to the latter and thereupon, in the be indisputable that he turned it over to the unidentified companion
company of De Dios and another unidentified person, proceeded to the only so that he may drive Irineo Santos and De Dios to the said place in
alleged house of Marella’s sister. At a place in Azcarraga, Irineo and De Azcarraga and not vest the title to the said vehicle to him as agent of
Dios alighted from the car and entered a house, while their unidentified Vicente Marella. Article 712 above contemplates that the act be coupled
companion remained in the car. Once inside, De Dios asked Irineo to with the intent of delivering the thing. (10 Manresa 132)
wait at the sala while he went inside a room. That was the last that
Ireneo saw of him. For, after a considerable length of time waiting in 5. Article 559 establishes exception to the general rule or
vain for De Dios to return, Ireneo went down to discover that neither the irrevindicability
car nor their unidentified companion was there anymore. Going back to Article 559 establishes two exceptions to the general rule of
the house, he inquired from a woman he saw for De Dios and he was irrevindicability to wit: when the owner (1) has lost the thing, or (2) has
told that no such name lived or was even known therein. Whereupon, been unlawfully deprived thereof. In these cases, the possessor cannot
Ireneo rushed to 1642 Crisostomo to see Marella. He found the house retain the thing as against the owner, who may recover it without
closed and Marella gone. Finally, he reported the matter to his father paying any indemnity, except when the possessor acquired it in a public
who promptly advised the police authorities. That very same day, sale. (Del Rosario vs. Lucena, 8 Phil. 535; Varela vs. Finnick, 9 Phil. 482;
Marella was able to sell the car in question to Jose B. Aznar, for Varela vs. Matute, 9 Phil. 479; Arenas vs. Raymundo, 19 Phil. 46.
P15,000.00. Aznar acquired the said car from Marella in good faith, for a Tolentino, id., Vol II, p. 261.)
valuable consideration and without notice of the defect appertaining to
the vendor’s title. While the car was thus in the possession of Aznar and 6. Cruz vs. Pahati on Article 559
In the case of Cruz vs. Pahati, et al., 52 OG 3053, the Court ruled that Commentaries and Jurisprudence on the National Internal Revenue
“Under Article 559 of the new Civil Code, a Person illegally deprived of Code, Vol II, p. 744). The fact that the articles sold are manufactured by
any movable may recover it from the person in possession of the same the seller does not exchange the contract from the purview of section
and the only defense the latter may have is if he has acquired it in good 186 of the National Internal Revenue Code as a sale of articles.
faith at a public sale, in which case, the owner cannot obtain its return
without reimbursing the price paid therefor. In the present case, plaintiff 5. Custom specifications required by customer does not alter
has been illegally deprived of his car through the ingenious scheme of character of business, the company does not become an employee or
defendant B to enable the latter to dispose of it as if he were the owner servant of the customer
thereof. Plaintiff, therefore, can still recover possession of the car even if Nobody will say that when a sawmill cuts lumber in accordance with the
it is in the possession of a third party who had acquired it in good faith peculiar specifications of a customer, sizes not previously held in stock
from defendant B. The maxim that “no man can transfer to another a for sale to the public, it thereby becomes an employee or servant of the
better title than he has himself’ obtains in the civil as well as in the customer, not the seller of lumber. The same consideration applies to
common law.” (U.S. vs. Sootelo, 28 Phil. 147) this sash manufacturer. The Sash Factory does nothing more than sell
the goods that it mass-produces or habitually makes; sash, panels,
7. Common law principle yields to statutory provision mouldings, frames, cutting them to such sizes and combining them in
The right of the owner to recover personal property acquired in good such forms as its customers may desire.
faith by another, is based on his being dispossessed without his consent.
The common law principle that where one of two innocent persons must 6. Installation of window panels not construction work in common
suffer by a fraud perpetrated by another, the law imposes the loss upon parlance
the party who, by his misplaced confidence, has enabled the fraud to be Petitioner’s idea of being a contractor doing construction jobs is
committed, cannot be applied in a case which is covered by an express untenable. Nobody would regard the doing of two window panels as
provision of the new Civil Code, specifically Article 559. Between a construction work in common parlance.
common law principle and a statutory provision, the latter must prevail
in this jurisdiction. (Cruz vs. Pahati, supra). 7. Contract of sale distinguished from a contract for a piece of work
Article 1467 of the New Civil Code provides that “a contract for the
C. DISTINGUISHED FROM OTHER TRANSACTIONAL CONTRACT 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,
3. CONTRACT FOR PIECE OF WORK 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
Celestino Co v. Collector of Internal Revenue [G.R. No. L-8506. August his special order, and not for the general market, it is contract for a
31, 1956.] piece of work.” In the present case, it is apparent that the Factory did
First Division, Bengzon (J): 7 concur not merely sell its services to Teodoro & Co. because it also sold the
materials. When it sold materials ordinarily manufactured by it (sash,
Facts: Celestino Co & Company is a duly registered general panels, mouldings), although in such form or combination as suited the
copartnership doing business under the trade name of “Oriental Sash fancy of the purchaser, such new form does not divest the Factory of its
Factory”. From 1946 to 1951 it paid percentage taxes of 7% on the character as manufacturer. Neither does it take the transaction out of
gross receipts of its sash, door and window factory, in accordance with the category of sales under Article 1467 because although the Factory
section 186 of the National Revenue Code imposing taxes on sales of does not, in the ordinary course of its business, manufacture and keep
manufactured articles. However in 1952 it began to claim liability only to on stock doors of the kind sold to Teodoro, it could stock and/or
the contractor’s 3% tax (instead of 7%) under section 191 of the same probably had in stock the sash, mouldings and panels it used therefor.
Code; and having failed to convince the Bureau of Internal Revenue, it
brought the matter to the Court of Tax Appeals, where it also failed. 8. Contract for a piece of work in Factory happens if the use of
Hence, the appeal. extraordinary or additional equipment is required or if it involves
services not generally performed by it
The Supreme Court affirmed the appealed decision. When the Factory accepts a job that requires the use of extraordinary or
additional equipment, or involves services not generally performed by it,
1. Business name and income militates against claim as ordinary it thereby contracts for a piece of work, i.e. filling special orders within
contractor the meaning of Article 1467. In the present case, however, the orders
The company has taken all the trouble and expense of registering a exhibited were not shown to be special. They were merely orders for
special trade name for its sash business and has ordered company work, regular work.
stationery carrying the bold print “Oriental Sash Factory (Celestino Co &
Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, 9. Transfers under Section 186 of the Tax Code
Manufacturers of all kinds of doors, windows, sashes, furnitures, etc. If all the work of appellant is only to fill orders previously made, such
used season-dried and kiln-dried lumber, of the best quality orders should not be called special work, but regular work; and
workmanship.” It is unlikely that these act were made solely for the supposing for the moment that the transactions were not sales, they
purpose of supplying the needs for doors, windows and sash of its were neither lease of services nor contract jobs by a contractor. Still, as
special and limited customers. Further, the Company has chosen for its the doors and windows had been admittedly “manufactured” by the
tradename and has offered itself to the public as a “Factory”, which Sash Factory, such transactions could be, and should be taxed as
means it is out to do business, in its chosen lines on a big scale. “transfers” thereof under section 186 of the National Revenue Code.
Moreover, as shown from the investigation of the Company’s books of
accounts (for transactions covering the period of 1 January 1952 to 30 Engineering and Machinery Corp. v. CA [G.R. No. 52267. January 24,
September 1952), it sold sash, doors and windows worth P188,754.69. It 1996.]
will be difficult to believe that such amount that ran to six figures was Third Division, Panganiban (J): 3 concur
derived entirely from its few customers who made special orders. Thus,
Celestino Co & Company habitually makes sash, windows and doors, as Facts: Pursuant to the contract dated 10 September 1962 between the
it has represented in its stationery and advertisements to the public, Engineering and Machinery Corporation (the Corporation) and Almeda,
and it has admitted by the appellant itself that the company the former undertook to fabricate, furnish and install the air-conditioning
“manufactures.” system in the latter’s building along Buendia Avenue, Makati in
consideration of P12,000.00. The Corporation was to furnish the
2. Construction work contractors defined materials, labor, tools and all services required in order to so fabricate
Construction work contractors are those who alter or repair buildings, and install said system. The system was completed in 1963 and
structures, streets, highways, sewers, street railways, railroads, logging accepted by Almeda, who paid in full the contract price. On 2 September
roads, electric, steam or water plants telegraph and telephone plants 1965, Almeda sold the building to the National Investment and
and lines, electric lines or power lines, and includes any other work for Development Corporation (NIDC). The latter took possession of the
the construction, altering or repairing for which machinery driven by building but on account of NIDC’s noncompliance with the terms and
mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, conditions of the deed of sale, Almeda was able to secure judicial
880, 179 Okl. 68). rescission thereof. The ownership of the building having been decreed
back to Almeda, he re-acquired possession sometime in 1971. It was
3. Nature of business does not fall in any of the occupation that may then that he learned from some NIDC employees of the defects of the
be classified as contractor within the purview of Section 191 of the air-conditioning system of the building. Acting on this information,
National Internal Revenue Code Almeda commissioned Engineer David R. Sapico to render a technical
Even if it were to believe that the company does not manufacture ready- evaluation of the system in relation to the contract with the Corporation.
made sash, doors and windows for the public and that it makes these In his report, Sapico enumerated the defects of the system and
articles only upon special order of its customers, that does not make it a concluded that it was “not capable of maintaining the desired room
contractor within the purview of section 191 of the National Internal temperature of 76ºF — 2ºF.”
Revenue Code. There are no less than fifty occupations enumerated in
the said section of the National Internal Revenue Code subject to On the basis of this report, Almeda filed on 8 May 1971 an action for
percentage tax, not one under which the business enterprise of damages against the Corporation with the then CFI Rizal (Civil Case
petitioner could appropriately fall. It would require a stretch of the law to 14712). The complaint alleged that the air-conditioning system installed
make the business of manufacturing sash, doors and windows upon by the Corporation did not comply with the agreed plans and
special order of customers fall under the category of ‘road, building, specifications, hence, Almeda prayed for the amount of P210,000.00
navigation, artesian well, water works and other construction work representing the rectification cost, P100,000.00 as damages and
contractors. P15,000.00 as attorney’s fees. The Corporation moved to dismissed the
case, alleging prescription, but which was denied by the Court.
4. Percentage tax imposed under Section 191 of the Tax Code a tax on Thereafter, Almeda filed an ex-parte motion for preliminary attachment
sales of service, while tax imposed by Section 186 a tax on original sales on the strength of the Corporation’s own statement to the effect that it
of articles had sold its business and was no longer doing business in Manila. The
The percentage tax imposed in section 191 of the Tax Code is generally trial court granted the motion and, upon Almeda’s posting of a bond of
a tax on the sales of services, in contradiction with the tax imposed in P50,000.00, ordered the issuance of a writ of attachment.
section 186 of the same Code which is a tax on the original sales of
articles by the manufacturer, producer or importer. (Formilleza’s
In due course, and on 15 April 1974, the trial court rendered a decision, by reason of his trade or profession, should have known them.” Article
which ordered the Corporation to pay Almeda the amount needed to 1566 provides that “the vendor is responsible to the vendee for any
rectify the faults and deficiencies of the air-conditioning system installed hidden faults or defects in the thing sold, even though he was not aware
by the Corporation in Almeda’s building, plus damages, attorney’s fees thereof,” and provides further that the provision “shall not apply if the
and costs). Petitioner appealed to the Court of Appeals, which affirmed contrary has been stipulated, and the vendor was not aware of the
on 28 November 1978 the decision of the trial court. Hence, it instituted hidden faults or defects in the thing sold.”
a petition for review on certiorari under Rule 45 of the Rules of Court.
7. Remedy against violation of the warranty against hidden defects
The Supreme Court denied the petition and affirmed the decision The remedy against violations of the warranty against hidden defects is
assailed; without costs. either to withdraw from the contract (rehibitory action) or to demand a
proportionate reduction of the price (accion quanti minoris), with
1. The Court’s power to review damages in either case.
The Supreme Court reviews only errors of law in petitions for review on
certiorari under Rule 45. It is not the function of this Court to re-examine 8. Prescriptive period as specified in express warranty, or in the
the findings of fact of the appellate court unless said findings are not absence of which, 4 years; Prescriptive period of 6 months for rehibitory
supported by the evidence on record or the judgment is based on a action is applicable only in implied warranties
misapprehension of facts. The Court has consistently held that the While it is true that Article 1571 of the Civil Code provides for a
factual findings of the trial court, as well as the Court of Appeals, are prescriptive period of six months for a rehibitory action, a cursory
final and conclusive and may not be reviewed on appeal. Among the reading of the ten preceding articles to which it refers will reveal that
exceptional circumstances where a reassessment of facts found by the said rule may be applied only in case of implied warranties; and where
lower courts is allowed are when the conclusion is a finding grounded there is an express warranty in the contract, the prescriptive period is
entirely on speculation, surmises or conjectures; when the inference the one specified in the express warranty, and in the absence of such
made is manifestly absurd, mistaken or impossible; when there is grave period, the general rule on rescission of contract, which is four years
abuse of discretion in the appreciation of facts; when the judgment is (Article 1389, Civil Code) shall apply. (Villostas v. CA)
premised on a misapprehension of facts; when the findings went beyond
the issues of the case and the same are contrary to the admissions of 9. Original complaint is one for arising from breach of a written
both appellant and appellee. After a careful study of the case at bench, contact and not a suit to enforce warranty against hidden defects;
we find none of the above grounds present to justify the re-evaluation of Article 1715 in relation to Article 1144 apply, prescription in 10 years;
the findings of fact made by the courts below. Action not prescribed
The lower courts opined and so held that the failure of the defendant to
2. Contract of a piece of work defined follow the contract specifications and said omissions and deviations
Article 1713 of the Civil Code defines a contract for a piece of work as having resulted in the operational ineffectiveness of the system installed
“by the contract for a piece of work the contractor binds himself to makes the defendant liable to the plaintiff in the amount necessary to
execute a piece of work for the employer, in consideration of a certain rectify to put the air conditioning system in its proper operational
price or compensation. The contractor may either employ only his labor condition to make it serve the purpose for which the plaintiff entered
or skill, or also furnish the material.” into the contract with the defendant. Thus, having concluded that the
original complaint is one for damages arising from breach of a written
3. Contract for a piece of work distinguished from a contract of sale contract, and not a suit to enforce warranties against hidden defects,
A contract for a piece of work, labor and materials may be distinguished the governing law therefore is Article 1715. However, inasmuch as this
from a contract of sale by the inquiry as to whether the thing transferred provision does not contain a specific prescriptive period, the general law
is one not in existence and which would never have existed but for the on prescription, which is Article 1144 of the Civil Code, will apply. Said
order of the person desiring it . In such case, the contract is one for a provision states, inter alia, that actions “upon a written contract”
piece of work, not a sale. On the other hand, if the thing subject of the prescribe in 10 years. Since the governing contract was executed on 10
contract would have existed and been the subject of a sale to some September 1962 and the complaint was filed on 8 May 1971, it is clear
other person even if the order had not been given, then the contract is that the action has not prescribed.
one of sale.
“A contract for the delivery at a certain price of an article which the 10. Acceptance of the work by the employer does not relieve the
vendor in the ordinary course of his business manufactures or procures contractor of liability for any defect in the work
for the general market whether the same is on hand at the time or not is The mere fact that Almeda accepted the work does not, ipso facto,
a contract of sale, but if the goods are to be manufactured specially for relieve the Corporation from liability for deviations from and violations of
the customer and upon his special order, and not for the general the written contract, as the law gives him 10 years within which to file
market, it is a contract for a piece of work (Art. 1467, Civil Code). The an action based on breach thereof. As held by the Court of Appeals, “as
mere fact alone that certain articles are made upon previous orders of the breach of contract consisted in appellant’s omission to install the
customers will not argue against the imposition of the sales tax if such equipment [sic], parts and accessories not in accordance with the plan
articles are ordinarily manufactured by the taxpayer for sale to the and specifications provided for in the contract and the deviations made
public.” (Celestino Co. vs. Collector, 99 Phil. 8411). in putting into the air-conditioning system parts and accessories not in
To Tolentino, the distinction between the two contracts depends on the accordance with the contract specifications, it is evident that the defect
intention of the parties. Thus, if the parties intended that at some future in the installation was not apparent at the time of the delivery and
date an object has to be delivered, without considering the work or labor acceptance of the work, considering further that Almeda is not an expert
of the party bound to deliver, the contract is one of sale. But if one of to recognize the same. From the very nature of things, it is impossible to
the parties accepts the undertaking on the basis of some plan, taking determine by the simple inspection of air conditioning system installed
into account the work he will employ personally or through another, in an 8-floor building whether it has been furnished and installed as per
there is a contract for a piece of work. agreed specifications.”