G.R. No. L-4508 MARCIANA vs.

March 4, 1910 CONLU, ET AL., plaintiffs-appellants,

PABLO ARANETA, for himself and as administrator of the estate of Vito Tiongco, and ESPIRIDION GUANKO, defendants-appellees. Ruperto Montinola and Carlos Ledesma, for appellants.

Guanko, Avancea & Abeto, for appellees. JOHNSON, J.: On the 16th day of January, 1906, the plaintiffs commenced an action against the defendants to recover, as owners, certain parcels of land located in the pueblo of Molo, Province of Iloilo, together with damages, which parcels of land are more particularly described in paragraph 6 of the complaint. The defendants, by their answer, allege that they are the owners of the parcels of land in question. The question thus presented by the complaint and answer was simply, Who are the owners of said parcels of land? After hearing the evidence adduced during the trial of the cause, the lower court found that the plaintiffs were the owners and were entitled to the possession of all of the parcels of land described in said paragraph 6 of the complaint, except that parcel, together with the house located thereon, described in subsection (d) of said paragraph 6. This latter parcel of land the lower court held belonged to the estate of Vito Tiongco. In discussing the evidence adduced during the trial relating to the question of ownership of said house and parcel of land, the lower court said: The preponderance of evidence in this case establishes the fact that the house in question, with the tile roof, was originally the property of Catalina Tiongco, sister of Anselma, which was afterwards left to Anselma by virtue of the will made by Catalina before her death, and that after that time, probably in 1887, her nephew, Vito Tiongco, was appointed gobernadorcillo of Molo, whose appointment was contested with much animosity, among other objections adduced against him being the allegation that he was not the owner of any reality. In order to counteract

his opposition and avoid his being defeated for that reason, Anselma, who then possessed many properties, put him into possession of the said tile-roofed house as apparently his own property. He lived in the house from that date up to the time of his death in 1904, and, as it appeared to everybody, he considered it as if he was the real owner thereof. He made many repairs as well as alterations in the house on his account and to suit his own wishes. From the weight of the evidence I find that, after being put into possession of the house in the manner above mentioned, Anselma agreed that he could have the house as his own if he would pay to her P3,000, which sum is alleged to be the amount paid by her sister Catalina for the erection of said house; and that afterwards, and before the death of Anselma, he had paid this sum to the satisfaction of Anselma, and, while I can not find any formal conveyance of the property on the part of Anselma, I do find that some time subsequent to that date he claimed it as his property and it was recognized as his own, therefore, I am inclined to find that the house with tile roof was, at the time of the death of Anselma, really the property of Vito Tiongco, her nephew." From this decision of the lower court the plaintiffs appealed and made the following assignments of error in his court: First. In allowing the defendants to prove by means of oral evidence, the ownership of the said realty. Second. In declaring that Anselma Tiongco sold the realty in question to Vito Tiongco. The appellant in his brief said: The question now at issue in this court is limited to the said house. The appellant contends, in his first assignment of error, that the lower court committed an error by allowing the defendants to prove the sale of said parcel of land by Anselma Tiongco to Vito Tiongco, in or about the year 1887, by oral proof. The simple question presented is, May the sale of real property made in 1887 be proved by oral testimony? In support of his contention the appellant cites articles 1278, 1279, and 1280 of the Civil Code. These articles of the Civil Code have already been construed by this court in the cause of Couto vs. Cortes (8 Phil. Rep., 459) as well as in the cause of Thunga Chui vs. Que Bentec (2 Phil. Rep., 561), where the court held that "An oral contract for the sale of real estate, made prior to the enactment of the Code of Civil Procedure, is binding between the parties thereto, although it may still be necessary for the

parties seeking to enforce such contract to take some action to secure the execution of proper documents, but this requirement will not render the agreement invalid." Section 335 of the Code of Procedure in Civil Actions, now in force, has established a rule relating to the method of proving contracts of sale of real property, and an oral contract for the sale of real property can not now be proven under said section 335 except "some note or memorandum thereof be in writing and subscribed by the party charged or by his agent." However, said section (335) makes no attempt to render such contracts [oral contracts] invalid. It simply provides that the contract shall not be enforced by an action, unless the same is evidenced by some note or memorandum. This provision (sec. 335) of the code simply provides how contracts for the sale of real property shall be proved. It does not attempt to make contracts invalid which have not been executed in writing. This provision does not go to the existence of the contract, except when made by an agent (par. 5 of sec. 335). It simply requires a form of contract. The contract exists and is valid, though it may not be clothed with the necessary form and the effect of a noncompliance with the provisions of the statute is simply that no action can be proved unless the requirement is complied with; but a failure to except to the evidence because it does not conform with the statute is a waiver of the provisions of the law. (Anson on Contracts, p. 75.) If the parties to the action, during the trial make no objection to the admissibility of oral evidence to support a contract of sale of real property, and thus permit the contract to be proved, it will be just as binding upon the parties as if it had been reduced to writing. In the present case the defendants called thirteen witnesses, who each testified concerning the sale of the parcel of land and the house in question by Anselma Tiongco to Vito Tiongco, in or about the year 1887, and no objection was made by the plaintiffs to the admissibility of this testimony. The plaintiffs did not invoke the provisions of section 335. They permitted the defendants to prove the oral contract of sale. The contract of sale, therefore, being fully proven, and under the provisions of the law an oral contract for the sale of real property being binding and valid between the parties, we see no escape from the conclusion that if the evidence was sufficient to show the sale, that the contract was binding, even though it had not been reduced to writing. The second question is, then, Was the evidence adduced during the trial sufficient to show that Anselma Tiongco sold the parcel of land in question to Vito Tiongco in or about the year 1887? The lower court found that a preponderance of the evidence that the sale had actually been made. Upon a full consideration of the evidence adduced during the trial upon this question, we are satisfied and so hold that a large preponderance of the evidence shows, beyond question,

that said sale took place and that Vito Tiongco, at the time of his death was the owner of the said parcel of land. For the reasons heretofore stated, the judgment of the lower court is hereby affirmed, with costs. So ordered. Arellano, C.J., Torres, Mapa and Moreland, JJ., concur.

G.R. No. 111952 October 26, 1994 JULIO vs. COURT OF APPEALS and LORETO RAGUIRAG, respondents. Evangelista & Evangelista for petitioners. Sylvia R.T. Rubio for private respondent. TAPEC and PRISCA GALANO, petitioner,

DAVIDE, JR., J.: In resolving the issue of which document should be given more weight in deciding ownership, the trial court and the Court of Appeals arrived at irreconcilably conflicting judgments. The former held that the deeds of sale in favor of the petitioners, being duly acknowledged before a notary public and registered under Act No. 3344, although executed much later, should prevail over a prior conveyance in a private document in favor of the private respondent's predecessorin-interest. On appeal by the private respondent, the Court of Appeals held otherwise on the ground that the private document is an ancient document under the rules of evidence and overturned the decision of the trial court. Hence this petition for review under Rule 45 of the Rules of Court.

There can be no question that the determination of which of the two documents should prevail, in the manner it was done by the courts below, is a question of law. At its heart, however, is a question of fact which, under the general rule that only questions of law may be raised in a petition for review, should not be entertained by this Court. The instant case, however, falls within one of the exceptions to such rule: that the findings of fact of the Court of Appeals are contrary to those of the trial court. 1 Accordingly, we gave due course to this petition. The procedural and factual antecedents are disclosed by the pleadings. On 4 December 1994, the petitioners, who are husband and wife, filed a complaint for recovery of ownership with the Regional Trial Court at Batac, Ilocos Norte, against David Cabuyadao and herein private respondent Loreto Raguirag. The petitioners alleged in their complaint that they are the owners of a parcel of land with an area of 11,850 square meters, located at Barangay No. 26, Oaiag-Upay, Paoay, Ilocos Norte, more specifically described as follows: RURAL, part of which is riceland and the rest a pasture, bounded on the North by the Heirs of Oligario Cabuyadao and others; on the East, by Tony Cac (formerly Luis Bacud); on the South, by Rufino Macoco et al.; and, on the West by the successors of Eusebio Agdeppa and Luis Cueva, with an area of 11,850 square meters more or less. They further averred that during the cadastral survey of Paoay, Ilocos Norte, unknown to them and without their consent, the above-described property was surveyed and subdivided into Lot Nos. 7452, 7444, and 7450, and that under baseless claims of ownership, David Cabuyadao and Loreto Raguirag threatened to enter Lot No. 7452 and Lot No. 7444, respectively. The petitioners then prayed that they be declared the owners of Lot Nos. 7452 and 7444 and that a writ of preliminary injunction be issued ordering the defendants and their agents and representatives to desist from entering the lots. David Cabuyadao was declared in default 2 for failure to file his answer. In his answer with counterclaim, 3 private respondent (defendant) Loreto Raguirag denied having knowledge of the property claimed by the petitioners but by way of special defense asserted that he is the absolute owner of the parcel of land described as follows:

UNCULTIVATED LAND situated at Dumalaoaig, # 19, Paoay, Ilocos Norte, with an area of 3,487 sq. meters, more or less, designated as Lot No. 7444, Cad. 445D of Paoay, Ilocos Norte. Bounded on the north by Benigno Raguirag; on the East by Manuel Raguirag; on the South by Felipe Cueva, and on the West by Gregorio Agdeppa. The petitioners' claim of ownership is based on two deeds of absolute sale, one executed on 2 January 1950 by Trinidad Gonzales in favor of petitioner Julio Tapec, 4 and the other executed on 28 May 1949 by Rosario Gonzales in favor of the petitioners, 5 both acknowledged before the same notary public and duly registered with the Office of the Register of Deeds under Act No. 3344 on 8 March 1950 and 29 July 1949, respectively. The property subject of the sale by Trinidad Gonzales is described as follows: A parcel
6

of

an

unirrigated

riceland

measuring

4832

sq.

m.

and

pasto measuring 2380 sq. m. and both bounded on the North by Aquilino Oamil and others, East Rufino Diaz and others, South Leocadio Macoco and others and West Felipe Cueva and others and that said land is valued at P180.00 for this current year as per Tax No. 016399 (previously under Tax No. 68663) in the name of Miguel Gonzales. . . . while the parcel sold by Rosario Gonzales is described thus: A parcel of unirrigated riceland measuring 4832 sq. m. and bounded on the North by Oligario Cabuyadao, Manuel Raguirag and Aquilino Oamil, East by Luis Bacud and Rufino Diaz, South by Leocadio Macoco and Ariston Cueva, and West by Eusebio Agdeppa and Felipe Cueva. It is valued at P180 for this current year as per Tax No. 016399 under the name of the late Miguel Gonzales. . . . Respondent Loreto Raguirag, on the other hand, anchored his defense on a document, dated 15 May 1931 7 and handwritten in Ilocano, wherein the brothers Victoriano, Gregorio, Matias, and Alejandro, all surnamed Gonzales, 8sold to the spouses Manuel Raguirag and Clara Tapec, grandparents of respondent Raguirag, for a consideration of P150.00 a pasture situated in Dumalaoing, Paoay, Ilocos Norte, with an area of 3,450 sq. meters and bounded:

. . . as follows, North Victoriano Gonzalis I, East Alejandro Gonzalis, Miguel Gonzalis and others, South Pelipi Cuyba West Grigorio Agdippa. 9 Witnesses to the said handwritten document were Manuel Raguirag, Cornelio Cabuyao, and Miguel Gonzales. At the trial, petitioner Julio Tapec identified the deeds of sale executed by Trinidad and Rosario Gonzales and the sketch plan of Lot Nos. 7444, 7450, and 7452 of the Paoay Cadastre
10

and

declared that the area sold by Trinidad corresponds to Lot Nos. 7450 and 7452 while the parcel sold by Rosario corresponds to Lot No. 7444. 11He further alleged that he has been in possession of the lots since he purchased them and had them declared for taxation purposes in his name in 1950 12 and that before he bought the property of Trinidad Gonzales, he had to first redeem it from Ireneo Raguirag to whom it was mortgaged by Trinidad for P100.00 on 10 November 1947 and who (Trinidad) was in possession thereof. 13 On the other hand, private respondent Raguirag presented the 1931 private writing which, according to him, was shown to him when he was a boy by his grandfather, Manuel Raguirag, who said, "all of these are our properties of which I bought from Alejandro Gonzales."
14

He

claimed that his grandfather was in possession of the property until his death during the Japanese occupation. Then his father, Ireneo Raguirag, continued such possession until he died in 1967. 15 Ireneo had the property declared for taxation purposes in 1962. 16 After his father's death, Loreto took over the possession of the property and during the cadastral survey of Paoay, it was claimed by Leoncia Raguirag, a sister of Ireneo. The private respondent is merely possessing it as tenant-administrator. Thus: ATTY. LUMBO q I understand that the land in suit has already a lot number, do you know who is the survey claimant of the lot in suit? xxx xxx xxx a Leoncia Raguirag, sir. q Who is this Leoncia Raguirag?

a A sister of my father, sir. q You said that from the death of your late father up to the present you are the one possessing this land in suit, my question is, why are you in possession of this property? a Yes, sir, because my father is no longer living. q And since according to you this survey claimant is Leoncia Raguirag, a sister of your late father, in what capacity are you possessing the land in suit? a As a tenant-administrator, sir. q Tiller-administrator of what? a That pastureland in the land of my father, sir. q What is that pastureland you are referring to in the name of your father? a That is the pastureland that is being claimed by Julio Tapec, sir. 17 On 31 October 1989, the trial court rendered a decision, as follows: In view of all the foregoing, it is hereby ordered: 1. That the plaintiffs are absolute owners of Lot Nos. 7942 19 and 7444. 2. That the defendants pay the costs. In support thereof, it made the following findings and conclusion: That an impartial assessment of the evidence adduced disclosed that the deed of sale executed in favor of the plaintiffs by the vendees Trinidad Gonzales and Rosario Gonzales marked as Exh. "A" and "B" respectively are public documents
18

the dispositive portion of which reads

registered in the Office of the Register of Deeds of Ilocos Norte while that of the defendant is in a private document. That between a deed of sale in a public document and a deed of sale in private document, the former must prevail; That a contract may be entered into in whatever form except where the law requires a document or other special form. "When the law requires that a contract be in a public document in order that it may be valid or enforceable, such as contracts which have for their object the creation or transmission of rights over immovable property, that requirement is absolute and indispensable." (Manotok Realty, Inc. vs. Court of Appeals, et al., G.R. No. 35365, 9 April '87, Second Division). Art. 1358 N.C.C. (No. 1). Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property must appear in a public document (Gallardo vs. Intermediate Appellate Court, G.R. No. 67742, 21 Oct. '87, First Division). Loreto Raguirag appealed from the decision to the Court of Appeals which docketed the appeal as CA-G.R. CV No. 26093. In its decision 20 of 20 September 1993, the Court of Appeals reversed the appealed decision. It declared: The plaintiffs-appellee raise for the first time, on appeal, the question of the genuineness of the Deed of Sale offered as documentary evidence by the defendants-appellants. It has been decided by the Supreme Court that objection to the admission of evidence must be made seasonably, at the time it is introduced or offered, otherwise they are deemed waived and will not be entertained for the first time on appeal. (People of the Philippines vs. Benjamin Baares, G.R. No. 68298, November 25, 1986, 145 SCRA 680) The rule is that evidence not objected to is deemed admitted and may be validly considered by the court in arriving at its judgment. This is true even if by its nature the evidence is inadmissible and would have surely been rejected if it had been challenged at

the proper time. (Interpacific Transit, Inc. vs. Rufo Aviles and Josephine Aviles, G.R. No. 86062, June 6, 1990, 186 SCRA 385). Aside from that, a private document may be exempted from proof of due execution and authenticity under the "ancient document rule." Section 22, Rule 132 of the Rules of Court provides that: Sec. 22. Evidence of execution not necessary. Where a private writing is more than thirty years old, is produced from a custody in which it would naturally be found if genuine, and is unblemished by any alterations or circumstances of suspicion, no other evidence of its execution and authenticity need be given. In this case, the Deed of Sale dated 15 May 1931 complies with the first requirement of Section 22 since it was offered in evidence in 1986. It was presented in court by the proper custodian thereof who is an heir of the person who would naturally keep it complying with the requirement that it be produced from a custody in which it would naturally be found if genuine. (Resurreccion Bartolome, et al., vs. The Intermediate Appellate Court, et al., G.R. No. 76792, March 12, 1990, 183 SCRA 102) Neither is there any evidence of alterations or any circumstances that would cause a doubt on the genuineness of the document. Thus, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that "the ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." The plaintiff-appellee Julio Tapec himself, testified during cross-examination that Ireneo Raguirag (father of defendants-appellants) was already in possession of the parcel of land when the subject land was offered to him by the vendor, Rosario Gonzales. (Original Records, TSN, June 26, 1986, p. 8) Moreover, Constancia Gonzales, a sister of the vendor of the plaintiffs-appellees, and a witness for the defendants-appellants, testified that the subject pastureland was sold to the grandfather of the defendants-appellants as told to her by her parents;

and that the predecessors-in-interest of the defendants-appellants have been in possession of the property since they bought it. (Original Records, TSN, November 23, 1988, pp. 2-3). The validity of the sale of the subject pastureland to the predecessors-in-interest of the defendants-appellants cannot be disputed. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. (Article 1356, New Civil Code) We do not agree with the ruling of the trial judge that under Article 1358 of the New Civil Code, a contract which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property, must appear in a public document to be valid and enforceable. Article 1358 of the New Civil Code enumerates certain contracts that must appear in public or private documents. This provision does not require such form in order to validate the act or contract but to insure its efficacy. Contracts enumerated by this article are, therefore, valid as between the contracting parties, even when they have not been reduced to public or private writings. (Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code of the Philippines, Volume Four, 1985 ed., pp. 549-550) Therefore, the Deed of Sale in favor of the predecessor-in-interest of the defendants-appellants is considered valid and enforceable, even if it was only embodied in a private writing. In upholding the validity of the 1931 sale of the subject pastureland, we can only conclude that when the land was sold to the plaintiffs-appellees in 1950, the vendor had no right to sell the subject property since at that time her family no longer owned the land and thus no legal right was transferred by the vendor to the plaintiffs-appellees. Article 1459 of the New Civil Code requires that the vendor must have a right to transfer the ownership thereof at the time it is delivered, otherwise the contract of sale is void. Article 1544 of the New Civil Code on double sales does not apply in this case. The article provides that if an immovable property should have been sold to different vendees, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry Property. In order that the

abovementioned provision may be invoked, it is necessary that the conveyance must have been made by a party who has an existing right in the thing, and the power to dispose of it. It cannot, therefore, be invoked in a case where the two different contracts of sale are made by two different persons, one of them not being the owner of the property sold. (Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code of the Philippines, Volume Five, 1959, pp. 8384). 21 Before us, the petitioners raise the sole issue of whether the deeds of sale to them, which were embodied in public instruments and registered under Act No. 3344,
22

should prevail over the

alleged sale to the ancestors of respondent Raguirag executed much earlier in a private instrument. It appears that the petitioners no longer question the validity and due execution of the 1931 deed of conveyance. Nevertheless, they stand firm on their argument that such instrument is valid and enforceable only as to the parties thereto and cannot bind third persons and innocent purchasers. 23 We agree with the Court of Appeals that Exhibit "1" for the private respondent, the deed of sale in a private writing executed on 15 May 1931 in favor of Manuel Raguirag and Clara Tapec, private respondent's grandparents, is an ancient document whose proof of authenticity was no longer necessary because of the concurrence of the requisites in Section 21, Rules of Court. in 1986.
26 25 24

Rule 132 of the

It was already more than thirty years old at the time it was offered in evidence

It was produced from the custody of respondent Raguirag, an heir of the vendees in

the said instrument. And it is unblemished by any alteration or circumstances of suspicion. As correctly ruled by the Court of Appeals, the said private instrument is a deed of sale in which all the requisites of a valid contract are present and which is binding upon the parties. The trial court erroneously held that it is invalid because it is not in a public document as required by Article 1358 of the Civil Code and pursuant toManotok Realty, Inc. vs. Court of Appeals. 27 Article 1358 does not invalidate the acts or contracts enumerated therein if they are not embodied in public documents. As one noted civilian has said: This Article enumerates certain contracts that must appear in public or private documents. This provision does not require such form in order to validate the act

or contract but to insure its efficacy. It is limited to an enumeration of the acts and contracts which should be reduced to writing in a public or private instrument. The reduction to writing in a public or private document, required in this article, is not an essential requisite for the existence of the contract, but is simply a coercive power granted to the contracting parties by which they can reciprocally compel the observance of these formal requisites. Contracts enumerated by this article are, therefore, valid as between the contracting parties, even when they have not been reduced to public or private writings. Except in certain cases where public instruments and registration are required for the validity of the contract itself, the legalization of a contract by means of a public writing and its entry in the register are not essential solemnities or requisites for the validity of the contract as between the contracting parties, but are required for the purpose of making it effective as against third person. 28 What the trial court referred to in Manotok is not the ruling of this Court but the claim of the petitioner therein, What this Court stated was that "the sale made by Legarda to Lucero should have been embodied in a public instrument in accordance with Article 1358 of the Civil Code and should have been duly registered with the Register of Deeds to make it binding against third persons." (emphasis supplied). While we uphold the ruling of the Court of Appeals that the 15 May 1931 sale in favor of the private respondent's grandparents was valid and enforceable, we cannot, however, accept its findings that: In upholding the validity of the 1931 sale of the subject pastureland, We can only conclude that when the land was sold to the plaintiffs-appellees [petitioners herein] in 1950, the vendor had no right to sell the subject property since at the time her family no longer owned the land and thus no legal right was transferred by the vendor to the plaintiffs-appellees. Firstly, it should be remembered that per the testimony of petitioner Julio Tapec, the sale in 1950 was that executed on 2 January 1950 by Trinidad Gonzales and the property subject thereof corresponds to Lot Nos. 7450 and 7452, 29 while the sale executed on 28 May 1949 by Rosario Gonzales 30 corresponds to Lot No. 7444. It is the latter lot which is claimed by the private respondent. 31 The original owner of the property sold by Trinidad and Rosario was their

father, Miguel Gonzales, 32 and as indicated in the deeds of sale they executed, the portion each sold was declared for taxation purposes in the name of their father.
33

With respect to the 1931

sale, Miguel Gonzales was not a vendor therein but a mere witness thereto. The vendors were Victoriano, Matias, Alejandro, and Gregorio, all surnamed Gonzales. Obviously, the Court of Appeals erred in finding that Trinidad had no more right to sell the property. Secondly, while the petitioners sufficiently established the identity of the property claimed by them, the private respondent failed to prove the identity of the property covered by Exhibit "1." Since he specified in his special defenses the property he claimed and asked the court in his prayer that he be declared "the lawful owner and possessor" thereof, the burden was on him to prove its identity. 34 Thirdly, it was established that Trinidad Gonzales had mortgaged her property to the private respondent's father, Ireneo Raguirag, on 10 November 1947.
35

The mortgage was redeemed

only shortly before its sale to the petitioners in 1950. If Ireneo were its owner as heir of Manuel Raguirag, there was no reason for Ireneo to have accepted the mortgage thereof. Finally, the private respondent categorically admitted that he is only a tenant-administrator of Lot No. 7444. This admission belies any claim of ownership. It was his aunt, Leoncia Raguirag, who claimed ownership over it during the cadastral survey.
36

IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 26093 is hereby REVISED, and the dispositive portion of the decision of Branch 17 of the Regional Trial Court at Batac, Ilocos Norte, in Civil Case No. 166917 is REINSTATED, subject to the correction of the portion therein which reads "Lot Nos. 7942" to "Lot Nos. 7452." SO ORDERED. Padilla, Bellosillo, Quiason and Kapunan, JJ., concur.

G.R. No. L-46715-16 July 29, 1988

LEONCIA T. ZAIDE and PRIMITIVO ZAIDE, substituted by SIMEON TOLENTINO, Guardian ad litem of the Minors PACITA, ALEX, MARIA ZERLINA all surnamed ZAIDE, etc., petitioners, vs. HON. COURT OF APPEALS, ROBERTO DE LEON and EDITA T. ZAIDE respondents. Tolentino & Associates for petitioners. Benjamin C. Sebastian for private respondents.

NARVASA, J.: Edita Zaide and her husband, Roberto de Leon, were the registered owners of a parcel of land situated in Makati, Rizal, with an area of 201 square meters, covered by TCT No. 69088 of the Register of Deeds of Rizal. Sometime in the middle sixties, Primitivo Zaide, Edita's brother, gave to Edita and her husband, Roberto de Leon, P2,000.00 as a loan, which the latter used to redeem the land mortgaged by them to the Pasay Rural Bank. At about this time, too, Primitive Zaide and his wife, Leoncia T. Zaide, transferred ownership of a jitney 1 owned by them, valued at P7,000.00, to Roberto de Leon. It is the Zaide Spouses' claim that the vehicle was thus ceded as part of the purchase price of the de Leons' above described land, which they had agreed to buy. In any case, neither the loan nor the transfer of the vehicle is disputed. On January 11, 1965, Edita Zaide executed a public instrument denominated "Deed of Sale" by which, in consideration of P5,000.00 paid to her, she sold the parcel of land covered by TCT No. 69088 to Leoncia T. Zaide. 2 The deed described both the vendor, Edita Zaide, and the vendee, Leoncia T. Zaide, as "married," but named neither of their husbands. The document however did bear the signature of Edita's husband, Roberto de Leon, indicating his "marital consent." The omission of the name of the vendee's husband in the deed of sale gave rise to a problem. Precisely because of it, the Register of Deeds refused to accept it for registration. A second deed of sale couched in the same terms as the first, acknowledge before the same Notary Public, Judge Rafael Madrazo, and bearing exactly the same date (January 11, 1965) and

document Identification in Judge Madrazo's Notarial Registry (i.e. "Doc. 955, Page No. 92, Book No. 4, Series of 1965"), actually differing from the first only in that it set forth the names of the husbands of both the vendor and the vendee 3-was shortly thereafter presented to, and was promptly accepted for registration, by the Register of Deeds. The latter then cancelled TCT No. 69088, and issued a new one, TCT No. 138606, in the name of "Leoncia T. Zaide, married to Primitivo Zaide." With this lot as collateral, the Zaide Spouses thereafter obtained a loan from the Government Service Insurance System in the sum of P28,500.00. This was sometime in November, 1964. The proceeds were used to construct a two-story apartment building on the land. 4 On June 1, 1969, the house of the de Leons burned down. They moved to one of the doors of the apartment built by the Zaide Spouses. They were asked to pay rentals. They refused. Litigation ensued. On July 4, 1969, the de Leon Spouses filed a complaint with the Court of First Instance of Rizal against the Zaide Spouses. 5 The case was docketed as Civil Case No. 11977. Briefly, the de Leons alleged that in June, 1964 they discovered that their title to the land in question (TCT No. 69088) had been cancelled and another (TCT No. 138606) issued to the Zaides, on the strength of "a forged deed of sale supposedly executed in Tagaytay City on the 11th day of January, 1965," and that they "could not possibly have sold their lot for the measly sum of P5,000.00 appearing in the forged deed ..considering that the market price of the land ... cannot be less than P20,000.00." They thus prayed for the cancellation of TCT No. 138606 and the re-issuance of another "in the name of plaintiff, EDITA ZAIDE," as well as the payment to them of damages and attorneys' fees. Because Primitivo Zaide and Leoncia T. Zaide "were both killed in Tagaytay City" on January 14, 1970, the complaint was amended to substitute in their stead their minor children: Pacita, Alexander and Maria Zerlina, represented by their guardian ad litem, Simeon Tolentino. 6 On October 20, 1970, said Zaide children, through their guardian, Simeon Tolentino, in turn filed suit against the de Leon Spouses in the same Court of First Instance of Rizal, to recover the possession of the apartment unit occupied by the latter and pay rentals at the rate of P300.00 pursuant to a "verbal contract of lease. 7" The case, docketed as Civil Case No. 14044, was later transferred to the same branch to which the earlier one (No. 11977), had been assigned. The cases were then tried jointly. 8

Judgment was rendered in favor of the Zaide Spouses on September 25, 1972, 9 the dispositive portion of which reads: 10 WHEREFORE, the Court renders judgment dismissing the complaint filed in Civil Case No. 11977 and declaring the sale of the lot covered by Transfer Certificate of Title No. 138606 issued in the names of the deceased spouses Leoncia T. Zaide and Primitivo Zaide legal and valid; ordering the plaintiffs as defendants in Civil Case No. 14044 to pay Pacita, Alexander and Maricar all surnamed Zaide, as plaintiffs in Civil Case No. 14044 the sum of P250.00 representing the rental of the use and occupancy of one of the doors of the apartment, beginning January 1, 1969 and every month thereafter until the said Edita Zaide and Roberto de Leon shall have finally vacated the premises; and ordering Edita Zaide and Roberto de Leon or any person claiming rights from them to immediately vacate the apartment they are now occupying situated on the land in question. With costs against Edita Zaide and Roberto de Leon as plaintiffs in Civil Case No. 11977 and defendants in Civil Case No. 14044. This judgment was however reversed by another Judge by Order dated April 10, 1973,
11

upon a

motion for reconsideration seasonably presented by the Spouses de Leon. In that Order, the Court declared that the "firm and unshakable" testimony of an NBI handwriting expert established that the signatures of both plaintiffs Edita Zaide and Roberto de Leon as appearing in the .. (second deed of sale,) Exhibit "A" (Exhibit 2 of the defendants) .. were forgeries based on the sample signatures of the two appearing in the other documents furnished to the NBI ..." The Court further stated that the defect in the admittedly genuine first deed of sale consisting of the omission of the names of the husbands of the vendor and vendee could not be corrected by a forged document which is considered inexistent before the law. It therefore ruled that TCT No. 138606 issued to the Zaide Spouses was null and void, being "the fruit of a forged deed of sale." The Order closed with the following dispositive paragraph: WHEREFORE, in view of the findings of this Court the motion for the reconsideration of the decision is hereby granted, and the decision insofar as the Court ruled the dismissal of the complaint in Civil Case No. 11977 and declared the sale of the lot covered by Transfer Certificate of Title No. 138606 issued in the names of the deceased spouses Leoncia T. Zaide and Primitivo Zaide legal and valid is set aside, and this Court declares that Transfer Certificate of Title No.

138606 issued in the name of defendant Leoncia T. Zaide as cancelled, it being found by the Court as proceeding from a forged Deed of Sale Exhibit "A." As a result of this, this Court orders the Register of Deeds of Rizal to reissue the Transfer Certificate of Title over the disputed parcel of land in the name of the plaintiff. With respect to the other case, Civil Case No. 14044, this Court will not disturb the findings made by the Presiding Judge who rendered the decision sought to be reconsidered. The decision having been thus reconsidered insofar as Civil Case No. 11977 is concerned, costs of suit in this case are chargeable to the defendants. There is, it will be observed, a curious ambivalence in the amending order: while it declares the de Leons to be the owner of the land (and orders the re-issuance of title to them), it did "not disturb the findings" in the original judgment "with respect to Civil Case No. 14044," to the effect that the Zaide children are entitled to receive rents for "the use and occupancy of one of the doors of the apartment" by the de Leons.
12

Be this as it may, the defendants in Civil Case No.

11977-the children of the deceased Zaide Spouses-and the defendant in Civil Case No. 14044 Roberto de Leon appealed to the Court of Appeals. 13 The Court of Appeals found that, contrary to the Zaides' claim, there had been no admission by the de Leons of the genuineness of the first deed of sale (Exh. 1), and their counsel's statement in the course of the trial that his clients were not contesting" that deed, did "not amount to an outright admission of the genuineness thereof but .. (was) rather an indication on their part to limit themselves within the issue of forgery of Exhibit 2 or the second deed of sale;" that the signatures on the latter deed were definitely forgeries, and since the Zaides invoked that deed as basis of their title to the land, they could not be deemed buyers in good faith; and the judgment in Civil Case No. 14044 decreeing the ejectment of the de Leons was incongruous to its findings of the spurious nature of the deed of sale and the Zaides' character as buyers in bad faith. The Court of Appeals thus AFFIRMED the Order of April 10, 1973 which superseded the judgment of September 25, 1972-in so far as it declared that the sale of the land in favor of the Zaides was null and void and the land should therefore revert to the de Leons, but MODIFIED it by relieving Roberto de Leon of any obligation to pay rent for his occupancy of one door of the apartment building on the land, "which should not be vacated by him and his wife or any person claiming any right from them." The dispositive paragraph of the Court's decision 14 reads as follows:

WHEREFORE, We hereby affirm the appealed Order dated April 10, 1973, insofar as it relates to Civil Case No. 11977 of the Court of First Instance at Pasig, Rizal, and hereby modify that portion of the same order insofar as it relates to Civil Case No. 14044 of the same Court by (1) declaring the late spouses Primitivo Zaide and Leoncia T. Zaide, parents of the minors who are the plaintiffs-appellees in CA-G.R. No. 53880-R, as builders in bad faith of the apartment built on the contested lot in CA-G.R. No. 53879-R and (2) relieving appellant Roberto de Leon in CA-G.R. No. 53880-R (who is the defendant in Civil Case No. 14044) from paying rental in occupying one door of said apartment which should not be vacated by him and his wife or any person claiming any right from them. In all other respects, the said portion relative to Civil Case No. 14044 is AFFIRMED with costs in both instances to be taxed on the defendantsappellants, Simeon Tolentino, guardian ad litem of the Minors Pacita, Alexander, Maria Zerlina, all surnamed Zaide, who are the plaintiffs-appellees in CA-G.R. No. 53880-R. The case is now before this Court on an appeal by certiorari of the Zaide children from the decision of the Appellate Court. There are two (2) deeds of sale which, as already remarked, are exactly the same as to date, contents, and Identification in the notarial registry, differing only in that the second contains the names of the spouses of the vendor and the vendee. 15 It is the Zaides' claim that the second, Exhibit 2, is a forgery, and the first, Exhibit 1, had not been admitted by them. The record shows that the deed, Exhibit 1, was in fact admitted by the de Leons. Copies of both deeds, Exhibits 1 and 2, were pleaded by the Zaides in their amended answer as an "actionable document" 16 or as "a written instrument or document" on which "an action or defense is based" in accordance with Section 7, Rule 8 of the Rules of Court. The de Leons failed to specifically deny "the genuineness and due execution of the annexed instrument(s) .. under oath, .. (and to set forth what they claim) to be the facts;" hence, under Section 8 of the same Rule, "the genuineness and due execution" of the deeds should "be deemed admitted." The de Leons however insist that they should not be saddled with any such admission because the amended answer (in which the deeds had been pleaded) had never been admitted by the Court a quo. This is not correct. At least two (2) orders of the Trial Court made clear its

admission of the amended answer. At one of the hearings, the Court categoricaly stated that "for purposes of record, the court admits the amended complaint as well as the amended answer." 17 In an earlier Order, dated January 6, 1971, lifting an order of default entered against the Zaides, the Court cited as reason therefor the fact that " defendants have filed not only an answer but also an amended answer to the original complaint." 18 It is not the ceremonial phrase of express admission of an amended pleading that should control, but the unequivocal acts of the Court in relation to the revised pleading. Moreover, the de Leons' counsel, Atty. Mariano, explicitly manifested to the Court that they were not contesting Exhibit 1. This is made clear by the following recorded exchange 19 between the Court and counsel, following the observation of the Zaides' attorney, Mr. San Jose, that inter alia the de Leons had not objected to the genuineness of Exhibit 1 when formally offered, the only objection being "that it did not contain documentary stamps." ATTY. MARIANO: The trouble is we are not contesting Exhibit 1, what we are contesting is Exhibit 2, as a forgery which Exh. 2 is the basis of the registration. COURT: What has been attached to the answer? ATTY. SAN JOSE: Both of them. May we have it on record that what they are contesting is Exhibit 2, and not Exhibit 1. COURT: Put it on record. But (that) he is not so such objecting on the document Exhibit 1. ATTY. MARIANO: We are not contesting Exhibit 1. We are contesting Exhibit 2.

COURT: Precisely, you are not contesting Exhibit 1. ATTY. MARIANO: Yes, Your Honor. It is difficult to imagine how an admission of a document could be made any more plain. Prescinding from this, no evidence whatever has been presented or proferred by the de Leons of the spuriousness of Exhibit 1. Their manifestations with respect to Exhibit 1 have been limited to an insistence in limiting the issue to the alleged falsity of the second deed, Exhibit 2. But, to repeat, they have made no effort whatever to prove Exhibit 1 to be other than genuine. Under the circumstances, the genuineness and due execution of Exhibit 1, which had been formally offered and admitted by the Court, cannot but be conceded, not merely on the strength of the unrebutted presumptions of regularity of private transactions, admissions by the de Leons just detailed. However, although the first deed of sale (Exh. 1) was genuine, it was so far defective as to render it unregistrable in the Registry of Property. As already pointed out, it did not set forth the name of the vendee's husband and was for this reason refused registration by the Register of Deeds. The defect was unsubstantial. It did not invalidate the deed. The legal dispositions are clear. Though defective in form, the sale was valid; and the parties could compel each other to do what was needful to make the document of sale registrable. The law generally allows a contract of sale to be entered into in any form, whether "in writing, or by word of mouth, or partly in writing and partly by word or mouth, or (even) inferred from the conduct of the parties;" but if the agreement concerns "the sale of land or of an interest therein," the law requires not only that "the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged" in order that it may be enforceable by action, 21 but also that the writing be in the form of a "public document." 22 The law finally provides that "If the law requires a document or other special form, as in the acts and contracts enumerated in .. (Article 1358), the contracting parties may compel each other to observe that form, once the contract has been perfected .. (and such) right may be exercised simultaneously with the action upon the contract." 23
20

but also and particularly, the

In the case at bar, the Zaides thus had the right to compel the de Leons to observe the special form prescribed by law; i.e., revised the public document by inserting the name of the vendee's husband. Indeed, this was precisely what was done in the second deed of sale, Exhibit 2. The de Leons however contend that Exhibit 2 is a nullity: they had never signed it; their purported signatures thereon had been forged. Assuming this to be so, for the sake of argument, it does not alter (1) the fact that the parties had voluntarily executed a sale in writing Exhibit 1, which recites that the price of P5,000.00 had been paid, and the further fact that (a) the de Leons had received from the Zaides the sum of P2,000.00 as well as a vehicle valued at P7,000.00 and (b) they, the de Leons, knew that the Zaides had exercised an act of ownership over the property thereby acquired by mortgaging it as security for a loan; or (2) the legal consequence flowing therefrom: that in order to cure the defect in the first deed, in that it did not specify the name of the vendee's husband, the Zaides could legally compel the de Leons to execute another deed containing this omitted circumstance. Hence, even if the second document of sale be invalidated as a forgery, and the de Leons' title to the land restored to them, this would be inutile, an empty ceremony, since the de Leons could nevertheless still be compelled by the Zaides to execute another deed, in proper form, to carry into effect the sale originally entered into. But it is not as indubitable as the Appellate Court and the Trial Court seem to believe that the second deed of sale, Exhibit 2, was in truth a forgery. The conclusion of forgery was founded on the testimony of a handwriting expert. There is in any case no satisfactory explanation why the expert did not see fit to use, for purposes of comparison, the document nearest in point of time to the questioned deed (Exhibit 2), namely, Exhibit 1; or why such expert's testimony should be accorded full faith and credit despite its (1) not having been subjected to cross-examination, and (2) being contradicted by the positive testimony of a subscribing witness, and of the judge who, as notary public ex oficio, had notarized both deeds of sale, both of whom had affirmed that the vendors and vendees had actually signed the documents. There was simply a naked assertion that the expert's evidence proved the forgery without any discussion, much less refutation, of the facts militating against it. Obviously, such an unreasoned assertion cannot be sustained. It cannot be accorded that conclusiveness conceded as a rule to factual findings of the Court of Appeals. In this situation, it cannot rightfully be ruled that the second deed of sale, Exhibit 2, is indeed a forgery. The most that may perhaps be said about it is that its genuineness has been placed in doubt by the evidence given by the handwriting expert. But this is inconsequential, in view of the facts and legal considerations set out in the next preceding paragraph.

WHEREFORE, the judgment of the Court of Appeals in CA-G.R. No. 53879-R and CA-G.R. No. 53880-R dated July 26, 1977, and the Order of the Trial Court dated April 10, 1973 thereby affirmed with modification, are REVERSED AND SET ASIDE, and the decision of said Trial Court rendered on September 25, 1972, SUSTAINED AND AFFIRMED in toto. Costs against private respondents. Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

SECOND DIVISION
[G.R. No. 152411. September 29, 2004]

UNIVERSITY OF THE PHILIPPINES, petitioner, vs. PHILAB INDUSTRIES, INC., respondent. DECISION
CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 44209, as well as its Resolution[2] denying the petitioners motion for the reconsideration thereof. The Court of Appeals set aside the Decision[3] of Branch 150 of the Regional Trial Court (RTC) of Makati City, which dismissed the complaint of the respondent against the petitioner for sum of money and damages.

The Facts of the Case Sometime in 1979, the University of the Philippines (UP) decided to construct an integrated system of research organization known as the Research Complex. As part of the project, laboratory equipment and furniture were purchased for the National Institute of Biotechnology and Applied Microbiology (BIOTECH) at the UP Los Baos. Providentially, the Ferdinand E. Marcos Foundation (FEMF) came forward and agreed to fund the acquisition of the laboratory furniture, including the fabrication thereof. Renato E. Lirio, the Executive Assistant of the FEMF, gave the gosignal to BIOTECH to contact a corporation to accomplish the project. On July 23, 1982, Dr. William Padolina, the Executive Deputy Director of BIOTECH, arranged for Philippine Laboratory Industries, Inc. (PHILAB), to fabricate the laboratory furniture and deliver the same to BIOTECH for the BIOTECH Building Project, for the account of the FEMF. Lirio directed Padolina to give the go-signal to PHILAB to proceed with the fabrication of the laboratory furniture, and requested Padolina to forward the contract of the project to FEMF for its approval. On July 13, 1982, Padolina wrote Lirio and requested for the issuance of the purchase order and downpayment for the office and laboratory furniture for the project, thus: 1. Supply and Installation of Laboratory furniture for the BIOTECH Building

Project Amount : P2,934,068.90

Supplier

Philippine Laboratory Furniture Co., College, Laguna Attention: Mr. Hector C. Navasero President

Downpayment 2.

40% or P1,173,627.56

Fabrication and Supply of office furniture for the BIOTECH Building

Project Amount Supplier : : P573,375.00 Trans-Oriental Woodworks, Inc. 1st Avenue, Bagumbayan Tanyag, Taguig, Metro Manila Downpayment : 50% or P286,687.50[4]

Padolina assured Lirio that the contract would be prepared as soon as possible before the issuance of the purchase orders and the downpayment for the goods, and would be transmitted to the FEMF as soon as possible. In a Letter dated July 23, 1982, Padolina informed Hector Navasero, the President of PHILAB, to proceed with the fabrication of the laboratory furniture, per the directive of FEMF Executive Assistant Lirio. Padolina also requested for copies of the shop drawings and a sample contract [5] for the project, and that such contract and drawings had to be finalized before the

down payment

could be remitted to the PHILAB the following

week. However, PHILAB failed to forward any sample contract. Subsequently, PHILAB made partial deliveries of office and laboratory furniture to BIOTECH after having been duly inspected by their representatives and FEMF Executive Assistant Lirio. On August 24, 1982, FEMF remitted P600,000 to PHILAB as downpayment for the laboratory furniture for the BIOTECH project, for which PHILAB issued Official Receipt No. 253 to FEMF. On October 22, 1982, FEMF made another partial payment of P800,000 to PHILAB, for which the latter issued Official Receipt No. 256 to FEMF. The remittances were in the form of checks drawn by FEMF and delivered to PHILAB, through Padolina. On October 16, 1982, UP, through Emil Q. Javier, the Chancellor of UP Los Baos and FEMF, represented by its Executive Officer, Rolando Gapud, executed a Memorandum of Agreement (MOA) in which FEMF agreed to grant financial support and donate sums of money to UP for the construction of buildings, installation of laboratory and other capitalization for the project, not to exceed P29,000,000.00. The obligations of FEMF under the MOA are the following: ARTICLE II OBLIGATIONS OF THE FOUNDATION 2.1. The FOUNDATION, in carrying out its principal objectives of promoting philantrophic and scientific projects through financial support to such projects that

will contribute to the countrys economic development, shall grant such financial support and donate such sums of money to the RESEARCH COMPLEX as may be necessary for the construction of buildings, installation of laboratories, setting up of offices and physical plants and facilities and other capital investment of the RESEARCH COMPLEX and/or any of its component Research Institutes not to exceed P29 Million. For this purpose, the FOUNDATION shall: (a) Acquire and donate to the UNIVERSITY the site for the RESEARCH COMPLEX; and (b) Donate or cause to be donated to the UNIVERSITY the sum of TWENTYNINE MILLION PESOS (P29,000,000.00) for the construction of the buildings of the National Institutes of Biotechnology and Applied Microbiology (BIOTECH) and the installation of their laboratories and their physical plants and other facilities to enable them to commence operations. 2.2. In addition, the FOUNDATION shall, subject to the approval of the Board of Trustees of the FOUNDATION, continue to support the activities of the RESEARCH COMPLEX by way of recurrent additional grants and donations for specific research and development projects which may be mutually agreed upon and, from time to time, additional grants and donations of such amounts as may be necessary to provide the RESEARCH COMPLEX and/or any of its Research Institutes with operational flexibility especially with regard to incentives to staff purchase of equipment/facilities, travel abroad, recruitment of local and expatriate staff and such other activities and inputs which are difficult to obtain under usual government rules and regulations.[6]

The Board of Regents of the UP approved the MOA on November 25, 1982.[7] In the meantime, Navasero promised to submit the contract for the installation of laboratory furniture to BIOTECH, by January 12,

1983. However, Navasero failed to do so. In a Letter dated February 1, 1983, BIOTECH reminded Navasero of the need to submit the contract so that it could be submitted to FEMF for its evaluation and

approval.[8] Instead of submitting the said contract, PHILAB submitted to BIOTECH an accomplishment report on the project as of February 28, 1983, and requested payment thereon.[9] By May 1983, PHILAB had completed 78% of the project, amounting to P2,288,573.74 out of the total cost of P2,934,068.90. The FEMF had already paid forty percent (40%) of the total cost of the project. On May 12, 1983, Padolina wrote Lirio and furnished him the progress billing from PHILAB.[10] On August 11, 1983, the FEMF made another partial payment of P836,119.52 representing the already delivered laboratory and office furniture after the requisite inspection and verification thereof by representatives from the BIOTECH, FEMF, and PHILAB. The payment was made in the form of a check, for which PHILAB issued Official Receipt No. 202 to FEMF through Padolina.[11] On July 1, 1984, PHILAB submitted to BIOTECH Invoice No. 01643 in the amount of P702,939.40 for the final payment of laboratory

furniture. Representatives from BIOTECH, PHILAB, and Lirio for the FEMF, conducted a verification of the accomplishment of the work and confirmed the same. BIOTECH forwarded the invoice to Lirio on December 18, 1984 for its payment.[12] Lirio, in turn, forwarded the invoice to Gapud, presumably sometime in the early part of 1985. However, the FEMF failed

to pay the bill. PHILAB reiterated its request for payment through a letter on May 9, 1985.[13] BIOTECH again wrote Lirio on March 21, 1985, requesting the payment of PHILABs bill.[14] It sent another letter to Gapud, on November 22, 1985, again appealing for the payment of PHILABs bill.[15] In a Letter to BIOTECH dated December 5, 1985, PHILAB requested payment of P702,939.40 plus interest thereon ofP224,940.61.[16] There was, however, no response from the FEMF. On February 24, 1986, PHILAB wrote BIOTECH, appealing for the payment of its bill even on installment basis.[17] President Marcos was ousted from office during the February 1986 EDSA Revolution. On March 26, 1986, Navasero wrote BIOTECH

requesting for its much-needed assistance for the payment of the balance already due plus interest of P295,234.55 for its fabrication and supply of laboratory furniture.[18] On April 22, 1986, PHILAB wrote President Corazon C. Aquino asking her help to secure the payment of the amount due from the FEMF.[19] The letter was referred to then Budget Minister Alberto Romulo, who referred the letter to then UP President Edgardo Angara on June 9, 1986. On September 30, 1986, Raul P. de Guzman, the Chancellor of UP Los Baos, wrote then Chairman of the Presidential Commission on Good Government (PCGG) Jovito Salonga, submitting PHILABs claim to be officially entered as accounts payable as soon as the assets of FEMF were liquidated by the PCGG.[20] In the meantime, the PCGG wrote UP requesting for a copy of the relevant contract and the MOA for its perusal.[21]

Chancellor De Guzman wrote Navasero requesting for a copy of the contract executed between PHILAB and FEMF. In a Letter dated October 20, 1987, Navasero informed De Guzman that PHILAB and FEMF did not execute any contract regarding the fabrication and delivery of laboratory furniture to BIOTECH. Exasperated, PHILAB filed a complaint for sum of money and damages against UP. In the complaint, PHILAB prayed that it be paid the following:
(1) PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY NINE & 40/100 (P702,939.40) plus an additional amount (as shall be determined during the hearing) to cover the actual cost of money which at the time of transaction the value of the peso was eleven to a dollar (P11.00:$1) and twenty seven (27%) percent interest on the total amount from August 1982 until fully paid; (2) PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages; (3) (4) FIFTY THOUSAND [PESOS] (P50,000.00) as and for attorneys fees; and Cost of suit.[22]

PHILAB alleged, inter alia, that:

3. Sometime in August 1982, defendant, through its officials, particularly MR. WILLIAM PADOLINA, Director, asked plaintiff to supply and install several laboratory furnitures and equipment at BIOTECH, a research laboratory of herein defendant located at its campus in College, Laguna, for a total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90);

4. After the completion of the delivery and installation of said laboratory furnitures and equipment at defendants BIOTECH Laboratory, defendant paid three (3) times on installment basis: a) P600,000.00 as per Official Receipt No. 253 dated August 24, 1982; b) P800,000.00 as per Official Receipt No. 256 dated October 22, 1982; c) P836,119.52 as per Official Receipt No. 202 dated August 11, 1983;

thus leaving a balance of PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY-NINE & 40/100 (P702,939.40).
5. That notwithstanding repeated demands for the past eight years, defendant arrogantly and maliciously made plaintiff believe that it was going to pay the balance aforestated, that was why plaintiffs President and General Manager himself, HECTOR C. NAVASERO, personally went to and from UP Los Baos to talk with defendants responsible officers in the hope of expecting payment, when, in truth and in fact, defendant had no intention to pay whatsoever right from the start on a misplaced ground of technicalities. Some of plaintiffs demand letters since year 1983 up to the present are hereto attached as Annexes A, B, C, D, E, F, G, and H hereof; 6. That by reason of defendants malicious, evil and unnecessary misrepresentations that it was going to pay its obligation and asking plaintiff so many red tapes and requirements to submit, compliance of all of which took plaintiff almost eight (8) years to finish, when, in truth and in fact, defendant had no intention to pay, defendant should be ordered to pay plaintiff no less than PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages, so that other government institutions may be warned that they must not unjustly enrich themselves at the expense of the people they serve.[23]

In its answer, UP denied liability and alleged that PHILAB had no cause of action against it because it was merely the donee/beneficiary of the laboratory furniture in the BIOTECH; and that the FEMF, which funded the project, was liable to the PHILAB for the purchase price of the laboratory furniture. UP specifically denied obliging itself to pay for the laboratory furniture supplied by PHILAB. After due proceedings, the trial court rendered judgment dismissing the complaint without prejudice to PHILABs recourse against the

FEMF. The fallo of the decision reads: WHEREFORE, this case is hereby DISMISSED for lack of merit without prejudice to plaintiff's recourse to the assets of the Marcos Foundation for the unpaid balance of P792,939.49. SO ORDERED.[24] Undaunted, PHILAB appealed to the Court of Appeals (CA) alleging that the trial court erred in finding that:
1. the contract for the supply and installation of subject laboratory furniture and equipment was between PHILAB and the Marcos Foundation; and, 2. the Marcos Foundation, not the University of the Philippines, is liable to pay the respondent the balance of the purchase price.[25]

The CA reversed and set aside the decision of the RTC and held that there was never a contract between FEMF and PHILAB. Consequently, PHILAB could not be bound by the MOA between the FEMF and UP since it was never a party thereto. The appellate court ruled that, although UP

did not bind itself to pay for the laboratory furniture; nevertheless, it is liable to PHILAB under the maxim: No one should unjustly enrich himself at the expense of another. The Present Petition Upon the denial of its motion for reconsideration of the appellate courts decision, UP, now the petitioner, filed its petition for review contending that:
I. THE COURT OF APPEALS ERRED WHEN IT FAILED TO APPLY THE LAW ON CONTRACTS BETWEEN PHILAB AND THE MARCOS

FOUNDATION. II. THE COURT OF APPEALS ERRED IN APPLYING THE LEGAL PRINCIPLE OF UNJUST ENRICHMENT WHEN IT HELD THAT THE UNIVERSITY, AND NOT THE MARCOS FOUNDATION, IS LIABLE TO PHILAB.[26]

Prefatorily, the doctrinal rule is that pure questions of facts may not be the subject of appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as this mode of appeal is generally restricted to questions of law.[27] However, this rule is not absolute. The Court may review the factual findings of the CA should they be contrary to those of the trial court.[28]Correspondingly, this Court may review findings of facts when the judgment of the CA is premised on a misapprehension of facts.[29] On the first assigned error, the petitioner argues that the CA overlooked the evidentiary effect and substance of the corresponding letters and communications which support the statements of the witnesses showing affirmatively that an implied contract of sale existed between PHILAB and the FEMF. The petitioner furthermore asserts that no contract existed

between it and the respondent as it could not have entered into any agreement without the requisite public bidding and a formal written contract. The respondent, on the other hand, submits that the CA did not err in not applying the law on contracts between the respondent and the FEMF. It, likewise, attests that it was never privy to the MOA entered into between the petitioner and the FEMF. The respondent adds that what the FEMF donated was a sum of money equivalent to P29,000,000, and not the laboratory equipment supplied by it to the petitioner. The respondent submits that the petitioner, being the recipient of the laboratory furniture, should not enrich itself at the expense of the respondent. The petition is meritorious. It bears stressing that the respondents cause of action is one for sum of money predicated on the alleged promise of the petitioner to pay for the purchase price of the furniture, which, despite demands, the petitioner failed to do. However, the respondent failed to prove that the petitioner ever obliged itself to pay for the laboratory furniture supplied by it. Hence, the respondent is not entitled to its claim against the petitioner. There is no dispute that the respondent is not privy to the MOA executed by the petitioner and FEMF; hence, it is not bound by the said agreement. Contracts take effect only between the parties and their assigns.[30] A contract cannot be binding upon and cannot be enforced against one who is not a party to it, even if he is aware of such contract and has acted with knowledge thereof.[31] Likewise admitted by the parties, is the

fact that there was no written contract executed by the petitioner, the respondent and FEMF relating to the fabrication and delivery of office and laboratory furniture to the BIOTECH. Even the CA failed to specifically declare that the petitioner and the respondent entered into a contract of sale over the said laboratory furniture. The parties are in accord that the FEMF had remitted to the respondent partial payments via checks drawn and issued by the FEMF to the respondent, through Padolina, in the total amount of P2,288,573.74 out of the total cost of the project

of P2,934,068.90 and that the respondent received the said checks and issued receipts therefor to the FEMF. There is also no controversy that the petitioner did not pay a single centavo for the said furniture delivered by the respondent that the petitioner had been using ever since. We agree with the petitioner that, based on the records, an implied-infact contract of sale was entered into between the respondent and FEMF. A contract implied in fact is one implied from facts and

circumstances showing a mutual intention to contract. It arises where the intention of the parties is not expressed, but an agreement in fact creating an obligation. It is a contract, the existence and terms of which are manifested by conduct and not by direct or explicit words between parties but is to be deduced from conduct of the parties, language used, or things done by them, or other pertinent circumstances attending the

transaction. To create contracts implied in fact, circumstances must warrant inference that one expected compensation and the other to pay.[32] An implied-in-fact contract requires the parties intent to enter into a contract; it is a true contract.[33] The conduct of the parties is to be viewed as a reasonable man would view it, to determine the existence or not of an

implied-in-fact contract.[34] The totality of the acts/conducts of the parties must be considered to determine their intention. An implied-in-fact contract will not arise unless the meeting of minds is indicated by some intelligent conduct, act or sign.[35] In this case, the respondent was aware, from the time Padolina contacted it for the fabrication and supply of the laboratory furniture until the go-signal was given to it to fabricate and deliver the furniture to BIOTECH as beneficiary, that the FEMF was to pay for the same. Indeed, Padolina asked the respondent to prepare the draft of the contract to be received by the FEMF prior to the execution of the parties (the respondent and FEMF), but somehow, the respondent failed to prepare one. The respondent knew that the petitioner was merely the donee-beneficiary of the laboratory furniture and not the buyer; nor was it liable for the payment of the purchase price thereof. From the inception, the FEMF paid for the bills and statement of accounts of the respondent, for which the latter unconditionally issued receipts to and under the name of the

FEMF. Indeed, witness Lirio testified:

Q: Now, did you know, Mr. Witness, if PHILAB Industries was aware that it was the Marcos Foundation who would be paying for this particular transaction for the completion of this particular transaction? A: I think they are fully aware.

Q: What is your basis for saying so? A: First, I think they were appraised by Dr. Padolina. Secondly, there were occasions during our inspection in Los Baos, at the installation site, there were occasions, two or three occasions, when we met with Mr. Navasero

who is the President, I think, or manager of PHILAB, and we appraised him that it was really between the foundation and him to which includes ( sic) the construction company constructing the building. He is fully aware that it is the foundation who (sic) engaged them and issued the payments.[36]

The respondent, in its Letter dated March 26, 1986, informed the petitioner and sought its assistance for the collection of the amount due from the FEMF: Dear Dr. Padolina: May we request for your much-needed assistance in the payment of the balance still due us on the laboratory furniture we supplied and installed two years ago? Business is still slow and we will appreciate having these funds as soon as possible to keep up our operations. We look forward to hearing from you regarding this matter. Very truly yours, PHILAB INDUSTRIES, INC.[37] The respondent even wrote former President Aquino seeking her assistance for the payment of the amount due, in which the respondent admitted it tried to collect from her predecessor, namely, the former President Ferdinand E. Marcos: YOUR EXCELLENCY:

At the instance of the national government, subject laboratory furnitures were supplied by our company to the National Institute of Biotechnology & Applied Microbiology (BIOTECH), University of the Philippines, Los Baos, Laguna, in 1984. Out of the total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100 (P2,939,058.90), the previous administration had so far paid us the sum of P2,236,119.52 thus leaving a balance of PESOS: ONE MILLION FOUR HUNDRED TWELVE THOUSAND SEVEN HUNDRED FORTY-EIGHT & 61/100 (P1,412.748.61) inclusive of interest of 24% per annum and 30% exchange rate adjustment. On several occasions, we have tried to collect this amount from your predecessor, the latest of which was subject invoice (01643) we submitted to DR. W. PADOLINA, deputy director of BIOTECH. But this, notwithstanding, our claim has remained unacted upon up to now. Copy of said invoice is hereto attached for easy reference. Now that your excellency is the head of our government, we sincerely hope that payment of this obligation will soon be made as this is one project the Republic of the Philippines has use of and derives benefit from.[38] Admittedly, the respondent sent to the petitioner its bills and statements of accounts for the payments of the laboratory furniture it delivered to the petitioner which the petitioner, through Padolina, transmitted to the FEMF for its payment. However, the FEMF failed to pay the last statement of account of the respondent because of the onset of the EDSA upheaval. It was only when the respondent lost all hope of collecting its claim from the

government and/or the PCGG did it file the complaint against the petitioner for the collection of the payment of its last delivery of laboratory furniture. We reject the ruling of the CA holding the petitioner liable for the claim of the respondent based on the maxim that no one should enrich itself at the expense of another. Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.[39] Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitledand that the state of affairs are such that it would be unjust for the person to keep the benefit.[40] Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.[41] Unjust enrichment is not itself a theory of

reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.[42] Article 22 of the New Civil Code reads: Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. (Boldface supplied)

In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.[43] An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any other institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie.[44] The essential requisites for the application of Article 22 of the New Civil Code do not obtain in this case. The respondent had a remedy against the FEMF via an action based on an implied-in-fact contract with the FEMF for the payment of its claim. The petitioner legally acquired the laboratory furniture under the MOA with FEMF; hence, it is entitled to keep the laboratory furniture. IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED AND SET ASIDE. The Decision of the Regional Trial Court, Makati City, Branch 150, is REINSTATED. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, and Tinga, JJ., concur. Chico-Nazario, J., on leave.

G.R. No. 118509 December 1, 1995 LIMKETKAI vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK STORE, respondents. SONS MILLING, INC., petitioner,

MELO, J.: The issue in the petition before us is whether or not there was a perfected contract between petitioner Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering the sale of a parcel of land, approximately 3.3 hectares in area, and located in Barrio Bagong Ilog, Pasig City, Metro Manila. Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig ruled that there was a perfected contract of sale between petitioner and BPI. It stated that there was mutual consent between the parties; the subject matter is definite; and the consideration was determined. It concluded that all the elements of a consensual contract are attendant. It ordered the cancellation of a sale effected by BPI to respondent National Book Store (NBS) while the case was pending and the nullification of a title issued in favor of said respondent NBS. Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. The decision of the trial court was reversed and the complaint dismissed. Hence, the instant petition.

Shorn of the interpretations given to the acts of those who participated in the disputed sale, the findings of facts of the trial court and the Court of Appeals narrate basically the same events and occurrences. The records show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI as its trustee to manage, administer, and sell its real estate property. One such piece of property placed under trust was the disputed lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig, Metro Manila covered by Transfer Certificate of Title No. 493122. On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI to sell the lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of the Philippine Remnants. Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8, 1988, petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant Vice-President, to enter and view the property they were buying. On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner asked that the price of P1,000.00 per square meter be reduced to P900.00 while Albano stated the price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per square meter to be paid in cash. Since the authority to sell was on a first come, first served and non-exclusive basis, it may be mentioned at this juncture that there is no dispute over petitioner's being the first comer and the buyer to be first served. Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in trying to ask for payment on terms because in previous transactions, the same had been allowed. It was the understanding, however, that should the term payment be disapproved, then the price shall be paid in cash. It was Albano who dictated the terms under which the installment payment may be approved, and acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano embodying the payment initially of 10% and the remaining 90% within a period of 90 days.

Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim went to BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The payment was refused because Albano stated that the authority to sell that particular piece of property in Pasig had been withdrawn from his unit. The same check was tendered to BPI Vice-President Nelson Bona who also refused to receive payment. An action for specific performance with damages was thereupon filed on August 25, 1988 by petitioner against BPI. In the course of the trial, BPI informed the trial court that it had sold the property under litigation to NBS on July 14, 1989. The complaint was thus amended to include NBS. On June 10, 1991, the trial court rendered judgment in the case as follows: WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants Bank of the Philippine Islands and National Book Store, Inc.: 1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the name of the Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in favor of National Book Store, Inc., null and void; 2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer Certificate of Title which may have been issued in favor of National Book Store, Inc. by virtue of the aforementioned Deed of Sale dated July 14, 1989; 3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of P33,056,000.00, to execute a Deed of Sale in favor of plaintiff of the aforementioned property at the price of P1,000.00 per square meter; in default thereof, the Clerk of this Court is directed to execute the said deed; 4. Ordering the Register of Deeds of Pasig, upon registration of the said deed, whether executed by defendant BPI or the Clerk of Court and payment of the corresponding fees and charges, to cancel said T.C.T. No. 493122 and to issue, in lieu thereof, another transfer certificate of title in the name of plaintiff; 5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and severally, to the plaintiff the sums of P10,000,000.00 as actual and consequential

damages and P150,000.00 as attorney's fees and litigation expenses, both with interest at 12% per annum from date hereof; 6. On the cross-claim of defendant bank against National Book Store, ordering the latter to indemnify the former of whatever amounts BPI shall have paid to the plaintiff by reason hereof; and 7. Dismissing the counterclaims of the defendants against the plaintiff and National Book Store's cross-claim against defendant bank. Costs against defendants. (pp. 44-45, Rollo.) As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and Mabutas,JJ.), on August 12, 1994, reversed the trial court's decision and dismissed petitioner's complaint for specific performance and damages. The issues raised by the parties revolve around the following four questions: (1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the subject matter of the contract and the cause of the obligation? (2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned contract? (3) Is there competent and admissible evidence to support the alleged meeting of the minds? (4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith? There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square meter; (b) that Philippine Remnants confirmed the authority to sell of Revilla and the price at which he may sell the lot; (c) that petitioner and Revilla agreed on the former buying the property; (d) that BPI Assistant Vice-President Rolando V. Aromin allowed the broker and the

buyer to inspect the property; and (e) that BPI was formally informed about the broker having procured a buyer. The controversy revolves around the interpretation or the significance of the happenings or events at this point. Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando V. Aromin at the BPI offices. Respondents, however, contend that what transpired on this date were part of continuing negotiations to buy the land and not the perfection of the sale. The arguments of respondents center on two propositions (1) Vice-Presidents Aromin and Albano had no authority to bind BPI on this particular transaction and (2) the subsequent attempts of petitioner to pay under terms instead of full payment in cash constitutes a counter-offer which negates the existence of a perfected contract. The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the record. At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed lot. Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where is basis the property located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that the authority given to him was to sell and not merely to look for a buyer, as contended by respondents. Revilla testified that at the time he perfected the agreement to sell the litigated property, he was acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the authority to sell to a licensed broker, we see no reason to doubt the authority to sell of the two BPI Vice-Presidents whose precise job in the Bank was to manage and administer real estate property. Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made up of top bank officials. It appears from the record that this trust committee meets rather infrequently and it does not have to pass on regular transactions.

Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI Real Property Management Unit. He had been in the Real Estate Division since 1985 and was the head supervising officer of real estate matters. Aromin had been with the BPI Trust Department since 1968 and had been involved in the handling of properties of beneficial owners since 1975 (tsn., December 3, 1990, p. 5). Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon, while purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin was in charge of Torrens titles, lease contracts, problems of tenants, insurance policies, installment receivables, management fees, quitclaims, and other matters involving real estate transactions. His immediate superior, Vice-President Merlin Albano had been with the Real Estate Division for only one week but he was present and joined in the discussions with petitioner. There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident. Revilla brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a perfectly natural manner on the transaction before him with not the slightest indication that he was acting ultra vires. This shows that BPI held Aromin out to the public as the officer routinely handling real estate transactions and, as Trust Officer, entering into contracts to sell trust properties. Respondents state and the record shows that the authority to buy and sell this particular trust property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any authority to act as alleged, there was no need to withdraw authority which he never possessed. Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co. (52 ND 752, 204 NW 818, 40 ALR 1021), to wit: Accordingly a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person for his own ultimate benefit.

(at pp. 652-653.) In the present case, the position and title of Aromin alone, not to mention the testimony and documentary evidence about his work, leave no doubt that he had full authority to act for BPI in the questioned transaction. There is no allegation of fraud, nor is there the least indication that Aromin was acting for his own ultimate benefit. BPI later dismissed Aromin because it appeared that a top official of the bank was personally interested in the sale of the Pasig property and did not like Aromin's testimony. Aromin was charged with poor performance but his dismissal was only sometime after he testified in court. More than two long years after the disputed transaction, he was still Assistant Vice-President of BPI. The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine Remnants Co. regarding the sale of the firm's property was addressed to Aromin. The P1,000.00 figure on the first page of broker Revilla's authority to sell was changed to P1,100.00 by Aromin. The price was later brought down again to P1,000.00, also by Aromin. The permission given to petitioner to view the lot was signed by Aromin and honored by the BPI guards. The letter dated July 9, 1988 from broker Revilla informing BPI that he had a buyer was addressed to Aromin. The conference on July 11, 1988 when the contract was perfected was with Aromin and Vice-President Albano. Albano and Aromin were the ones who assured petitioner Limketkai's officers that term payment was possible. It was Aromin who called up Miguel Bicharra of Philippine Remnants to state that the BPI rejected payment on terms and it was to Aromin that Philippine Remnants gave the go signal to proceed with the cash sale. Everything in the record points to the full authority of Aromin to bind the bank, except for the self-serving memoranda or letters later produced by BPI that Aromin was an inefficient and undesirable officer and who, in fact, was dismissed after he testified in this case. But, of course, Aromin's alleged inefficiency is not proof that he was not fully clothed with authority to bind BPI. Respondents' second contention is that there was no perfected contract because petitioner's request to pay on terms constituted a counter-offer and that negotiations were still in progress at that point. Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among his statements is one to the effect that

. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano counter-offered to sell the property at P1,100.00 per square meter but after the usual haggling, we finally agreed to sell the property at the price of P1,000.00 per square meter . . . (tsn, 12-3-90, p. 17; Emphasis supplied.) Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of P1,000.00 per square meter, Aromin answered: Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is concerned, sir. (ibid, p. 17.) The requirements in the payment of the purchase price on terms instead of cash were suggested by BPI Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the possibility of paying on terms was referred to the Trust Committee but with the mutual agreement that "if the proposed payment on terms will not be approved by our Trust Committee, Limketkai should pay in cash . . . the amount was no longer subject to the approval or disapproval of the Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly established in the following testimony of Aromin: A. After you were able to agree on the price of P1,000.00/sq. m., since the letter or authority says the payment must be in cash basis, what transpired later on? B. After we have agreed on the price, the Lim brothers inquired on how to go about submitting the covering proposal if they will be allowed to pay on terms. They requested us to give them a guide on how to prepare the corresponding letter of proposal. I recall that, upon the request of Mr. Albino Limketkai, we dictated a guide on how to word a written firm offer that was to be submitted by Mr. Lim to the bank setting out the terms of payment but with the mutual agreement that if his proposed payment on terms will not

be approved by our trust committee, Limketkai should pay the price in cash. Q And did buyer Limketkai agree to pay in cash in case the offer of terms will be cash (disapproved). A Yes, sir. Q At the start, did they show their willingness to pay in cash? A Yes, sir. Q You said that the agreement on terms was to be submitted to the trust committee for approval, are you telling the Court that what was to be approved by the trust committee was the provision on the payment on terms? A Yes, sir. Q So the amount was no longer subject to the approval or disapproval of the committee, it is only on the terms? A Yes, sir. (tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.) The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But because petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent to higher officials. Immediately upon learning that payment on terms was frozen and/or denied, Limketkai exercised his right within the period given to him and tendered payment in full. The BPI rejected the payment. In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602 [1994]) to bolster its case. Contrarywise, it would seem that the legal principles found in said case strengthen and support petitioner's submission that the contract was perfected upon the meeting of the minds of the parties.

The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property and finally (d) the negotiations with Aromin and Albano at the BPI offices. The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per square meter. Aside from this there was the earlier agreement between petitioner and the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the cause thereof. The phases that a contract goes through may be summarized as follows: a. preparation, conception or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; b. perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and c. consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract (Toyota Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995). But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug: . . . A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). Theperfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with

certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof. Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. (238 SCRA 602; 611 [1994].) In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual

antecendents similar to this case, the Court, through Justice Aquino (later to be Chief Justice), quoting authorities, upheld the perfection of the contract of sale thusly: The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (Art. 1475, Ibid.) xxx xxx xxx Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer (Art. 1319, Civil Code). "An acceptance may be express or implied." (Art. 1320, Civil Code). xxx xxx xxx It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. "So long as it is clear that the

meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, a contract is formed." (Stuart vs. Franklin Life Ins. Co., 105 Fed. 2nd 965, citing Sec. 79, Williston on Contracts). xxx xxx xxx . . . the vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender or a counter-offer. (Stuart vs. Franklin Life Ins. Co., supra.) (at pp. 362-363; 365-366.) In the case at bench, the allegation of NBS that there was no concurrence of the offer and acceptance upon the cause of the contract is belied by the testimony of the very BPI official with whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The fact that the deed of sale still had to be signed and notarized does not mean that no contract had already been perfected. A sale of land is valid regardless of the form it may have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the failure to comply therewith does not affect the validity and binding effect of the act between the parties (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a document or other special form, as in the sale of real property, the contracting parties may compel each other to observe that form, once the contract has been perfected. Their right may be exercised simultaneously with action upon the contract (Article 1359, Civil Code). Regarding the admissibility and competence of the evidence adduced by petitioner, respondent Court of Appeals ruled that because the sale involved real property, the statute of frauds is applicable. In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks questions on cross-examination. The succinct words of Justice Araullo still ring in judicial cadence:

As no timely objection or protest was made to the admission of the testimony of the plaintiff with respect to the contract; and as the motion to strike out said evidence came too late; and, furthermore, as the defendants themselves, by the cross-questions put by their counsel to the witnesses in respect to said contract, tacitly waived their right to have it stricken out, that evidence, therefore, cannot be considered either inadmissible or illegal, and court, far from having erred in taking it into consideration and basing his judgment thereon, notwithstanding the fact that it was ordered to be stricken out during the trial, merely corrected the error he committed in ordering it to be so stricken out and complied with the rules of procedure hereinbefore cited. (at p. 748.) In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the contract itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and other details of the litigated contract. Under the Abrenica rule (reiterated in a number of cases, among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence was initially inadmissible, the same became competent and admissible because of the cross-examination, which elicited evidence proving the evidence of a perfected contract. The cross-examination on the contract is deemed a waiver of the defense of the Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563). The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were stricken out, the cross-examination could have no object whatsoever, and if the questions were put to the witnesses and answered by them, they could only be taken into account by connecting them with the answers given by those witnesses on direct examination" (pp. 747748). Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing the contract. The memorandum may be found in several writings, not necessarily in one document. The memorandum or memoranda is/are written evidence that such a contract was entered into.

We cite the findings of the trial court on this matter: In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a written contract of the sale is not necessary so long as the agreement to sell real property is evidenced by a written note or memorandum, embodying the essentials of the contract and signed by the party charged or his agent. Thus, it has been held: The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines,does not require that the contract itself be written. The plain test of Article 1403, Paragraph (2) is clear that a written note or memorandum, embodying the essentials of the contract and signed by the party charged, or his agent suffices to make the verbal agreement enforceable, taking it out of the operation of the statute. (Emphasis supplied) xxx xxx xxx In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by letter and telegram (Record on Appeal, p. 2), and the letter referred to was evidently the one copy of which was appended as Exhibit A to plaintiffs opposition to the motion to dismiss. The letter, transcribed above in part, together with the one marked as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the defendant-appellant; refer to the property sold as a Lot in Puerto Princesa, Palawan, covered by T.C.T. No. 62, give its area as 1,825 square meters and the purchase price of four (P4.00) pesos per square meter payable in cash. We have in them, therefore, all the essential terms of the contract and they satisfy the requirements of the Statute of Frauds. (Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]). While there is no written contract of sale of the Pasig property executed by BPI in favor of plaintiff, there are abundant notes and memoranda extant in the records

of this case evidencing the elements of a perfected contract. There is Exhibit P, the letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the sale of the subject property at the price of P1,000.00 per square meter giving 2% commission to the broker and instructing that the sale be on cash basis. Concomitantly, on the basis of the instruction of Mr. Awad, (Exh. P), an authority to sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co., authorizing the latter to sell the property at the initial quoted price of P1,000.00 per square meter which was altered on an unaccepted offer by Technoland. After the letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin allowing the buyer to enter the premises of the property to inspect the same (Exh. C). On July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI informing it that he had procured a buyer in the name of Limketkai Sons Milling, Inc. with offices at Limketkai Bldg., Greenhills, San Juan, Metro Manila, represented by its Exec. Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the plaintiff, through Alfonso Lim, wrote a letter to the bank, through Merlin Albano, confirming their transaction regarding the purchase of the subject property (Exh. E). On July 18, 1988, the plaintiff tendered upon the officials of the bank a check for P33,056,000.00 covered by Check No. CA510883, dated July 18, 1988. On July 1, 1988, Alfonso Zamora instructed Mr. Aromin in a letter to resubmit new offers only if there is no transaction closed with Assetrade Co. (Exh. S). Combining all these notes and memoranda, the Court is convinced of the existence of perfected contract of sale. Aptly, the Supreme Court, citing American cases with approval, held: No particular form of language or instrument is necessary to constitute a memorandum or note in writing under the statute of frauds; any document or writing, formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose, which satisfies all the requirements of the statute as to contents and signature, as discussed respectively infra secs. 178-200, and infra secs. 201-205, is a sufficient memorandum or note. A memorandum may be written as well with lead pencil as with pen and ink. It may also be filled in on a printed form. (37 C.J.S., 653-654).

The note or memorandum required by the statute of frauds need not be contained in a single document, nor, when contained in two or more papers, need each paper be sufficient as to contents and signature to satisfy the statute. Two or more writings properly connected may be considered together, matters missing or uncertain in one may be supplied or rendered certain by another, and their sufficiency will depend on whether, taken together, they meet the requirements of the statute as to contents and the requirements of the statutes as to signature, as considered respectively infra secs. 179-200 and secs. 201-215. (pp. 460-463, Original RTC Record). The credibility of witnesses is also decisive in this case. The trial court directly observed the demeanor and manner of testifying of the witnesses while the Court of Appeals relied merely on the transcript of stenographic notes. In this regard, the court of origin had this to say: Apart from weighing the merits of the evidence of the parties, the Court had occasion to observe the demeanor of the witnesses they presented. This is one important factor that inclined the Court to believe in the version given by the plaintiff because its witnesses, including hostile witness Roland V. Aromin, an assistant vice-president of the bank, were straightforward, candid and unhesitating in giving their respective testimonies. Upon the other hand, the witnesses of BPI were evasive, less than candid and hesitant in giving their answers to cross examination questions. Moreover, the witnesses for BPI and NBS contradicted each other. Fernando Sison III insisted that the authority to sell issued to Mr. Revilla was merely an evidence by which a broker may convince a prospective buyer that he had authority to offer the property mentioned therein for sale and did not bind the bank. On the contrary, Alfonso Zamora, a Senior Vice-President of the bank, admitted that the authority to sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the bank being signed by two class "A" signatories and that the bank cannot back out from its commitment in the authority to sell to Mr. Revilla.

While Alfredo Ramos of NBS insisted that he did not know personally and was not acquainted with Edmundo Barcelon, the latter categorically admitted that Alfredo Ramos was his friend and that they have even discussed in one of the luncheon meetings the matter of the sale of the Pasig property to NBS. George Feliciano emphatically said that he was not a consultant of Mr. Ramos nor was he connected with him in any manner, but his calling card states that he was a consultant to the chairman of the Pacific Rim Export and Holdings Corp. whose chairman is Alfredo Ramos. This deliberate act of Mr. Feliciano of concealing his being a consultant to Mr. Alfredo Ramos evidently was done by him to avoid possible implication that he committed some underhanded maneuvers in manipulating to have the subject property sold to NBS, instead of being sold to the plaintiff. (pp. 454-455, Original RTC Record.) On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals and the trial court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of Appeals (196 SCRA 107 [1991]) bears stressing: It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity to observe the demeanor of witnesses while giving testimony which may indicate their candor or lack thereof. While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that being a question of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions on questions of fact and the credibility of witnesses. (at p. 110.) On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows that it is not. It acted in bad faith.

Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It was the willingness and design of NBS to buy property already sold to another party which led BPI to dishonor the contract with Limketkai. Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner from paying the agreed price and getting possession of the property: 1. The sale was supposed to be done through an authorized broker, but top officials of BPI personally and directly took over this particular sale when a close friend became interested. 2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was his friend; that they had lunch meetings before this incident and discussed NBS's purchase of the lot. Barcelon's father was a business associate of Ramos. 3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop the case and give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but failed to convince him inspite of various and increasing offers. 4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse marked by easy portability. The warehouse is bolted to its foundations and can easily be dismantled. It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting that the vendor guarantee its title to the land and recognize the right of the vendee to proceed against the vendor if the title to the land turns out to be defective as when the land belongs to another person, the reverse is found in the deed of sale between BPI and NBS. Any losses which NBS may incur in the event the title turns out to be vested in another person are to be borne by NBS alone. BPI is expressly freed under the contract from any recourse of NBS against it should BPI's title be found defective. NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply cites the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the enumeration there is exclusive. The decision in said case plainly states "the following are some of the circumstances attending sales which have been denominated by courts (as) badges of fraud." There are innumerable situations where fraud is manifested. One

enumeration in a 1912 decision cannot possibly cover all indications of fraud from that time up to the present and into the future. The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the amended complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses of Cebu-based counsel. Petitioner also claimed, and the trial court awarded, damages for the profits and opportunity losses caused to petitioner's business in the amount of P10,000,000.00. We rule that the profits and the use of the land which were denied to petitioner because of the non-compliance or interference with a solemn obligation by respondents is somehow made up by the appreciation in land values in the meantime. Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner Limketkai; that the BPI officials who transacted with petitioner had full authority to bind the bank; that the evidence supporting the sale is competent and admissible; and that the sale of the lot to NBS during the trial of the case was characterized by bad faith. WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National Capital Judicial Region stationed in Pasig, Metro Manila is REINSTATED except for the award of Ten Million Pesos (P10,000,000.00) damages which is hereby DELETED. SO ORDERED. Feliciano, Romero, Vitug and Panganiban, JJ., concur.

SECOND DIVISION

ESTELITA VILLAMAR, Petitioner,

G.R. 188661

No.

Present:

CARPIO, J., Chairperso n, - versus BRION, PEREZ, SERENO, and REYES, JJ. BALBINO MANGAOIL, Respondent. Promulgated: April 11, 2012

x-------------------------------------------------------------------------------------------x

DECISION

REYES, J.:

The Case

Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of Court filed by Estelita Villamar (Villamar) to assail the Decision[2] rendered by the Court of Appeals (CA) on February 20, 2009 in CA-G.R. CV No. 86286, the dispositive portion of which reads:

WHEREFORE, the instant appeal is DISMISSED. The assailed decision is AFFIRMED in toto. SO ORDERED.[3]

The resolution[4] issued by the CA on July 8, 2009 denied the petitioner's motion for reconsideration to the foregoing.

The ruling[5] of Branch 23, Regional Trial Court (RTC) of Roxas, Isabela, which was affirmed by the CA in the herein assailed decision and resolution, ordered the (1) rescission of the contract of sale of real property entered into by Villamar and Balbino Mangaoil (Mangaoil); and (2) return of the down payment made relative to the said contract.

Antecedents Facts

The CA aptly summarized as follows the facts of the case prior to the filing by Mangaoil of the complaint[6] for rescission of contract before the RTC:

Villamar is the registered owner of a 3.6080 hectares parcel of land [hereinafter referred as the subject property] in San Francisco, Manuel, Isabela covered by Transfer Certificate of Title (TCT) No. T92958-A. On March 30, 1998, she entered into an Agreement with

Mangaoil for the purchase and sale of said parcel of land, under the following terms and conditions:

1.

The price of the land is ONE HUNDRED

AND EIGHTY THOUSAND (180,000.00) PESOS per hectare but only the 3.5000 hec. shall be paid and the rest shall be given free, so that the total purchase or selling price shall be [P]630,000.00 only;

2. ONE

HUNDRED

EIGHTY

FIVE

THOUSAND (185,000.00) PESOS of the total price was already received on March 27, 1998 for payment of the loan secured by the certificate of title covering the land in favor of the Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela [Rural Bank of Cauayan], in order that the certificate of title thereof be withdrawn and released from the said bank, and the rest shall be for the payment of the mortgag[e]s in favor of Romeo Lacaden and Florante Parangan; 3. After the release of the certificate of title covering the land subject-matter of this agreement, the necessary deed of absolute sale in favor of the PARTY OF THE SECOND PART shall be executed and the transfer be immediately effected so that the latter can

apply for a loan from any lending institution using the corresponding certificate of title as collateral

therefor, and the proceeds of the loan, whatever be the amount, be given to the PARTY OF THE FIRST PART;

4. Whatever balance left from the agreed purchase price of the land subject matter hereof after deducting the proceed of the loan and the [P]185,000.00 already received as above-mentioned, the PARTY OF THE SECOND PART shall pay unto the PARTY OF THE FIRST PART not later than June 30, 1998 and thereafter the parties shall be released of any obligations for and against each other; xxx

On April 1, 1998, the parties executed a Deed of Absolute Sale whereby Villamar (then Estelita Bernabe) transferred the subject parcel of land to Mangaoil for and in consideration of [P]150,000.00.

In a letter dated September 18, 1998, Mangaoil informed Villamar that he was backing out from the sale agreed upon giving as one of the reasons therefor:

3. That the area is not yet fully cleared by incumbrances as there are tenants who are not willing to vacate the land without giving them back the amount that they mortgaged the land.

Mangaoil demanded refund of his [P]185,000.00 down payment. Reiterating said demand in another letter dated April 29, 1999, the same, however, was unheeded.[7] x x x (Citations omitted)

On January 28, 2002, the respondent filed before the RTC a complaint[8] for rescission of contract against the petitioner. In the said complaint, the respondent sought the return of P185,000.00 which he paid to the petitioner, payment of interests thereon to be computed from March 27, 1998 until the suit's termination, and the award of damages, costs and P20,000.00 attorney's fees. The respondent's factual

allegations were as follows:

5. That as could be gleaned the Agreement (Annex A), the plaintiff [Mangaoil] handed to the defendant [Villamar] the sum of [P]185,000.00 to be applied as follows; [P]80,000 was for the redemption of the land which was mortgaged to the Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela, to enable the

plaintiff to get hold of the title and register the sale x x x and [P]105,000.00 was for the redemption of the said land from private mortgages to enable plaintiff to posses[s] and cultivate the same;

6. That although the defendant had already long redeemed the said land from the said bank and withdrawn TCT No. T-92958-A, she has failed and refused, despite repeated demands, to hand over the said title to the plaintiff and still refuses and fails to do so;

7. That, also, the plaintiff could not physically, actually and materially posses[s] and cultivate the said land because the private mortgage[e]s and/or present possessors refuse to vacate the same;

xxxx

11. That on September 18, 1998, the plaintiff sent a letter to the defendant demanding a return of the amount so advanced by him, but the latter ignored the same, x x x;

12. That, again, on April 29, 1999, the plaintiff sent to the defendant another demand letter but the latter likewise ignored the same, x x x;

13. That, finally, the plaintiff notified the defendant by a notarial act of his desire and intention to rescind the said contract of sale, xxx;

x x x x.[9] (Citations omitted)

In the respondents answer to the complaint, she averred that she had complied with her obligations to the respondent. Specifically, she claimed having caused the release of TCT No. T-92958-A by the Rural Bank of Cauayan and its delivery to a certain Atty. Pedro C. Antonio (Atty. Antonio). The petitioner alleged that Atty. Antonio was commissioned to facilitate the transfer of the said title in the respondent's name. The petitioner likewise insisted that it was the respondent who unceremoniously withdrew from their agreement for reasons only the latter knew.

The Ruling of the RTC

On September 9, 2005, the RTC ordered the rescission of the agreement and the deed of absolute sale executed between the respondent and the petitioner. The petitioner was, thus directed to return to the respondent the sum of P185,000.00 which the latter tendered as initial payment for the purchase of the subject property. The RTC ratiocinated that:

There is no dispute that the defendant sold the LAND to the plaintiff for [P]630,000.00 with down payment of [P]185,000.00. There is no evidence presented if there were any other partial payments made after the perfection of the contract of sale.

Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale[,] one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent.

As such, in a contract of sale, the obligation of the vendee to pay the price is correlative of the obligation of the vendor to deliver the thing sold. It created or established at the same time, out of the same course, and which result in mutual relations of creditor and debtor between the parties.

The claim of the plaintiff that the LAND has not been delivered to him was not refuted by the defendant. Considering that defendant failed to deliver to him the certificate of title and of the possession over the LAND to the plaintiff, the contract must be rescinded pursuant to Article 1191 of the Civil Code which, in part, provides:

Art. 1191. The power of rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him.[10]

The petitioner filed before the CA an appeal to challenge the foregoing. She ascribed error on the part of the RTC when the latter ruled that the agreement and deed of sale executed by and between the

parties can be rescinded as she failed to deliver to the respondent both the subject property and the certificate of title covering the same.

The Ruling of the CA

On February 20, 2009, the CA rendered the now assailed decision dismissing the petitioners appeal based on the following grounds:

Burden of proof is the duty of a party to prove the truth of his claim or defense, or any fact in issue necessary to establish his claim or defense by the amount of evidence required by law. In civil cases, the burden of proof is on the defendant if he alleges, in his answer, an affirmative defense, which is not a denial of an essential ingredient in the plaintiff's cause of action, but is one which, if established, will be a good defense i.e., an avoidance of the claim, which prima facie, the plaintiff already has because of the defendant's own admissions in the pleadings.

Defendant-appellant Villamar's defense in this case was an affirmative defense. She did not deny plaintiff-appellees allegation that she had an agreement with plaintiff-appellee for the

sale of the subject parcel of land. Neither did she deny that she was obliged under the contract to deliver the certificate of title to plaintiffappellee immediately after said title/property was redeemed from the bank. What she rather claims is that she already complied with her obligation to deliver the title to plaintiff-appellee when she delivered the same to Atty. Antonio as it was plaintiff-appellee himself who engaged the services of said lawyer to precisely work for the immediate transfer of said title in his name. Since, however, this affirmative defense as alleged in defendant-appellant's answer was not admitted by plaintiff-appellee, it then follows that it behooved the defendant-appellant to prove her averments by preponderance of evidence.

Yet, a careful perusal of the record shows that the defendantappellant failed to sufficiently prove said affirmative defense. She failed to prove that in the first place, Atty. Antonio existed to receive the title for and in behalf of plaintiff-appellee. Worse, the defendant-appellant failed to prove that Atty. Antonio received said title as allegedly agreed upon.

We likewise sustain the RTC's finding that defendantappellant V[i]llamar failed to deliver possession of the subject property to plaintiff-appellee Mangaoil. As correctly observed by the RTC - [t]he claim of the plaintiff that the land has not been delivered

to him was not refuted by the defendant. Not only that. On crossexamination, the defendant-appellant gave Us insight on why no such delivery could be made, viz.:

x x x x

Q:

So, you were not able to deliver this

property to Mr. Mangaoil just after you redeem the property because of the presence of these two (2) persons, is it not?

xxx

A:

Yes, sir.

Q:

Forcing you to file the case against them

and which according to you, you have won, is it not?

A:

Yes, sir.

Q:

And now at present[,] you are in actual

possession of the land?

A:

Yes, sir. x x x

With the foregoing judicial admission, the RTC could not have erred in finding that defendant-[appellant] failed to deliver the possession of the property sold, to plaintiff-appellee.

Neither can We agree with defendant-appellant in her argument that the execution of the Deed of Absolute Sale by the parties is already equivalent to a valid and constructive deliveryof the property to plaintiff-appellee. Not only is it doctrinally settled that in a contract of sale, the vendor is bound to transfer the ownership of, and to deliver the thing that is the object of the sale, the way Article 1547 of the Civil Code is worded, viz.:

Art. 1547. In a contract of sale, unless a contrary intention appears, there is:

(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing;

(2) An implied warranty that the thing shall be free from any hidden defaults or defects, or any change or encumbrance not declared or known to the buyer.

x x x.

shows that actual, and not mere constructive delivery is warrantied by the seller to the buyer. (P)eaceful possession of the thing sold can hardly be enjoyed in a mere constructive delivery.

The obligation of defendant-appellant Villamar to transfer ownership and deliver possession of the subject parcel of land was her correlative obligation to plaintiff-appellee in exchange for the latter's purchase price thereof. Thus, if she fails to comply with what is incumbent upon her, a correlative right to rescind such contract

from plaintiff-appellee arises, pursuant to Article 1191 of the Civil Code.[11] x x x (Citations omitted)

The Issues

Aggrieved, the petitioner filed before us the instant petition and submits the following issues for resolution:

I. WHETHER THE FAILURE OF PETITIONER-SELLER TO DELIVER THE CERTIFICATE OF TITLE OVER THE PROPERTY TO RESPONDENT-BUYER IS A BREACH OF OBLIGATION IN A CONTRACT OF SALE OF REAL PROPERTY THAT WOULD WARRANT RESCISSION OF THE CONTRACT;

II.

WHETHER PETITIONER IS LIABLE FOR BREACH OF OBLIGATION IN A CONTRACT OF SALE FOR FAILURE OF

RESPONDENT[-]BUYER TO IMMEDIATELY TAKE ACTUAL POSSESSION OF THE PROPERTY NOTWITHSTANDING THE ABSENCE OF ANY STIPULATION IN THE CONTRACT PROVIDING FOR THE SAME;

III.

WHETHER THE EXECUTION OF A DEED OF SALE OF REAL PROPERTY IN THE PRESENT CASE IS ALREADY

EQUIVALENT TO A VALID AND CONSTRUCTIVE DELIVERY OF THE PROPERTY TO THE BUYER;

IV.

WHETHER OR NOT THE CONTRACT OF SALE SUBJECT MATTER OF THIS CASE SHOULD BE RESCINDED ON SLIGHT OR CASUAL BREACH;

V.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE RTC ORDERING THE RESCISSION OF THE CONTRACT OF SALE[.][12]

The Petitioner's Arguments

The petitioner avers that the CA, in ordering the rescission of the agreement and deed of sale, which she entered into with the respondent, on the basis of her alleged failure to deliver the certificate of title, effectively imposed upon her an extra duty which was neither stipulated in the contract nor required by law. She argues that under Articles 1495[13] and 1496[14] of the New Civil Code (NCC), the obligation to deliver the thing sold is complied with by a seller who executes in favor of a buyer an instrument of sale in a public document. Citing Chua v. Court of Appeals,[15] she claims that there is a distinction between transferring a certificate of title in the buyer's name, on one hand, and transferring ownership over the property sold, on the other. The latter can be accomplished by the seller's execution of an instrument of sale in a public document. The recording of the sale with the Registry of Deeds and the transfer of the certificate of title in the buyer's name are necessary only to bind third parties to the transfer of ownership.[16]

The petitioner contends that in her case, she had already complied with her obligations under the agreement and the law when she had caused the release of TCT No. T-92958-A from the Rural Bank of Cauayan, paid individual mortgagees Romeo Lacaden (Lacaden) and Florante Parangan (Paranga), and executed an absolute deed of sale in the respondent's favor. She adds that before T-92958-A can be cancelled and a new one be issued in the respondent's favor, the latter decided to withdraw from their agreement. She also points out that in the letters seeking for an outright rescission of their agreement sent to her by the respondent, not once did he demand for the delivery of TCT.

The petitioner insists that the respondent's change of heart was due to (1) the latter's realization of the difficulty in determining the subject property's perimeter boundary; (2) his doubt that the property he purchased would yield harvests in the amount he expected; and (3) the presence of mortgagees who were not willing to give up possession without first being paid the amounts due to them. The petitioner contends that the actual reasons for the respondent's intent to rescind their agreement did not at all constitute a substantial breach of her obligations.

The petitioner stresses that under Article 1498 of the NCC, when a sale is made through a public instrument, its execution is equivalent to the delivery of the thing which is the contract's object, unless in the deed, the contrary appears or can be inferred. Further, in Power Commercial and Industrial Corporation v. CA,[17] it was ruled that the failure of a seller to eject lessees from the property he sold and to deliver actual and physical possession, cannot be considered a substantial breach, when such failure was not stipulated as a resolutory or suspensive condition in the contract and when the effects and consequences of the said failure were not specified as well. The execution of a deed of sale operates as a formal or symbolic delivery of the property sold and it already authorizes the buyer to use the instrument as proof of ownership.[18]

The petitioner argues that in the case at bar, the agreement and the absolute deed of sale contains no stipulation that she was obliged to actually and physically deliver the subject property to the respondent. The respondent fully knew Lacaden's and Parangan's possession of the subject property. When they agreed on the sale of the property, the respondent consciously assumed the risk of not being able to take

immediate physical possession on account of Lacaden's and Parangan's presence therein.

The

petitioner

likewise

laments

that

the

CA

allegedly

misappreciated the evidence offered before it when it declared that she failed to prove the existence of Atty. Antonio. For the record, she emphasizes that the said lawyer prepared and notarized the agreement and deed of absolute sale which were executed between the parties. He was also the petitioners counsel in the proceedings before the RTC. Atty. Antonio was also the one asked by the respondent to cease the transfer of the title over the subject property in the latter's name and to return the money he paid in advance.

The Respondent's Contentions

In the respondent's comment,[19] he seeks the dismissal of the instant petition. He invokes Articles 1191 and 1458 to argue that when a seller fails to transfer the ownership and possession of a property sold, the buyer is entitled to rescind the contract of sale. Further, he contends that the execution of a deed of absolute sale does not necessarily amount

to a valid and constructive delivery. In Masallo v. Cesar,[20] it was ruled that a person who does not have actual possession of real property cannot transfer constructive possession by the execution and delivery of a public document by which the title to the land is transferred. In Addison v. Felix and Tioco,[21] the Court was emphatic that symbolic delivery by the execution of a public instrument is equivalent to actual delivery only when the thing sold is subject to the control of the vendor.

Our Ruling

The instant petition is bereft of merit.

There is only a single issue for resolution in the instant petition, to wit, whether or not the failure of the petitioner to deliver to the respondent both the physical possession of the subject property and the certificate of title covering the same amount to a substantial breach of the former's obligations to the latter constituting a valid cause to rescind the agreement and deed of sale entered into by the parties.

We rule in the affirmative.

The RTC and the CA both found that the petitioner failed to comply with her obligations to deliver to the respondent both the possession of the subject property and the certificate of title covering the same.

Although Articles 1458, 1495 and 1498 of the NCC and case law do not generally require the seller to deliver to the buyer the physical possession of the property subject of a contract of sale and the certificate of title covering the same, the agreement entered into by the petitioner and the respondent provides otherwise. However, the terms of the

agreement cannot be considered as violative of law, morals, good

customs, public order, or public policy, hence, valid.

Article 1458 of the NCC obliges the seller to transfer the ownership of and to deliver a determinate thing to the buyer, who shall in turn pay therefor a price certain in money or its equivalent. In addition thereto, Article 1495 of the NCC binds the seller to warrant the thing which is the object of the sale. On the other hand, Article 1498 of the same code provides that when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed, the contrary does not appear or cannot clearly be inferred.

In the case of Chua v. Court of Appeals,[22] which was cited by the petitioner, it was ruled that when the deed of absolute sale is signed by the parties and notarized, then delivery of the real property is deemed made by the seller to the buyer.[23] The transfer of the certificate of title in the name of the buyer is not necessary to confer ownership upon him.

In the case now under our consideration, item nos. 2 and 3 of the agreement entered into by the petitioner and the respondent explicitly provide:

2.

ONE

HUNDRED

EIGHTY

FIVE

THOUSAND

(P185,000.00) PESOS of the total price was already received on March 27, 1998 for payment of the loan secured by the certificate of title covering the land in favor of the Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela, in order that the certificate of title thereof be withdrawn and released from the said bank, and the rest shall be for the payment of the mortgages in favor of Romeo Lacaden and Florante Parangan;

3.

After the release of the certificate of title covering the land

subject-matter of this agreement, the necessary deed of absolute sale in favor of the PARTY OF THE SECOND PART shall be executed and the transfer be immediately effected so that the latter can apply for a loan from any lending institution using the corresponding certificate of title as collateral therefor, and the proceeds of the loan, whatever be the amount, be given to the PARTY OF THE FIRST PART;[24] (underlining supplied)

As can be gleaned from the agreement of the contending parties, the respondent initially paid the petitioner P185,000.00 for the latter to pay the loan obtained from the Rural Bank of Cauayan and to cause the release from the said bank of the certificate of title covering the subject

property. The rest of the amount shall be used to pay the mortgages over the subject property which was executed in favor of Lacaden and Parangan. After the release of the TCT, a deed of sale shall be executed and transfer shall be immediately effected so that the title covering the subject property can be used as a collateral for a loan the respondent will apply for, the proceeds of which shall be given to the petitioner.

Under Article 1306 of the NCC, the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.

While Articles 1458 and 1495 of the NCC and the doctrine enunciated in the case of Chua do not impose upon the petitioner the obligation to physically deliver to the respondent the certificate of title covering the subject property or cause the transfer in the latter's name of the said title, a stipulation requiring otherwise is not prohibited by law and cannot be regarded as violative of morals, good customs, public order or public policy. Item no. 3 of the agreement executed by the parties expressly states that transfer [shall] be immediately effected so that the latter can apply for a loan from any lending institution using the

corresponding certificate of title as collateral therefore. Item no. 3 is literal enough to mean that there should be physical delivery of the TCT for how else can the respondent use it as a collateral to obtain a loan if the title remains in the petitioners possession. We agree with the RTC and the CA that the petitioner failed to prove that she delivered the TCT covering the subject property to the respondent. What the petitioner attempted to establish was that she gave the TCT to Atty. Antonio whom she alleged was commissioned to effect the transfer of the title in the respondent's name. Although Atty. Antonio's existence is certain as he was the petitioners counsel in the proceedings before the RTC, there was no proof that the former indeed received the TCT or that he was commissioned to process the transfer of the title in the respondent's name.

It is likewise the petitioners contention that pursuant to Article 1498 of the NCC, she had already complied with her obligation to deliver the subject property upon her execution of an absolute deed of sale in the respondents favor. The petitioner avers that she did not undertake to eject the mortgagors Parangan and Lacaden, whose presence in the premises of the subject property was known to the respondent.

We are not persuaded.

In

the

case

of Power

Commercial

and

Industrial

Corporation[25] cited by the petitioner, the Court ruled that the failure of the seller to eject the squatters from the property sold cannot be made a ground for rescission if the said ejectment was not stipulated as a condition in the contract of sale, and when in the negotiation stage, the buyer's counsel himself undertook to eject the illegal settlers.

The circumstances surrounding the case now under our consideration are different. In item no. 2 of the agreement, it is stated that part of the P185,000.00 initially paid to the petitioner shall be used to pay the mortgagors, Parangan and Lacaden. While the provision does not expressly impose upon the petitioner the obligation to eject the said mortgagors, the undertaking is necessarily implied. Cessation of occupancy of the subject property is logically expected from the mortgagors upon payment by the petitioner of the amounts due to them.

We note that in the demand letter[26] dated September 18, 1998, which was sent by the respondent to the petitioner, the former lamented

that the area is not yet fully cleared of incumbrances as there are tenants who are not willing to vacate the land without giving them back the amount that they mortgaged the land. Further, in the proceedings before the RTC conducted after the complaint for rescission was filed, the petitioner herself testified that she won the ejectment suit against the mortgagors only last year.[27] The complaint was filed on September 8, 2002 or more than four years from the execution of the parties' agreement. This means that after the lapse of a considerable period of time from the agreement's execution, the mortgagors remained in possession of the subject property.

Notwithstanding

the

absence

of stipulations in the agreement and absolute deed of sale entered into by Villamar and Mangaoil expressly indicating the consequences of the former's failure to deliver the

physical possession of the subject property and the certificate of title covering the same, the latter is entitled to demand for the rescission

of their contract pursuant to Article 1191 of the NCC.

We note that the agreement entered into by the petitioner and the respondent only contains three items specifying the parties' undertakings. In item no. 5, the parties consented to abide with all the terms and conditions set forth in this agreement and never violate the same.[28]

Article 1191 of the NCC is clear that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The respondent cannot be deprived of his right to demand for rescission in view of the petitioners failure to abide with item nos. 2 and 3 of the agreement. This remains true notwithstanding the absence of express stipulations in the agreement indicating the consequences of breaches which the parties may commit. To hold otherwise would render Article 1191 of the NCC as useless.

Article 1498 of the NCC generally considers the execution of a public instrument as constructive delivery by the seller to the buyer of the property subject of a contract of sale. The case at bar, however, falls among foregoing presumptive the exceptions since not a to the mere

rule and

conclusive

delivery is created as the respondent failed to take material possession of the subject property.

Further, even if we were to assume for argument's sake that the agreement entered into by the contending parties does not require the delivery of the physical possession of the subject property from the mortgagors to the respondent, still, the petitioner's claim that her execution of an absolute deed of sale was already sufficient as it already amounted to a constructive delivery of the thing sold which Article 1498 of the NCC allows, cannot stand.

In Philippine Suburban Development Corporation v. The Auditor General,[29] we held:

When the sale of real property is made in a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

In other words, there is symbolic delivery of the property subject of the sale by the execution of the public instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention of the parties. Such would be the case, for instance, x x x where the vendor has no control over the thing sold at the moment of the sale, and, therefore, its material delivery could not have been made.[30] (Underlining supplied and citations omitted)

Stated differently, as a general rule, the execution of a public instrument amounts to a constructive delivery of the thing subject of a contract of sale. However, exceptions exist, among which is when mere presumptive and not conclusive delivery is created in cases where the

buyer fails to take material possession of the subject of sale. A person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.

In the case at bar, the RTC and the CA found that the petitioner failed to deliver to the respondent the possession of the subject property due to the continued presence and occupation of Parangan and Lacaden. We find no ample reason to reverse the said findings. Considered in the light of either the agreement entered into by the parties or the pertinent provisions of law, the petitioner failed in her undertaking to deliver the subject property to the respondent.

IN

VIEW OF THE

FOREGOING, the instant petition

is DENIED. The February 20, 2009 Decision and July 8, 2009 Resolution of the Court of Appeals, directing the rescission of the agreement and absolute deed of sale entered into by Estelita Villamar and Balbino Mangaoil and the return of the down payment made for the purchase of the subject property, are AFFIRMED. However, pursuant to our ruling in Eastern Shipping Lines, Inc. v. CA,[31] an interest of 12% per annum is imposed on the sum of P185,000.00 to be returned

to Mangaoil to be computed from the date of finality of this Decision until full satisfaction thereof.

SO ORDERED.

G.R. No. 92989 July 8, 1991 PERFECTO vs. COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V. GONZALES, respondents. Zosa & Quijano Law Offices for petitioner. Expedito P. Bugarin for respondent GELAC Trading, Inc. DY, JR. petitioner,

GUTIERREZ, JR., J.:p This is a petition for review on certiorari seeking the reversal of the March 23, 1990 decision of the Court of Appeals which ruled that the petitioner's purchase of a farm tractor was not validly consummated and ordered a complaint for its recovery dismissed. The facts as established by the records are as follows: The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through financing extended by Libra Finance and

Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for the loan. The petitioner wanted to buy the tractor from his brother so on August 20, 1979, he wrote a letter to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the latter. In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares approved the petitioner's request. Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in question. At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo Dy's failure to pay the amortizations. Despite the offer of full payment by the petitioner to Libra for the tractor, the immediate release could not be effected because Wilfredo Dy had obtained financing not only for said tractor but also for a truck and Libra insisted on full payment for both. The petitioner was able to convince his sister, Carol Dy-Seno, to purchase the truck so that full payment could be made for both. On November 22, 1979, a PNB check was issued in the amount of P22,000.00 in favor of Libra, thus settling in full the indebtedness of Wilfredo Dy with the financing firm. Payment having been effected through an out-of-town check, Libra insisted that it be cleared first before Libra could release the chattels in question. Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, Inc. v. Wilfredo Dy", a collection case to recover the sum of P12,269.80 was pending in another court in Cebu. On the strength of an alias writ of execution issued on December 27, 1979, the provincial sheriff was able to seize and levy on the tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public auction where Gelac Trading was the lone bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio Gonzales. It was only when the check was cleared on January 17, 1980 that the petitioner learned about GELAC having already taken custody of the subject tractor. Consequently, the petitioner filed an

action to recover the subject tractor against GELAC Trading with the Regional Trial Court of Cebu City. On April 8, 1988, the RTC rendered judgment in favor of the petitioner. The dispositive portion of the decision reads as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, pronouncing that the plaintiff is the owner of the tractor, subject matter of this case, and directing the defendants Gelac Trading Corporation and Antonio Gonzales to return the same to the plaintiff herein; directing the defendants jointly and severally to pay to the plaintiff the amount of P1,541.00 as expenses for hiring a tractor; P50,000 for moral damages; P50,000 for exemplary damages; and to pay the cost. (Rollo, pp. 35-36) On appeal, the Court of Appeals reversed the decision of the RTC and dismissed the complaint with costs against the petitioner. The Court of Appeals held that the tractor in question still belonged to Wilfredo Dy when it was seized and levied by the sheriff by virtue of the alias writ of execution issued in Civil Case No. R-16646. The petitioner now comes to the Court raising the following questions: A. WHETHER OR NOT THE HONORABLE COURT OF APPEALS

MISAPPREHENDED THE FACTS AND ERRED IN NOT AFFIRMING THE TRIAL COURT'S FINDING THAT OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED TO HEREIN PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF PURSUANT TO AN ALIAS WRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF RESPONDENT GELAC TRADING INC. B. WHETHER OR NOT THE HONORABLE COURT OF APPEALS EMBARKED ON MERE CONJECTURE AND SURMISE IN HOLDING THAT THE SALE OF THE AFORESAID TRACTOR TO PETITIONER WAS DONE IN FRAUD OF

WILFREDO DY'S CREDITORS, THERE BEING NO EVIDENCE OF SUCH FRAUD AS FOUND BY THE TRIAL COURT. C. WHETHER OR NOT THE HONORABLE COURT OF APPEALS

MISAPPREHENDED THE FACTS AND ERRED IN NOT SUSTAINING THE FINDING OF THE TRIAL COURT THAT THE SALE OF THE TRACTOR BY RESPONDENT GELAC TRADING TO ITS CO-RESPONDENT ANTONIO V. GONZALES ON AUGUST 2, 1980 AT WHICH TIME BOTH RESPONDENTS ALREADY KNEW OF THE FILING OF THE INSTANT CASE WAS VIOLATIVE OF THE HUMAN RELATIONS PROVISIONS OF THE CIVIL CODE AND RENDERED THEM LIABLE FOR THE MORAL AND EXEMPLARY DAMAGES SLAPPED AGAINST THEM BY THE TRIAL COURT. (Rollo, p. 13) The respondents claim that at the time of the execution of the deed of sale, no constructive delivery was effected since the consummation of the sale depended upon the clearance and encashment of the check which was issued in payment of the subject tractor. In the case of Servicewide Specialists Inc. v. Intermediate Appellate Court. (174 SCRA 80 [1989]), we stated that: xxx xxx xxx The rule is settled that the chattel mortgagor continues to be the owner of the property, and therefore, has the power to alienate the same; however, he is obliged under pain of penal liability, to secure the written consent of the mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the Philippines, (1972), Volume IV-B Part 1, p. 525). Thus, the instruments of mortgage are binding, while they subsist, not only upon the parties executing them but also upon those who later, by purchase or otherwise, acquire the properties referred to therein. The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of a third person, therefore, affects not the validity of the sale but only the penal liability of the mortgagor under the Revised Penal

Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage. xxx xxx xxx The mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. He had the right to sell it although he was under the obligation to secure the written consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article 319 par. 2 of the Revised Penal Code. And even if no consent was obtained from the mortgagee, the validity of the sale would still not be affected. Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell the subject tractor. There is no dispute that the consent of Libra Finance was obtained in the instant case. In a letter dated August 27, 1979, Libra allowed the petitioner to purchase the tractor and assume the mortgage debt of his brother. The sale between the brothers was therefore valid and binding as between them and to the mortgagee, as well. Article 1496 of the Civil Code states that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 or in any other manner signing an agreement that the possession is transferred from the vendor to the vendee. We agree with the petitioner that Articles 1498 and 1499 are applicable in the case at bar. Article 1498 states: Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. xxx xxx xxx Article 1499 provides: Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be

transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. (1463a) In the instant case, actual delivery of the subject tractor could not be made. However, there was constructive delivery already upon the execution of the public instrument pursuant to Article 1498 and upon the consent or agreement of the parties when the thing sold cannot be immediately transferred to the possession of the vendee. (Art. 1499) The respondent court avers that the vendor must first have control and possession of the thing before he could transfer ownership by constructive delivery. Here, it was Libra Finance which was in possession of the subject tractor due to Wilfredo's failure to pay the amortization as a preliminary step to foreclosure. As mortgagee, he has the right of foreclosure upon default by the mortgagor in the performance of the conditions mentioned in the contract of mortgage. The law implies that the mortgagee is entitled to possess the mortgaged property because possession is necessary in order to enable him to have the property sold. While it is true that Wilfredo Dy was not in actual possession and control of the subject tractor, his right of ownership was not divested from him upon his default. Neither could it be said that Libra was the owner of the subject tractor because the mortgagee can not become the owner of or convert and appropriate to himself the property mortgaged. (Article 2088, Civil Code) Said property continues to belong to the mortgagor. The only remedy given to the mortgagee is to have said property sold at public auction and the proceeds of the sale applied to the payment of the obligation secured by the mortgagee. (See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no showing that Libra Finance has already foreclosed the mortgage and that it was the new owner of the subject tractor. Undeniably, Libra gave its consent to the sale of the subject tractor to the petitioner. It was aware of the transfer of rights to the petitioner. Where a third person purchases the mortgaged property, he automatically steps into the shoes of the original mortgagor. (See Industrial Finance Corp. v. Apostol, 177 SCRA 521 [1989]). His right of ownership shall be subject to the mortgage of the thing sold to him. In the case at bar, the petitioner was fully aware of the existing mortgage of the subject tractor to Libra. In fact, when he was obtaining Libra's consent to the sale, he volunteered to assume the remaining balance of the mortgage debt of Wilfredo Dy which Libra undeniably agreed to.

The payment of the check was actually intended to extinguish the mortgage obligation so that the tractor could be released to the petitioner. It was never intended nor could it be considered as payment of the purchase price because the relationship between Libra and the petitioner is not one of sale but still a mortgage. The clearing or encashment of the check which produced the effect of payment determined the full payment of the money obligation and the release of the chattel mortgage. It was not determinative of the consummation of the sale. The transaction between the brothers is distinct and apart from the transaction between Libra and the petitioner. The contention, therefore, that the consummation of the sale depended upon the encashment of the check is untenable. The sale of the subject tractor was consummated upon the execution of the public instrument on September 4, 1979. At this time constructive delivery was already effected. Hence, the subject tractor was no longer owned by Wilfredo Dy when it was levied upon by the sheriff in December, 1979. Well settled is the rule that only properties unquestionably owned by the judgment debtor and which are not exempt by law from execution should be levied upon or sought to be levied upon. For the power of the court in the execution of its judgment extends only over properties belonging to the judgment debtor. (Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No. 78771, January 23, 1991). The respondents further claim that at that time the sheriff levied on the tractor and took legal custody thereof no one ever protested or filed a third party claim. It is inconsequential whether a third party claim has been filed or not by the petitioner during the time the sheriff levied on the subject tractor. A person other than the judgment debtor who claims ownership or right over levied properties is not precluded, however, from taking other legal remedies to prosecute his claim. (Consolidated Bank and Trust Corp. v. Court of Appeals, supra) This is precisely what the petitioner did when he filed the action for replevin with the RTC. Anent the second and third issues raised, the Court accords great respect and weight to the findings of fact of the trial court. There is no sufficient evidence to show that the sale of the tractor was in fraud of Wilfredo and creditors. While it is true that Wilfredo and Perfecto are brothers, this fact alone does not give rise to the presumption that the sale was fraudulent. Relationship is not a badge of fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be presumed; it must be established by clear convincing evidence.

We agree with the trial court's findings that the actuations of GELAC Trading were indeed violative of the provisions on human relations. As found by the trial court, GELAC knew very well of the transfer of the property to the petitioners on July 14, 1980 when it received summons based on the complaint for replevin filed with the RTC by the petitioner. Notwithstanding said summons, it continued to sell the subject tractor to one of its stockholders on August 2, 1980. WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals promulgated on March 23, 1990 is SET ASIDE and the decision of the Regional Trial Court dated April 8, 1988 is REINSTATED. SO ORDERED. Fernan, C.J., Feliciano and Bidin, JJ., concur. Davide, Jr., J., took no part.

G.R. No. L-50449 January 30, 1982 FILINVEST vs. PHILIPPINE ACETYLENE, CO., INC., defendant-appellant. CREDIT CORPORATION, plaintiff-appellee,

DE CASTRO, J.: This case is certified to Us by the Court of Appeals in its Resolution 1 dated March 22, 1979 on the ground that it involves purely questions of law, as raised in the appeal of the decision of the Court of First Instance of Manila, Branch XII in Civil Case No. 91932, the dispositive portion of which reads as follows:

In view of the foregoing consideration, the court hereby renders judgment l) directing defendant to pay plaintiff: a) the sum of P22,227.81 which is the outstanding unpaid obligation of the defendant under the assigned credit, with 12 %interest from the date of the firing of the complaint in this suit until the same is fully paid; b) the sum equivalent to l5% of P22,227.81 as and for attorney's fees; and 2) directing plaintiff to deliver to, and defendant to accept, the motor vehicle, subject of the chattel may have been changed by the result of ordinary wear and tear of the vehicle. Defendant to pay the cost of suit. SO ORDERED. The facts, as found in the decision 2 subject of the instant appeal, are undisputed. On October 30, 1971, the Philippine Acetylene Co., Inc., defendant-appellant herein, purchased from one Alexander Lim, as evidenced by a Deed of Sale marked as Exhibit G, a motor vehicle described as Chevorlet, 1969 model with Serial No. 136699Z303652 for P55,247.80 with a down payment of P20,000.00 and the balance of P35,247.80 payable, under the terms and conditions of the promissory note (Exh. B), at a monthly installment of P1,036.70 for thirty-four (34) months, due and payable on the first day of each month starting December 1971 through and inclusive September 1, 1974 with 12 % interest per annum on each unpaid installment, and attorney's fees in the amount equivalent to 25% of the total of the outstanding unpaid amount. As security for the payment of said promissory note, the appellant executed a chattel mortgage (Exh. C) over the same motor vehicle in favor of said Alexander Lim. Subsequently, on November 2, 1971. Alexander Lim assigned to the Filinvest Finance Corporation all his rights, title, and interests in the promissory note and chattel mortgage by virtue of a Deed of Assignment (Exh. D).

Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with the Credit and Development Corporation assigned to the new corporation, the herein plaintiff-appellee Filinvest Credit Corporation, all its rights, title, and interests on the aforesaid promissory note and chattel mortgage (Exh. A) which, in effect, the payment of the unpaid balance owed by defendant-appellant to Alexander Lim was financed by plaintiff-appellee such that Lim became fully paid. Appellant failed to comply with the terms and conditions set forth in the promissory note and chattel mortgage since it had defaulted in the payment of nine successive installments. Appellee then sent a demand letter (Exh. 1) whereby its counsel demanded "that you (appellant) remit the aforesaid amount in full in addition to stipulated interest and charges or return the mortgaged property to my client at its office at 2133 Taft Avenue, Malate, Manila within five (5) days from date of this letter during office hours. " Replying thereto, appellant, thru its assistant generalmanager, wrote back (Exh. 2) advising appellee of its decision to "return the mortgaged property, which return shall be in full satisfaction of its indebtedness pursuant to Article 1484 of the New Civil Code." Accordingly, the mortgaged vehicle was returned to the appellee together with the document "Voluntary Surrender with Special Power of Attorney To Sell" 3 executed by appellant on March 12, 1973 and confirmed to by appellee's vice-president. On April 4, 1973, appellee wrote a letter (Exh. H) to appellant informing the latter that appellee cannot sell the motor vehicle as there were unpaid taxes on the said vehicle in the sum of P70,122.00. On the last portion of the said letter, appellee requested the appellant to update its account by paying the installments in arrears and accruing interest in the amount of P4,232.21 on or before April 9, 1973. On May 8, 1973, appellee, in a letter (Exh. 1), offered to deliver back the motor vehicle to the appellant but the latter refused to accept it, so appellee instituted an action for collection of a sum of money with damages in the Court of First Instance of Manila on September 14, 1973. In its answer, appellant, while admitting the material allegations of the appellee's complaint, avers that appellee has no cause of action against it since its obligation towards the appellee was extinguished when in compliance with the appellee's demand letter, it returned the mortgaged property to the appellee, and that assuming arguendo that the return of the property did not extinguish its obligation, it was nonetheless justified in refusing payment since the

appellee is not entitled to recover the same due to the breach of warranty committed by the original vendor-assignor Alexander Lim. After the case was submitted for decision, the Court of First Instance of Manila, Branch XII rendered its decision dated February 25, 1974 which is the subject of the instant appeal in this Court. Appellant's five assignment of errors may be reduced to, or said to revolve around two issues: first, whether or not the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary surrender by the appellant totally extinguished and/or cancelled its obligation to the appellee; second, whether or not the warranty for the unpaid taxes on the mortgaged motor vehicle may be properly raised and imputed to or passed over to the appellee. Consistent with its stand in the court a quo, appellant now reiterates its main contention that appellee, after giving appellant an option either to remit payment in full plus stipulated interests and charges or return the mortgaged motor vehicle, had elected the alternative remedy of exacting fulfillment of the obligation, thus, precluding the exercise of any other remedy provided for under Article 1484 of the Civil Code of the Philippines which reads: Article 1484. Civil Code. - In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: 1) Exact fulfillment of the obligation, should the vendee fail to pay; 2) Cancel the sale, should the vendee's failure to pay cover two or more installments; 3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. In support of the above contention, appellant maintains that when it opted to return, as in fact it did return, the mortgaged motor vehicle to the appellee, said return necessarily had the effect of extinguishing appellant's obligation for the unpaid price to the appellee, construing the return to

and acceptance by the appellee of the mortgaged motor vehicle as a mode of payment, specifically, dation in payment or dacion en pago which according to appellant, virtually made appellee the owner of the mortgaged motor vehicle by the mere delivery thereof, citing Articles 1232, 1245, and 1497 of the Civil Code, to wit: Article 1232. Payment means not only the delivery of money but also the performance, in any manner, of an obligation. xxx xxx xxx Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. xxx xxx xxx Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. Passing at once on the relevant issue raised in this appeal, We find appellant's contention devoid of persuasive force. The mere return of the mortgaged motor vehicle by the mortgagor, the herein appellant, to the mortgagee, the herein appellee, does not constitute dation in payment or dacion en pago in the absence, express or implied of the true intention of the parties. Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation. 4 In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. 5 In any case, common consent is an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or obligation.

The evidence on the record fails to show that the mortgagee, the herein appellee, consented, or at least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In the absence of clear consent of appellee to the proferred special mode of payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the hands of the appellant. A more solid basis of the true intention of the parties is furnished by the document executed by appellant captioned "Voluntary Surrender with Special Power of Attorney To Sell" dated March 12, 1973, attached as Annex "C" of the appellant's answer to the complaint. An examination of the language of the document reveals that the possession of the mortgaged motor vehicle was voluntarily surrendered by the appellant to the appellee authorizing the latter to look for a buyer and sell the vehicle in behalf of the appellant who retains ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness, with the undertaking of the appellant to pay the difference, if any, between the selling price and the mortgage obligation. With the stipulated conditions as stated, the appellee, in essence was constituted as a mere agent to sell the motor vehicle which was delivered to the appellee, not as its property, for if it were, he would have full power of disposition of the property, not only to sell it as is the limited authority given him in the special power of attorney. Had appellee intended to completely release appellant of its mortgage obligation, there would be no necessity of executing the document captioned "Voluntary Surrender with Special Power of Attorney To Sell." Nowhere in the said document can We find that the mere surrender of the mortgaged motor vehicle to the appellee extinguished appellant's obligation for the unpaid price. Appellant would also argue that by accepting the delivery of the mortgaged motor vehicle, appellee is estopped from demanding payment of the unpaid obligation. Estoppel would not he since, as clearly set forth above, appellee never accepted the mortgaged motor vehicle in full satisfaction of the mortgaged debt.

Under the law, the delivery of possession of the mortgaged property to the mortgagee, the herein appellee, can only operate to extinguish appellant's liability if the appellee had actually caused the foreclosure sale of the mortgaged property when it recovered possession thereof. 6 It is worth noting that it is the fact of foreclosure and actual sale of the mortgaged chattel that bar the recovery by the vendor of any balance of the purchaser's outstanding obligation not satisfied by the sale. 7 As held by this Court, if the vendor desisted, on his own initiative, from consummating the auction sale, such desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still sue for specific performance. 8 This is exactly what happened in the instant case. On the second issue, there is no dispute that there is an unpaid taxes of P70,122.00 due on the mortgaged motor vehicle which, according to appellant, liability for the breach of warranty under the Deed of Sale is shifted to the appellee who merely stepped into the shoes of the assignor Alexander Lim by virtue of the Deed of Assignment in favor of appellee. The Deed of Sale between Alexander Lim and appellant and the Deed of Assignment between Alexander Lim and appellee are very clear on this point. There is a specific provision in the Deed of Sale that the seller Alexander Lim warrants the sale of the motor vehicle to the buyer, the herein appellant, to be free from liens and encumbrances. When appellee accepted the assignment of credit from the seller Alexander Lim, there is a specific agreement that Lim continued to be bound by the warranties he had given to the buyer, the herein appellant, and that if it appears subsequently that "there are such counterclaims, offsets or defenses that may be interposed by the debtor at the time of the assignment, such counterclaims, offsets or defenses shall not prejudice the FILINVEST FINANCE CORPORATION and I (Alexander Lim) further warrant and hold the said corporation free and harmless from any such claims, offsets, or defenses that may be availed of." 9 It must be noted that the unpaid taxes on the motor vehicle is a burden on the property. Since as earlier shown, the ownership of the mortgaged property never left the mortgagor, the herein appellant, the burden of the unpaid taxes should be home by him, who, in any case, may not be said to be without remedy under the law, but definitely not against appellee to whom were transferred only rights, title and interest, as such is the essence of assignment of credit.
10

WHEREFORE, the judgment appealed from is hereby affirmed in toto with costs against defendant-appellant.

SO ORDERED. Barredo (Chairman), Aquino, Concepcion, Jr., Ericta and Escolin, JJ., concur.

G.R. No. L-6389 PASTOR vs.

November 29, 1954 AMIGO and JUSTINO AMIGO, petitioners,

SERAFIN TEVES, respondent. Enrique Medina for petitioner.

Capistrano and Capistrano for respondent. BAUTISTA ANGELO, J.: This is a petition for review of a decision of the Court of Appeals modifying that of the court of origin in the sense that plaintiffs, now petitioners, should not be made to pay the sum of P100 as attorney's fees. This petition stems from an action filed by petitioners in the Court of First Instance of Negros Oriental praying that judgment be rendered: (a) declaring that the contract entered into between Marcelino M. Amigo and Sefarin Teves on October 30, 1938 is merely a contract of mortgage and not a sale with right to repurchase; (b) declaring that even if said contract be one of sale with right to repurchase, the offer to repurchase by the vendors was made within the period agreed upon; (c) condemning respondents to execute a deed of reconveyance; and (c) condemning respondents to restore the property to petitioners and to pay P2,500 as damages. The important facts which need to be considered for purposes of this petition as found by the Court of Appeals may be briefly summarized as follows: On August 11, 1937, Macario Amigo and Anacleto Cagalitan executed in favor of their son, Marcelino Amigo, a power of attorney

granting to the latter, among others, the power "to lease, let, bargain, transfer, convey and sell, remise, release, mortgage and hypothecate, part or any of the properties . . . upon such terms and conditions, and under such covenants as he shall think fit." On October 30, 1938, Marcelino Amigo, in his capacity as attorney-in-fact, executed a deed of sale of a parcel of land for a price of P3,000 in favor of Serafin Teves stipulating therein that the vendors could repurchase the land within a period of 18 months from the date of the sale. In the same document, it was also stipulated that vendors would remain in possession of the land as lessees for a period of 18 months subject to the following terms and conditions: (a) the lessees shall pay P180 as rent every six months from the date of the agreement; (b) the period of the lease shall terminate on April 30, 1940; (c) in case of litigation, the lessees shall pay P100 as attorney's fees; and (d) in case of failure to pay any rental as agreed upon, the lease shall automatically terminate and the right of ownership of vendee shall become absolute. On July 20, 1939, the spouses Macario Amigo and Anacleta Cagalitan donated to their sons Justino Amigo and Pastor Amigo several parcels of land including their right to repurchase the land in litigation. The deed of donation was made in a public instrument, was duly accepted by the donees, and was registered in the Office of the Register of Deeds. The vendors-lessees paid the rental corresponding to the first six months, but not the rental for the subsequent semester, and so on January 8, 1940, Serafin Teves, the vendee-lessor, executed an "Affidavit of Consolidation of Title" in view of the failure of the lessees to pay the rentals as agreed upon, and registered said affidavit in the Office of the Register of Deeds of Negros Oriental, who, on January 28, 1940, issued to Serafin Teves the corresponding transfer of title over the land in question. On March 9, 1940, Justino Amigo and Pastor Amigo, as donees of the right to repurchase the land in question, offered to repurchase the land from Serafin Teves by tendering to him the payment of the redemption price but the latter refused on the ground that the ownership had already been consolidated in him as purchaser a retro. Hence, on April 26, 1940, before the expiration of the 18th-month period stipulated for the redemption of the land, the donees instituted the present action. The issues posed by petitioners are: (1) The lease covenant contained in the deed of sale with pacto de retroexecuted by Marcelino Amigo as attorney-in-fact in favor of Serafin Teves is

not germane to, nor within the purview of, the powers granted to said attorney-in-fact and, therefore, is ultra vires and null and void; (2) the penal clause stipulated in the lease covenant referring to the automatic termination of the period of redemption is null and void; and (3) petitioners should be allowed to repurchase the land on equitable grounds considering the great disproportion between the redemption price and the market value of the land on the date the period of redemption is supposed to expire. Petitioners contend that, while the attorney-in-fact, Marcelino Amigo, had the power to execute a deed of sale with right to repurchase under the power of attorney granted to him, however, the covenant of lease contained in said deed whereby the vendors agreed to remain in possession of the land as lessees is not germane to said power of attorney and, therefore, Marcelino Amigo acted in excess of his powers as such attorney-in-fact. The Court of Appeals, therefore, committed an error in not declaring said covenant of lease ultra vires and null and void. The Court of Appeals, after analyzing the extent and scope of the powers granted to Marcelino Amigo in the power of Attorney executed in his favor by his principals, found that such powers are broad enough to justify the execution of any contract concerning the lands covered by the authority even if this be a contract of lease. The court even went further: even in the supposition that the power to take the land under lease is not included within the authority granted, petitioners cannot now impugn the validity of the lease covenant because such right devolves upon the principals, who are the only one who can claim that their agent has exceeded the authority granted to him, and because said principals had tacitly ratified the act done by said agent. We find no plausible reason to disturb this findings of the Court of Appeals. The same, in our opinion, is in consonance with the evidence presented and with the conclusions that should be drawn from said evidence. This can be shown from a mere examination of the power of attorney (Exhibit D.) A cursory reading thereof would at once reveal that the power granted to the agent is so broad that it practically covers the celebration of any contract and the conclusion of any covenant or stipulation. Thus, among the powers granted are: to bargain,contract, agree for, purchase, receive, and keep lands, tenements, hereditaments, and accept the seizing and possessing of all lands," or "to lease, let, bargain, transfer, convey and sell, remise, release, mortgage and hypothecate . . . upon such terms and conditions, and under such covenants as he shall think fit." (Emphasis supplied). When the power of attorney says that the agent can enter into any contract concerning the land, or can sell the land under any term or condition and

covenant he may think fit, it undoubtedly means that he can act in the same manner and with the same breath and latitude as the principal could concerning the property. The fact that the agent has acted in accordance with the wish of his principals can be inferred from their attitude in donating to the herein petitioners the right to redeem the land under the terms and conditions appearing in the deed of sale executed by their agent. On the other hand, we find nothing unusual in the lease covenant embodied in the deed of sale for such is common in contracts involving sales of land with pacto de retro. The lease that a vendor executes on the property may be considered as a means of delivery or tradition by constitutum possessorium. Where the vendor a retrocontinues to occupy the land as lessee, by fiction of law, the possession is deemed to be constituted in the vendee by virtue of this mode of tradition (10 Manresa, 4th ed. p.124). We may say therefore that this covenant regarding the lease of the land sold is germane to the contract of sale with pacto de retro. While the lease covenant may be onerous or may work hardship on the vendor because of its clause providing for the automatic termination of the period of redemption, however, the same is not contrary to law, morals, or public order, which may serve as basis for its nullification. Rather than obnoxious are oppressive , it is a clause common in a sale with pacto de retro, and as such it received the sanction of our courts. As an instance, we may cite the case of Vitug Dimatulac vs. Coronel, 40 Phil., 686, which, because of its direct bearing on our case, we will presently discuss. In that case, Dimatulac sold a piece of land to Dolores Coronel for the sum of P9,000, reserving the privilege to repurchase within the period of 5 years. The contract contained a provision "commonly found in contracts of this character" converting the vendor into a lessee of the vendee at an agreed rental, payable annually in the months of January and February, and permitting the vendor to retain possession of the property as lessee until the time allowed for its repurchase. It was also stipulated that in the event the vendor should fail to pay the agreed rental for any year of the five, the right to repurchase would be lost and the ownership consolidated in the vendee. The vendor fails to perform this obligation and continued in arrears in the payment of rent for at least three years, and taking advantage of the clause by which the consolidation of the property was accelerated, the vendee impleaded the vendor in a civil action to compel him to surrender the property. This case, however, was settled by a compromise by virtue of which the vendor agreed to place the property at the disposal of the vendee so that the latter may apply to products of the land to the payment of the rent. Later, the vendor offered to

redeem the property under the contract of sale with pacto de retro, the period of redemption not having as yet expired. The vendee refused the offer on the ground that her title to the property had already been consolidated. This Court declared the lease covenant contained in the contract as lawful, although it found that the act of the vendee in taking possession of the land by way of compromise constituted a waiver of the penal provision relative to the acceleration of the period of redemption. On this point, the Court said: It is undeniable that the clause in the contract of sale with pacto de retro of June 30, 1911, providing for extinction of the right of the plaintiff to repurchase in case he should default in the payment of the rent for any year was lawful. The parties to a contract of this character may legitimately fix any period to please, not in excess of ten years, for the redemption of the property by the vendor; and no sufficient reason occurs to us why the determination of the right of redemption may not be made to depend upon the delinquency of the vendor now become lessee-in the payment of the stipulated rent. The Supreme Court of Spain sustains the affirmative of this proposition (decision of January 18,1900); and although such a provision, being of a penal nature, may involve hardships to the lessee, the consequence are not worse than such as follow from many other forms of agreement to which contracting parties may lawfully attach their signatures. Nevertheless, admitting the validity of such a provision, it is not be expected that any court will be reluctant to relieve from its effects wherever this can be done consistently with established principles of law. We have not failed to take notice of the Court's warning that "admitting the validity of such a provision, it is not to be expected that any court will be reluctant to relieve from its effects wherever this can be done consistently with established principles of law." We only wish that in this case, as in the Dimatulac case, a way may be found consistent with law whereby we would relieve the petitioners from the effects of the penal clause under consideration, but, to our regret, none we have found, for respondent has been alert and quick enough to assert his right by consolidating his ownership when the first chance to do so has presented itself. He has shown no vacillation, nor offered any compromise which may deem as a waiver or a justification for forfeiting the privilege given him under the penal clause. The only alternative left is to enforce it as stipulated in the agreement. Petitioners also contend that as the assessed value of the land in 1938, when the contract was celebrated, was P4,280, the selling price of P3,000 agreed upon is considered as not written,

and petitioners should be allowed to exercise the right to repurchase on equitable considerations. And in support of this contention, counsel presented evidence to show that the market price of the land in 1940, the year the period of redemption was supposed to expire was fourteen times more than the money paid for it by respondent such that, if that should be taken as basis, the value of the land would be P43,004.50. While this contention may have some basis when considered with reference to an absolute contract of sale, it loses weight when applied to a contract of sale with pacto de retro, where the price is usually less than in absolute sale for the reason that in a sale with pacto de retro, the vendor expects to re-acquire or redeem the property sold. Another flaw we find is that all the evidence presented refers to sales which were executed in 1940 and 1941 and none was presented pertaining to 1938, or its neighborhood, when the contract in question was entered into. And the main reason we find for not entertaining this claim is that it involves a question of fact and as the Court of Appeals has found that the price paid for the land is not unreasonable as to justify the nullification of the sale, such finding, in appeal by certiorari, is final and conclusive upon this Court. Finding no error in the decision appealed from, the same is hereby affirmed, without pronouncement as to costs. Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo and Concepcion, JJ., concur.

G.R. No. L-15385 June 30, 1960 ALEJANDRA BUGARIN VDA. DE SARMIENTO, Plaintiff-Appellee, vs. JOSEFA R.

LESACA, Defendant-Appellant. Juan R. Arbizo for appellee.

Pastor de Castro for appellant.

BAUTISTA ANGELO, J.:

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On December 31, 1949, plaintiff filed a complaint in the Court of First Instance of Zambales praying for the rescission of the contract of sale executed between her and defendant for failure of the latter to place the former in the actual physical possession of the lands she bought.
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After issues were joined, the parties submitted the case for decision upon the following stipulation of facts: that on January 18, 1949, plaintiff bought from defendant two parcels of land for P5,000; that after the sale, plaintiff tried to take actual physical possession of the lands but was prevented from doing so by one Martin Deloso who claims to be the owner thereof; that on February 1, 1949, plaintiff instituted an action before the Tenancy Enforcement Division of the Department of Justice to oust said Martin Deloso from the possession of the lands, which action she later abandoned for reasons known only to her; that on December 12, 1949, plaintiff wrote defendant asking the latter either to change the lands sold with another of the same kind and class or to return the purchase price together with the expenses she had incurred in the execution of the sale, plus 6 per cent interest; and that since defendant did not agree to this proposition as evidenced by her letter dated December 21,1949, plaintiff filed the present action.
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On April 11, 1957, the trial court rendered judgment declaring the deed of sale entered into between plaintiff and defendant rescinded, and ordering the latter to pay the former the sum of P5,000, representing the purchase price of the lands, plus the amount of P50.25 which plaintiff spent for the execution and registration of the deed of sale, with legal interest on both sums from January 18, 1949. Defendant, in due time, appealed to the Court of Appeals, but the case was certified to us on the ground that the questions involved are purely legal.
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The issue posed by appellant is whether the execution of the deed of sale in a public document (Exhibit A) is equivalent to delivery of possession of the lands sold to appellee thus relieving her of the obligation to place appellee in actual possession thereof. Articles 1461 and 1462 of the old Civil Code provide: ART. 1461. The vendor is bound to deliver and warrant the thing which is the subjectmatter of the sale.
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ART. 1462. The thing sold shall be deemed delivered when the vendee is placed in the control and possession thereof.
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If the sale should be made by means of a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the subject-matter of the contract unless the contrary appears or is clearly to be inferred from such instrument. From the above it is clear that when a contract of sale is executed the vendor is bound to deliver to the vendee the thing sold by placing the vendee in the control and possession of the subject-matter of the contract. However, if the sale is executed by means of a public instrument, the mere execution of the instrument is equivalent to delivery unless the contrary appears or is clearly to be inferred from such instrument.
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The question that now arises is: Is there any stipulation in the sale in question from which we can infer that the vendor did not intend to deliver outright the possession of the lands to the vendee? We find none. On the contrary, it can be clearly seen therein that the vendor intended to place the vendee in actual possession of the lands immediately as can be inferred from the stipulation that the vendee "takes actual possession thereof ... with full rights to dispose, enjoy and make use thereof in such manner and form as would be most advantageous to herself." The possession referred to in the contract evidently refers to actual possession and not merely symbolical inferable from the mere execution of the document.
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Has the vendor complied with this express commitment? she did not. As provided in Article 1462, the thing sold shall be deemed delivered when the vendee is placed in the control and possession thereof, which situation does not here obtain because from the execution of the sale up to the present the vendee was never able to take possession of the lands due to the insistent refusal of Martin Deloso to surrender them claiming ownership thereof. And although it is postulated in the same article that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. This is what we said in a similar case: The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed "in the hands and possession of the vendee." (Civ. Code, art. 1462.) It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but

in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality - the delivery has not been effected. (Addison vs. Felix and Tioco, 38 Phil., 404; See also Garchitorena vs. Almeda, 48 Off. Gaz., No., 8, 3432; 3437) The next question to resolve is: Can plaintiff rescind the contract of sale in view of defendant's failure to deliver the possession of the lands?
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We are inclined to uphold the affirmative. While defendant contends that rescission can be availed of only in the cases enumerated in Articles 1291 and 1292 of the old civil Code and being a subsidiary remedy (Article 1294) it can only be resorted to when no other remedy is available, yet we agree with plaintiff's contention that this action is based on Article 1124 of the same Code, which provides: Art 1124. The right to resolve reciprocal obligations, in case one of the obligors should fail to comply with that which is incumbent upon him, is deemed to be implied.
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The person prejudiced may choose between exacting the fulfillment of the obligation or its resolution with indemnity for losses and payment of interest in either case. He may also demand the resolution of the obligation even after having elected its fulfillment, should the latter be found impossible. Undoubtedly in a contract of purchase and sale the obligation of the parties is reciprocal, and, as provided by the law, in case one of the parties fails to comply with what is incumbent upon him to do , the person prejudiced may either exact the fulfillment of the obligation or rescind the sale. Since plaintiff chose the latter alternative, it cannot be disputed that her action is in accordance with law.

We agree with the trial court that there was no fraud in the transaction in question but rather a non-fulfillment by the plaintiff-appellee C.N. Hodges of his obligation, as vendor, to deliver the things, which were the subject-matter of the contract, to the defendantappellant Alberto Granada, as purchaser thereof (article 1461, Civil Code), and place them in the latter's control and possession (article 1462, Civil Code) which was not done. Inasmuch as the obligations arising from the contract of purchase and sale, Exhibit A, which was entered into by the plaintiff-appellee and the defendant-appellant, are reciprocal and the former had failed to comply with that which was incumbent upon him, the latter has the implied right to resolve them, and he may choose between exacting from the vendor the fulfillment of the obligation or its resolution with indemnity for damages and payment of interest in either case (article 1124, Civil Code). Inasmuch as the defendant-appellant had chosen to rescind the aforesaid contract of purchase and sale in his cross-complaint, there arose the necessity on the part of the plaintiff-appellee, to return the purchase price with interest thereon, and on the part of the defendant-appellant, to restore the things which were the subject-matter thereof, in case he had received them (article 1295, Civil Code). (Hodges vs. Granada, 59 Phil., 429, 432; See also Pabalan vs. Velez, 22 Phil., 29; Addison vs. Felix and Tioco, supra; Rodriguez vs. Flores, 43 Off. Gaz., No. 6, 2247.) Wherefore the decision appealed from is affirmed, with costs against defendantappellant.
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Paras, C.J, Bengzon, Padilla, Montemayor, Concepcion, Reyes, J.B.L., Barrera, and Gutierrez David, JJ., concur.

G.R. No. L-20091 PERPETUA vs.

July 30, 1965 ABUAN, ET AL., plaintiffs-appellants,

EUSTAQUIO S. GARCIA, ET AL., defendants-appellees.

Emilio

R.

Gombio

for

plaintiffs-appellants.

Ruperto G. Martin and Associates for defendants-appellees. BENGZON, C.J.: This is an action for legal redemption under Section 119 of the Public Land Law 1 which provides that: Every conveyance of land acquired under the free patient or homestead provisions, when proper, shall be subject to re-purchase by the applicant, his widow, or legal heirs, for a period of five years from the date of conveyance. Acquired by Laureano Abuan the homestead passed after his death to his legal heirs, the plaintiffs herein. Consequently, the Original Certificate of Title in his name was cancelled, and in lieu thereof, Transfer Certificate of Title No. T-5486 was issued in their names. On August 7, 1953, plaintiffs sold the parcel of land to defendants, the sale being evidenced by a public instrument entitled "Deed of Absolute Sale"; and by virtue thereof, Transfer Certificate of Title No. T-5906 was issued to defendants. Later, plaintiffs filed an action to recover the land, alleging that the deed of absolute sale had been executed through fraud, without consideration. However, the case was subsequently settled amicably, when the parties entered into an "Agreement" dated February 28, 1955, under the terms of which defendants paid P500.00 on that day as partial payment of the purchase price of the land, and promised to pay the balance of P1,500.00 on or before April 30, 1955, with a grace period of thirty days. The parties also stipulated in said Agreement that it "shall supersede all previous agreements or contracts heretofore entered into and executed by and between plaintiff and defendants, involving the same parcel of riceland ... . Claiming that full payment had been effected only sometime in May, 1955, plaintiffs instituted the present action on March 4, 1960. Defendants moved to dismiss, on the ground that plaintiffs' right of action was already barred, because the five-year redemption period had already expired. Sustaining the motion, the Nueva Vizcaya court dismissed the complaint.

Plaintiffs appealed to the Court of Appeals, which certified the case to this Court because only a legal issue remains to be determined. The sole question is: When did the five-year period (within which plaintiffs may exercise their right of repurchase) begin to run? Should it be August 7, 1953, when the Deed of Absolute Sale was executed, or February 28, 1955, when the compromise "Agreement" was entered into; or should it be in May, 1955, upon full payment of the purchase price? It is obvious that counted from either of the first two dates more than five years had elapsed when this action for redemption was brought (March 1960); whereas the action would be well within the period, if computed from the date of full payment of the purchase price. The lower court, in dismissing plaintiffs' complaint, fixed the starting date as February 28, 1955, when the Agreement (Annex "B") was entered into. It is plaintiffs' contention, on the other hand, that the prescriptive period should be counted from the full payment of the purchase price, that is, from May, 1955, since it was on this date that the contract was consummated. Plaintiffs' contention is untenable. The law speaks of "five years from date of conveyance." Conveyance means transfer of ownership; it means the date when the title to the land is transferred from one person to another. 2 The five-year period should, therefore, be reckoned with from the date that defendants acquired ownership of the land. Now, when did defendants legally acquire ownership over the land? Art. 1477 of the New Civil Code provides that ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof; and Art. 1496 points out that ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in articles 1497 to 1501. Under Art. 1498, When the sale is made through a public instrument as in this case the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be clearly inferred. 3 This manner of delivery of the thing through the execution of a public document is common to personal as well as real property. 4 It is clear, therefore, that defendants acquired ownership to the land in question upon the execution of the deed of sale. The deed of sale was executed on August 7, 1953, which was "superseded" by the Agreement of February 28, 1955, as to the terms and conditions of

payment of the purchase price. The latter agreement did not operate to revest the ownership of the land in the plaintiffs. 5 It is apparent that five years had elapsed since the execution of the deed of sale at the time plaintiffs filed this action for redemption. Our view finds support in a long line of decisions holding, that the five-year period starts from the date of the execution of the instrument of conveyance. 6 But assuming arguendo that Annex "A" is null and void, as plaintiffs aver, and did not serve to effectuate delivery of the property, we can consider the date of the Agreement (Annex "B"), at the latest, as the time within which ownership is vested in the defendants. True, Annex "B" is a private instrument the execution of which could not be construed as constructive delivery under Art. 1498 of the New Civil Code. But Art. 1496 explicitly provides that ownership of the thing sold is acquired by the vendee from the moment it is delivered to him "in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee." The intention to give possession (and ownership) is manifest in the agreement (Annex "B") entered into by the parties, specially considering the following circumstances: (1) the payment of part of the purchase price, there being no stipulation in the agreement that ownership will not vest in the vendees until full payment of the price; and (2) the fact that the agreement was entered into in consideration of plaintiffs' desistance, as in fact they did desist, in prosecuting their reivindicatory action, thereby leaving the property in the hands of the then and now defendants as owners thereof, necessarily. This was delivery brevi manu permissible under Articles 1499 and 1501 of the New Civil Code. The circumstance that full payment was made only, as plaintiffs allege, in May, 1955, does not alter the fact that ownership of the land passed to defendants upon the execution of the agreement with the intention of letting them hold it as owners. In the absence of an express stipulation to the contrary, the payment of the price is not a condition precedent to the transfer of ownership, which passes by delivery of the thing to the buyer. 7 IN VIEW OF THE FOREGOING, the order of the court a quo dismissing the complaint is hereby affirmed, with costs against plaintiffs-appellants. Bautista Angelo, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.

Concepcion, Barrera, J., is on leave.

J.,

took

no

part.

G.R. No. 91029 February 7, 1991 NORKIS vs. THE COURT OF APPEALS & ALBERTO NEPALES, respondents. Jose D. Palma for petitioner. Public Attorney's Office for private respondent. DISTRIBUTORS, INC., petitioner,

GRIO-AQUINO, J.:p Subject of this petition for review is the decision of the Court of Appeals (Seventeenth Division) in CA-G.R. No. 09149, affirming with modification the judgment of the Regional Trial Court, Sixth (6th) Judicial Region, Branch LVI. Himamaylan, Negros Occidental, in Civil Case No. 1272, which was private respondent Alberto Nepales' action for specific performance of a contract of sale with damages against petitioner Norkis Distributors, Inc. The facts borne out by the record are as follows: Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its Branch Manager. On September 20, 1979, private respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No. L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed in the Norkis showroom. The price of P7,500.00 was payable by means of a Letter of Guaranty from the Development

Bank of the Philippines (DBP), Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh.1) showing that the contract of sale of the motorcycle had been perfected. Nepales signed the sales invoice to signify his conformity with the terms of the sale. In the meantime, however, the motorcycle remained in Norkis' possession. On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the name of Alberto Nepales. A registration certificate (Exh. 2) in his name was issued by the Land Transportation Commission on November 6, 1979 (Exh. 2-b). The registration fees were paid by him, evidenced by an official receipt, Exhibit 3. On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and Julian Nepales presented the unit to DBP's AppraiserInvestigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch (p. 12, Rollo). The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros Occidental. An investigation conducted by the DBP revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident (p. 33, Rollo). The unit was a total wreck (p. 36, t.s.n., August 2,1984; p. 13, Rollo), was returned, and stored inside Norkis' warehouse. On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 (p. 13, Rollo) and demanded the delivery of the motorcycle. When Norkis could not deliver, he filed an action for specific performance with damages against Norkis in the Regional Trial Court of Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI, where it was docketed as Civil Case No. 1272. He alleged that Norkis failed to deliver the motorcycle which he purchased, thereby causing him damages. Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, the risk of loss or damage had to be borne by him as owner of the unit. After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling in favor of private respondent (p. 28, Rollo.) thus:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants. The defendants are ordered to pay solidarity to the plaintiff the present value of the motorcycle which was totally destroyed, plus interest equivalent to what the Kabankalan Sub-Branch of the Development Bank of the Philippines will have to charge the plaintiff on fits account, plus P50.00 per day from February 3, 1980 until full payment of the said present value of the motorcycle, plus P1,000.00 as exemplary damages, and costs of the litigation. In lieu of paying the present value of the motorcycle, the defendants can deliver to the plaintiff a brand-new motorcycle of the same brand, kind, and quality as the one which was totally destroyed in their possession last February 3, 1980. (pp. 28-29,Rollo.) On appeal, the Court of appeals affirmed the appealed judgment on August 21, 1989, but deleted the award of damages "in the amount of Fifty (P50.00) Pesos a day from February 3, 1980 until payment of the present value of the damaged vehicle" (p35, Rollo). The Court of Appeals denied Norkis' motion for reconsideration. Hence, this Petition for Review. The principal issue in this case is who should bear the loss of the motorcycle. The answer to this question would depend on whether there had already been a transfer of ownership of the motorcycle to private respondent at the time it was destroyed. Norkis' theory is that: . . . After the contract of sale has been perfected (Art. 1475) and even before delivery, that is, even before the ownership is transferred to the vendee, the risk of loss is shifted from the vendor to the vendee. Under Art. 1262, the obligation of the vendor to deliver a determinate thing becomes extinguished if the thing is lost by fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and before he has incurred in delay (Art. 11 65, par. 3). If the thing sold is generic, the loss or destruction does not extinguish the obligation (Art. 1263). A thing is determinate when it is particularly designated or physically segregated from all others of the same class (Art. 1460). Thus, the vendor becomes released from his obligation to deliver the determinate thing sold while the vendee's obligation to pay the price subsists. If the vendee had paid the price in advance the vendor may retain the same. The legal effect, therefore, is that the vendee assumes the

risk of loss by fortuitous event (Art. 1262) after the perfection of the contract to the time of delivery. (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.) Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that there was constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the private respondent and the affixing of his signature thereon; (2) the registration of the vehicle on November 6, 1979 with the Land Transportation Commission in private respondent's name (Exh. 2); and (3) the issuance of official receipt (Exh. 3) for payment of registration fees (p. 33, Rollo). That argument is not well taken. As pointed out by the private respondent, the issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378). In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with the intention of delivering the thing. The act, without the intention, is insufficient (De Leon, Comments and Cases on Sales, 1978 Ed., citing Manresa, p. 94). When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not intend yet to transfer the title or ownership to Nepales, but only to facilitate the execution of a chattel mortgage in favor of the DBP for the release of the buyer's motorcycle loan. The Letter of Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis would not accede to that arrangement, DBP would not approve private respondent's loan application and, consequently, there would be no sale. In other words, the critical factor in the different modes of effecting delivery, which gives legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759). In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held: The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is "placed in the hands and

possession of the vendee." (Civil Code, Art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality-the delivery has riot been effects .(Emphasis supplied.) The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20, 1979 (Exh. B) and the registration of the vehicle in the name of plaintiff-appellee (private respondent) with the Land Registration Commission (Exhibit C) was not to transfer to Nepales the ownership and dominion over the motorcycle, but only to comply with the requirements of the Development Bank of the Philippines for processing private respondent's motorcycle loan. On March 20, 1980, before private respondent's loan was released and before he even paid Norkis, the motorcycle had already figured in an accident while driven by one Zacarias Payba. Payba was not shown by Norkis to be a representative or relative of private respondent. The latter's supposed relative, who allegedly took possession of the vehicle from Norkis did not explain how Payba got hold of the vehicle on February 3, 1980. Norkis' claim that Julian Nepales was acting as Alberto's agent when he allegedly took delivery of the motorcycle (p. 20, Appellants' Brief), is controverted by the latter. Alberto denied having authorized Julian Nepales to get the motorcycle from Norkis Distributors or to enter into any transaction with Norkis relative to said motorcycle. (p. 5, t.s.n., February 6, 1985). This circumstances more than amply rebut the disputable presumption of delivery upon which Norkis anchors its defense to Nepales' action (pp. 33-34, Rollo). Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer, the things sold remain at seller's risk until the ownership thereof is transferred

to the buyer," is applicable to this case, for there was neither an actual nor constructive delivery of the thing sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the owner and possessor of the motorcycle when it was wrecked. This is in accordance with the well-known doctrine of res perit domino. WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. No. 09149, we deny the petition for review and hereby affirm the appealed decision, with costs against the petitioner. SO ORDERED. Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

G.R. No. L-22604 GUADALUPE vs.

February 3, 1925 GONZALEZ and LUIS GOMEZ, plaintiffs-appellants,

E.J. HABERER, defendant-appellee. Feria and La O for appellants.

Paredes, Buencamino and Yulo for appellee. OSTRAND, J.: This action is brought to recover the sum of P34,260 alleged to be due the plaintiffs from the defendant upon a written agreement for the sale of a tract of land situated in the Province of Nueva Ecija. The plaintiffs also ask for damages in the sum of P10,000 for the alleged failure of the defendant to comply with his part of the agreement. The defendant in his answer admits that of the purchase price stated in the agreement a balance of P31,000 remains unpaid, but by way of special defense, cross-complaint and

counter-claim alleges that at the time of entering into the contract the plaintiffs through false representations lead him to believe that they were in possession of the land and that the title to the greater portion thereof was not in dispute; that on seeking to obtain possession he found that practically the entire area of the land was occupied by adverse claimants and the title thereto disputed; that he consequently has been unable to obtain possession of the land; and that the plaintiffs have made no efforts to prosecute the proceedings for the registration of the land. He therefore asks that the contract be rescinded; that the plaintiffs be ordered to return to him the P30,000 already paid by him to them and to pay P25,000 as damages for breach of the contract. The court below dismissed the plaintiffs' complaint, declared the contract rescinded and void and gave the defendant judgment upon his counterclaim for the sum of P30,000, with interest from the date upon which the judgment becomes final. The case is now before this court upon appeal by the plaintiffs from that judgment. The contract in question reads as follows: Know all men by these presents: That I, Guadalupe Gonzalez y Morales de Gomez, married with Luis Gomez, of age, and resident of the municipality of Bautista, Province of Pangasinan, Philippine Islands, do hereby state: 1. That I am the absolute and exclusive owner of a parcel of land situated in the barrio of Partida, municipality of Guimba, Nueva Ecija, described as follows: Bounded on the north by the land of Don Marcelino Santos; on the east, by the land of Doa Cristina Gonzalez; on the south by the Binituan River; and on the west, by the land of Doa Ramona Gonzalez; containing an area of 488 hectares approximately. 2. That an application was filed for the registration of the above described land in the registry of property of Nueva Ecija, which application is still pending in the Court of First Instance of Nueva Ecija. 3. That in consideration of the sum of P125 per hectare I do hereby agree and bind myself to sell and transfer by way of real and absolute sale the land above described to

Mr. E.J. Habere, binding myself to execute the deed of sale immediately after the decree of the court adjudicating said land in my favor is registered in the registry of property of the Province of Nueva Ecija. The condition of this obligation to sell are as follows: "1. That Mr. E.J. Haberer has at this moment paid me the sum of P30,000 on account of the price of the aforesaid land. "2. That said Mr. E.J. Haberer agrees and binds himself to pay within six months from the date of the execution of this document the unpaid balance of the purchase price. "3. That said Mr. E.J. Haberer shall have the right to take possession of the aforesaid land immediately after the execution of this document together with all the improvements now existing on the same land, such as palay plantation and others. "4. That said Mr. E.J. agrees and binds himself to pay the expenses to be incurred from this date in the registration of the aforesaid land up to the filing of the proper decree in the office of the register of deeds of the Province of Nueva Ecija. "5. That in the event that the court should hold that I am not the owner of all or any part of the aforesaid land, I agree and bind myself to return without interest all such amounts of money as I have received or may receive from Mr. E.J. Haberer as the purchase price of said land, but, in the event that the court should adjudicate a part of the aforesaid land to me, then I agree and bind myself to sell said portion adjudicated to me, returning all the amounts received from Mr. E.J. Haberer in excess of the price of said portion at the rate of P125 per hectare. "6. The Mr. E.J. Haberer does hereby waive any interest or indemnity upon the amount that I am to return to him and which I have receive from Mr. E.J. Haberer as the purchase price of the aforesaid land." I, E.J. Haberer, married, of age, and resident of the municipality of Talavera, Nueva Ecija, do hereby state that, having known the contents of this document, I accept the same with all the stipulations and conditions thereof.

I, Luis Gomez, married, of age, and resident of the municipality of Bautista, Province of Pangasinan, do hereby grant my wife, Da. Guadalupe Gonzalez y Morales de Gomez, the due marital license to execute this document and make effective the definite sale of the land as above stipulated, she being empowered to execute the deed of sale and other necessary documents in order that the full ownership over the aforesaid land may be transferred to Mr. E.J. Haberer, as stipulated in this document. In testimony whereof, we hereunto set our hands at Manila, this 7th day of July, 1920. (Sgd.) E.J. LUIS GOMEZ Signed in the presence of the witnesses: (Sgd.) L.G. ALVAREZ (Acknowledged before notary.) It is conceded by the plaintiffs that the defendant never obtained actual or physical possession of the land, but it is argued that under the contract quoted the plaintiffs were under no obligation to place him in possession. This contention cannot be sustained. Cause 3 of paragraph 3 of the contract gave the defendant the right to take possession of the land immediately upon the execution of the contract and necessarily created the obligation on the part of the plaintiffs to make good the right thus granted; it was one of the essential conditions of the agreement and the failure of the plaintiffs to comply with this condition, without fault on the part of the defendant, is in itself sufficient ground for the rescission, even in the absence of any misrepresentation on their part. (Civil Code, art. 1124 ; Pabalan vs. Velez, 22 Phil., 29.) It is therefore unnecessary to discuss the question whether the defendant was induced to enter into the agreement through misrepresentation made by the plaintiff Gomez. We may say, however, that the evidence leaves no doubt that some misrepresentations were made and that but for such misrepresentations the defendant would not have been likely to enter into the agreement in the form it appeared. As to the contention that the plaintiff Gonzalez cannot be charged with the misrepresentations of Gomez, it is sufficient to say that the latter in negotiating EMIGDIO DOMINGO GUADALUPE G. DE GOMEZ HABERER

for the sale of the land acted as the agent and representative of the other plaintiff, his wife; having accepted the benefit of the representations of her agent she cannot, of course, escape liability for them. (Haskellvs. Starbird, 152 Mass., 117; 23 A.S.R., 809.) The contention of the appellants that the symbolic delivery effected by the execution and delivery of the agreement was a sufficient delivery of the possession of the land, is also without merit. The possession referred to in the contract is evidently physical; if it were otherwise it would not have been necessary to mention it in the contract. (See Cruzado vs. Bustos and Escaler, 34 Phil., 17.) The judgment appealed from is in accordance with the law, is fully sustained by the evidence, and is therefore affirmed, with the costs against the appellants. So ordered. Johnson, Street, Malcolm, Villamor, Johns, and Romualdez, JJ., concur.

G.R. No. L-30056 August 30, 1988 MARCELO vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant. Artemio L. Agcaoili for plaintiff-appellee. Office of the Government Corporate Counsel for defendant-appellant. AGCAOILI, plaintiff-appellee

NARVASA, J.: The appellant Government Service Insurance System, (GSIS, for short) having approved the application of the appellee Agcaoili for the purchase of a house and lot in the GSIS Housing

Project at Nangka Marikina, Rizal, subject to the condition that the latter should forthwith occupy the house, a condition that Agacoili tried to fulfill but could not for the reason that the house was absolutely uninhabitable; Agcaoili, after paying the first installment and other fees, having thereafter refused to make further payment of other stipulated installments until GSIS had made the house habitable; and appellant having refused to do so, opting instead to cancel the award and demand the vacation by Agcaoili of the premises; and Agcaoili having sued the GSIS in the Court of First Instance of Manila for specific performance with damages and having obtained a favorable judgment, the case was appealled to this Court by the GSIS. Its appeal must fail. The essential facts are not in dispute. Approval of Agcaoili's aforementioned application for purchase 1 was contained in a letter 2 addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva in behalf of the Chairman-General Manager, reading as follows: Please be informed that your application to purchase a house and lot in our GSIS Housing Project at Nangka, Marikina, Rizal, has been approved by this Office. Lot No. 26, Block No. (48) 2, together with the housing unit constructed thereon, has been allocated to you. You are, therefore, advised to occupy the said house immediately. If you fail to occupy the same within three (3) days from receipt of this notice, your application shall be considered automatically disapproved and the said house and lot will be awarded to another applicant. Agcaoili lost no time in occupying the house. He could not stay in it, however, and had to leave the very next day, because the house was nothing more than a shell, in such a state of incompleteness that civilized occupation was not possible: ceiling, stairs, double walling, lighting facilities, water connection, bathroom, toilet kitchen, drainage, were inexistent. Agcaoili did however ask a homeless friend, a certain Villanueva, to stay in the premises as some sort of watchman, pending completion of the construction of the house. Agcaoili thereafter complained to the GSIS, to no avail. The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly installment and the incidental fees, 3 but refused to make further payments until and unless the GSIS completed the housing unit. What the GSIS did was to cancel the award and require Agcaoili to vacate the premises. 4Agcaoili reacted by instituting suit in the Court of First

Instance of Manila for specific performance and damages. 5Pending the action, a written protest was lodged by other awardees of housing units in the same subdivision, regarding the failure of the System to complete construction of their own houses. 6 Judgment was in due course rendered , 7 on the basis of the evidence adduced by Agcaoili only, the GSIS having opted to dispense with presentation of its own proofs. The judgment was in Agcaoili's favor and contained the following dispositions, 8 to wit: 1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff (Mariano Agcaoili) illegal and void; 2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the plaintiff relative to Lot No. 26, Block No. (48) 2 of the Government Service Insurance System (GSIS) low cost housing project at Nangka Marikina, Rizal; 3) Ordering the defendant to complete the house in question so as to make the same habitable and authorizing it (defendant) to collect the monthly amortization thereon only after said house shall have been completed under the terms and conditions mentioned in Exhibit A ;and 4) Ordering the defendant to pay P100.00 as damages and P300.00 as and for attorney's fees, and costs. Appellant GSIS would have this Court reverse this judgment on the argument that 1) Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his housing unit, since said unit had been sold "in the condition and state of completion then existing ... (and) he is deemed to have accepted the same in the condition he found it when he accepted the award;" and assuming indefiniteness of the contract in this regard, such circumstance precludes a judgment for specific performance.
9

2) Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter's immediate occupancy of the house subject thereof, and the latter having failed to comply with the condition, no contract ever came into existence between them ; 10 3) Agcaoili's act of placing his homeless friend, Villanueva, in possession, "without the prior or subsequent knowledge or consent of the defendant (GSIS)" operated as a repudiation by

Agcaoili of the award and a deprivation of the GSIS at the same time of the reasonable rental value of the property. 11 Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the latter, entitled "Application to Purchase a House and/or Lot." Agcaoili filled up the form, signed it, and submitted it. 12 The acceptance of the application was also set out in a form (mimeographed) also prepared by the GSIS. As already mentioned, this form sent to Agcaoili, duly filled up, advised him of the approval of his "application to purchase a house and lot in our GSIS Housing Project at NANGKA, MARIKINA, RIZAL," and that "Lot No. 26, Block No. (48) 2, together with the housing unit constructed thereon, has been allocated to you." Neither the application form nor the acceptance or approval form of the GSIS nor the notice to commence payment of a monthly amortizations, which again refers to "the house and lot awarded" contained any hint that the house was incomplete, and was being sold "as is," i.e., in whatever state of completion it might be at the time. On the other hand, the condition explicitly imposed on Agcaoili "to occupy the said house immediately," or in any case within three (3) days from notice, otherwise his "application shall be considered automatically disapproved and the said house and lot will be awarded to another applicant" would imply that construction of the house was more or less complete, and it was by reasonable standards, habitable, and that indeed, the awardee should stay and live in it; it could not be interpreted as meaning that the awardee would occupy it in the sense of a pioneer or settler in a rude wilderness, making do with whatever he found available in the envirornment. There was then a perfected contract of sale between the parties; there had been a meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka Marikina, Rizal at a definite price payable in amortizations at P31.56 per month, and from that moment the parties acquired the right to reciprocally demand performance. 13 It was, to be sure, the duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purpose contemplated , 14 in other words, to deliver the house subject of the contract in a reasonably livable state. This it failed to do. It sold a house to Agcaoili, and required him to immediately occupy it under pain of cancellation of the sale. Under the circumstances there can hardly be any doubt that the house contemplated was one that could be occupied for purposes of residence in reasonable comfort and convenience. There would be no sense to require the awardee to immediately occupy and

live in a shell of a house, a structure consisting only of four walls with openings, and a roof, and to theorize, as the GSIS does, that this was what was intended by the parties, since the contract did not clearly impose upon it the obligation to deliver a habitable house, is to advocate an absurdity, the creation of an unfair situation. By any objective interpretation of its terms, the contract can only be understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price. Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable state, it cannot invoke Agcaoili's suspension of payment of amortizations as cause to cancel the contract between them. It is axiomatic that "(i)n reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him." 15 Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the latter had not complied with the condition of occupying the house within three (3) days. The record shows that Agcaoili did try to fulfill the condition; he did try to occupy the house but found it to be so uninhabitable that he had to leave it the following day. He did however leave a friend in the structure, who being homeless and hence willing to accept shelter even of the most rudimentary sort, agreed to stay therein and look after it. Thus the argument that Agcaoili breached the agreement by failing to occupy the house, and by allowing another person to stay in it without the consent of the GSIS, must be rejected as devoid of merit. Finally, the GSIS should not be heard to say that the agreement between it and Agcaoili is silent, or imprecise as to its exact prestation Blame for the imprecision cannot be imputed to Agcaoili; it was after all the GSIS which caused the contract to come into being by its written acceptance of Agcaoili's offer to purchase, that offer being contained in a printed form supplied by the GSIS. Said appellant having caused the ambiguity of which it would now make capital, the question of interpretation arising therefrom, should be resolved against it. It will not do, however, to dispose of the controversy by simply declaring that the contract between the parties had not been validly cancelled and was therefore still in force, and that Agcaoili could not be compelled by the GSIS to pay the stipulated price of the house and lot subject of the contract until and unless it had first completed construction of the house. This would leave the contract hanging or in suspended animation, as it were, Agcaoili unwilling to pay unless the house were first completed, and the GSIS averse to completing construction, which is precisely what has been the state of affairs between the parties for more than twenty

(20) years now. On the other hand, assuming it to be feasible to still finish the construction of the house at this time, to compel the GSIS to do so so that Agcaoili's prestation to pay the price might in turn be demanded, without modifying the price therefor, would not be quite fair. The cost to the GSIS of completion of construction at present prices would make the stipulated price disproportionate, unrealistic. The situation calls for the exercise by this Court of its equity jurisdiction, to the end that it may render complete justice to both parties. As we . . reaffirmed in Air Manila, Inc. vs. Court of Industrial Relations (83 SCRA 579, 589 [1978]). "(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent so to do. Equity regards the spirit of and not the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts... " 16 In this case, the Court can not require specific performance of the contract in question according to its literal terms, as this would result in inequity. The prevailing rule is that in decreeing specific performance equity requires17 ... not only that the contract be just and equitable in its provisions, but that the consequences of specific performance likewise be equitable and just. The general rule is that this equitable relief will not be granted if, under the circumstances of the case, the result of the specific enforcement of the contract would be harsh, inequitable, oppressive, or result in an unconscionable advantage to the plaintiff . . In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in accordance with the circumstances obtaining at the time of rendition of judgment, when these are significantly different from those existing at the time of generation of those rights. The Court is not restricted to an adjustment of the rights of the parties as they existed when suit was brought, but will give relief appropriate to events occuring ending the suit. 18

While equitable jurisdiction is generally to be determined with reference to the situation existing at the time the suit is filed, the relief to be accorded by the decree is governed by the conditions which are shown to exist at the time of making thereof, and not by the circumstances attending the inception of the litigation. In making up the final decree in an equity suit the judge may rightly consider matters arising after suit was brought. Therefore, as a general rule, equity will administer such relief as the nature, rights, facts and exigencies of the case demand at the close of the trial or at the time of the making of the decree.
19

That adjustment is entirely consistent with the Civil Law principle that in the exercise of rights a person must act with justice, give everyone his due, and observe honesty and good faith. 20 Adjustment of rights has been held to be particularly applicable when there has been a depreciation of currency. Depreciation of the currency or other medium of payment contracted for has frequently been held to justify the court in withholding specific performance or at least conditioning it upon payment of the actual value of the property contracted for. Thus, in an action for the specific performance of a real estate contract, it has been held that where the currency in which the plaintiff had contracted to pay had greatly depreciated before enforcement was sought, the relief would be denied unless the complaint would undertake to pay the equitable value of the land. (Willard & Tayloe [U.S.] 8 Wall 557,19 L. Ed 501; Doughdrill v. Edwards, 59 Ala 424) 21 In determining the precise relief to give, the Court will "balance the equities" or the respective interests of the parties, and take account of the relative hardship that one relief or another may occasion to them .22 The completion of the unfinished house so that it may be put into habitable condition, as one form of relief to the plaintiff Agcaoili, no longer appears to be a feasible option in view of the not inconsiderable time that has already elapsed. That would require an adjustment of the price of the subject of the sale to conform to present prices of construction materials and labor. It is more in keeping with the realities of the situation, and with equitable norms, to simply require payment for the land on which the house stands, and for the house itself, in its unfinished state, as of the time of the contract. In fact, this is an alternative relief proposed by Agcaoili himself,

i.e., "that judgment issue . . (o)rdering the defendant (GSIS) to execute a deed of sale that would embody and provide for a reasonable amortization of payment on the basis of the present actual unfinished and uncompleted condition, worth and value of the said house. 23 WHEREFORE, the judgment of the Court a quo insofar as it invalidates and sets aside the cancellation by respondent GSIS of the award in favor of petitioner Agcaoili of Lot No. 26, Block No. (48) 2 of the GSIS low cost housing project at Nangka, Marikina, Rizal, and orders the former to respect the aforesaid award and to pay damages in the amounts specified, is AFFIRMED as being in accord with the facts and the law. Said judgments is however modified by deleting the requirement for respondent GSIS "to complete the house in question so as to make the same habitable," and instead it is hereby ORDERED that the contract between the parties relative to the property above described be modified by adding to the cost of the land, as of the time of perfection of the contract, the cost of the house in its unfinished state also as of the time of perfection of the contract, and correspondingly adjusting the amortizations to be paid by petitioner Agcaoili, the modification to be effected after determination by the Court a quo of the value of said house on the basis of the agreement of the parties, or if this is not possible by such commissioner or commissioners as the Court may appoint. No pronouncement as to costs. SO ORDERED. Cruz, Gancayco, Aquino and Medialdea, JJ., concur.

[G.R. No. 124242. January 21, 2005]

SAN

LORENZO CORPORATION, petitioner, vs. COURT

DEVELOPMENT OF APPEALS,

PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, respondents.

DECISION
TINGA, J.:

From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares. On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter. Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta. Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale in his favor so that he could effect full payment of the purchase price. In the same letter, Babasanta notified the spouses about having received information that the spouses sold the same property to another without his knowledge and consent. He demanded that the second sale be cancelled and that a final deed of sale be issued in his favor. In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the property to him at fifteen pesos (P15.00) per square meter. She, however, reminded Babasanta that when

the balance of the purchase price became due, he requested for a reduction of the price and when she refused, Babasanta backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Oya. On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages[1] against his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) per square meter. Despite his repeated demands for the execution of a final deed of sale in his favor, respondents allegedly refused. In their Answer,[2] the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta, without the knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the downpayment for the property and the balance to be paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu refused to grant Babasantas request, the latter rescinded the contract to sell and declared that the original loan

transaction just be carried out in that the spouses would be indebted to him in the amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Managers Check No. 05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of Babasanta to show that she was able and willing to pay the balance of her loan obligation. Babasanta later filed an Amended Complaint dated 17 January 1990[3] wherein he prayed for the issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu of the subject property to other persons. The Spouses Lu filed their Opposition[4] to the amended complaint contending that it raised new matters which seriously affect their substantive rights under the original complaint. However, the trial court in its Order dated 17 January 1990[5] admitted the amended complaint. On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention[6] before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.[7] It alleged that it was a buyer in good faith and for value and therefore it had a better right over the property in litigation.

In his Opposition to SLDCs motion for intervention,[8] respondent Babasanta demurred and argued that the latter had no legal interest in the case because the two parcels of land involved herein had already been conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose of the two parcels of land to the intervenor. Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed its Complaint-in-Intervention on 19 April 1990.[9] Respondent Babasantas motion for the issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11 January 1991[10] conditioned upon his filing of a bond in the amount of fifty thousand pesos (P50,000.00). SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an option money in the amount of three hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of the total consideration for the purchase of the two lots of one million two hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu received a total amount of six hundred thirty-two thousand three hundred twenty pesos (P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the certificates of title over the property were delivered to it by the spouses clean and free from any adverse claims and/or notice of lis

pendens. SLDC further alleged that it only learned of the filing of the complaint sometime in the early part of January 1990 which prompted it to file the motion to intervene without delay. Claiming that it was a buyer in

good faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by the Spouses Lu particularly because Babasantas claims were not annotated on the certificates of title at the time the lands were sold to it. After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos (P50,000.00) as and for attorneys fees. On the complaint-in-intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the original of the TCT No. T-39022 (T7218) and No. T-39023 (T-7219). Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did not register the respective sales in their favor, ownership of the property should pertain to the buyer who first acquired possession of the property. The trial court equated the execution of a public instrument in favor of SLDC as sufficient delivery of the property to the latter. It concluded that symbolic possession could be considered to have been first transferred to SLDC and consequently ownership of the property pertained to SLDC who purchased the property in good faith. Respondent Babasanta appealed the trial courts decision to the Court of Appeals alleging in the main that the trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC.

Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial court erred in failing to consider that the contract to sell between them and Babasanta had been novated when the latter abandoned the verbal contract of sale and declared that the original loan transaction just be carried out. The Spouses Lu argued that since the properties involved were conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu. They further averred that the trial court erred in not dismissing the complaint filed by Babasanta; in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer. On 4 October 1995, the Court of Appeals rendered its Decision[11] which set aside the judgment of the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of Babasanta, and the latter to pay the balance of the purchase price in the amount of two hundred sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to return all payments made by SLDC with legal interest and to pay attorneys fees to Babasanta. SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court.[12] However, in a Manifestation dated 20 December 1995,[13] the Spouses Lu informed the appellate court that they are no longer contesting the decision dated 4 October 1995.

In its Resolution dated 11 March 1996,[14] the appellate court considered as withdrawn the motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The appellate court denied SLDCs motion for reconsideration on the ground that no new or substantial arguments were raised therein which would warrant modification or reversal of the courts decision dated 4 October 1995. Hence, this petition. SLDC assigns the following errors allegedly committed by the appellate court: THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY. THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES. THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO

EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.

THE

COURT

OF

APPEALS

ERRED

IN

HOLDING

THAT

NOTWITHSTANDING ITS FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. [15] SLDC contended that the appellate court erred in concluding that it had prior notice of Babasantas claim over the property merely on the basis of its having advanced the amount of two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latters representation that she needed the money to pay her obligation to Babasanta. It argued that it had no reason to suspect that Pacita was not telling the truth that the money would be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the purchase price still due from it and should not be construed as notice of the prior sale of the land to Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been previously sold to Babasanta. Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took possession of the property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or lien at the time it was sold to it, SLDC argued that it had every reason to rely on the correctness of the certificate of title and it was not obliged to go beyond the certificate to determine the condition of the property. Invoking the presumption of good faith, it added that the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter failed to do

so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale of the property to it was consummated on 3 May 1989. Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the Court that due to financial constraints they have no more interest to pursue their rights in the instant case and submit themselves to the decision of the Court of Appeals.[16] On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of the property because it failed to comply with the requirement of registration of the sale in good faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was already a notice of lis pendens annotated on the titles of the property made as early as 2 June 1989. Hence, petitioners registration of the sale did not confer upon it any right. Babasanta further asserted that petitioners bad faith in the acquisition of the property is evident from the fact that it failed to make necessary inquiry regarding the purpose of the issuance of the two hundred thousand pesos (P200,000.00) managers check in his favor. The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a better right over the two parcels of land subject of the instant case in view of the successive transactions executed by the Spouses Lu. To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed by Pacita Lu acknowledging receipt of the

sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna.[17] While the receipt signed by Pacita did not mention the price for which the property was being sold, this deficiency was supplied by Pacita Lus letter dated 29 May 1989[18] wherein she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos (P15.00) per square meter. An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and not a contract of sale. Contracts, in general, are perfected by mere consent,[19] which is manifested by the meeting of the offer and the acceptance upon the thing which are to constitute the contract. The offer must be certain and the acceptance absolute.[20] Moreover, contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.[21] The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price.

Babasantas letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not be transferred to him until such time as he shall have effected full payment of the price. Moreover, had the sellers intended to transfer title, they could have easily executed the document of sale in its required form simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a perfected contract to sell. The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price.[22] In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.[23] The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase price. There being an obligation to pay the price, Babasanta should have made the proper tender of payment and consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing the intention to pay without the

accompanying

payment

is

not

considered

valid

tender

of

payment.[24] Consignation of the amounts due in court is essential in order to extinguish Babasantas obligation to pay the balance of the purchase price. Glaringly absent from the records is any indication that Babasanta even attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the sellers to convey title never acquired obligatory force. On the assumption that the transaction between the parties is a contract of sale and not a contract to sell, Babasantas claim of ownership should nevertheless fail. Sale, being a consensual contract, is perfected by mere consent [25] and from that moment, the parties may reciprocally demand performance.[26] The essential elements of a contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established.[27] The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership.[28] Under Article 712 of the Civil Code, ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition. Contracts only constitute titles or rights to

the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same.[29] Therefore, sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a

consequence of sale, that actually transfers ownership. Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.[30] The word delivered should not be taken restrictively to mean transfer of actual physical possession of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery. Actual delivery consists in placing the thing sold in the control and possession of the vendee.[31] Legal or constructive delivery, on the other hand, may be had through any of the following ways: the execution of a public instrument evidencing the sale;[32] symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept;[33] traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale;[34] traditio brevi manu if the buyer already had possession of the object even before the sale;[35] and traditio constitutum possessorium, where the seller remains in possession of the property in a different capacity. [36] Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied

in a public instrument. Hence, no constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the

perfected contract between the parties was a sale, ownership could not have passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold.[37] However, it must be stressed that the juridical relationship between the parties in a double sale is primarily governed by Article 1544 which lays down the rules of preference between the two purchasers of the same property. It provides: Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and first records it in the Registry of Property, both made in good faith, shall be deemed the owner.[38] Verily, the act of registration must be coupled with good faith that is, the registrant must have no knowledge of the defect or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. [39] Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of Babasantas claim. Babasanta, however, strongly argues that the registration of the sale by SLDC was not sufficient to confer upon the latter any title to the property since the registration was attended by bad faith. Specifically, he points out that at the time SLDC registered the sale on 30 June 1990, there was already a notice of lis pendens on the file with the Register of Deeds, the same having been filed one year before on 2 June 1989. Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery and possession in good faith which admittedly had occurred prior to SLDCs knowledge of the transaction in favor of Babasanta? We do not hold so. It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in favor of SLDC upon receiving P316,160.00

as option money from SLDC. After SLDC had paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the subsequent annotation of lis pendens has no effect at all on the consummated sale between SLDC and the Spouses Lu. A purchaser in good faith is one who buys property of

another without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of the claim or interest of some other person in the property.[40] Following the foregoing definition, we rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records that it had knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors were still the registered owners of the property and were in fact in possession of the lands. Time and again, this Court has ruled that a person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which are noted on the face of the register or on the certificate of title.[41] In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently relies on the principle of constructive notice incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads, thus:

Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing, or entering. However, the constructive notice operates as suchby the express wording of Section 52from the time of the registration of the notice of lis pendens which in this case was effected only on 2 June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned. More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the annotation of the notice of lis pendens cannot help Babasantas position a bit and it is irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held in Natao v. Esteban,[42] serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the litigation. Precisely, in this case SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDCs faith in the merit of its cause has been vindicated with the Courts present decision which is the ultimate denouement on the controversy. The Court of Appeals has made capital[43] of SLDCs averment in its Complaint-in-Intervention[44] that at the instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the confirmatory

testimony of Pacita Lu herself on cross-examination.[45] However, there is nothing in the said pleading and the testimony which explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took place after the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on the legal position of SLDC. Assuming ex gratia argumenti that SLDCs registration of the sale had been tainted by the prior notice of lis pendens and assuming further for the same nonce that this is a case of double sale, still Babasantas claim could not prevail over that of SLDCs. In Abarquez v. Court of Appeals,[46] this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as if there is no registration at all, and the buyer who has taken possession first of the property in good faith shall be preferred. In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first in possession. This Court awarded the property to the Israels because registration of the property by Abarquez lacked the element of good faith. While the facts in the instant case substantially differ from that in Abarquez, we would not hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery of the property to SLDC

was immediately effected after the execution of the deed in its favor, at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of Babasanta. The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities, the third priority is of the date of title, with good faith as the common critical element. Since SLDC acquired possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the property at any time, SLDCs right is definitely superior to that of Babasantas. At any rate, the above discussion on the rules on double sale would be purely academic for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a contract to sell. In Dichoso v. Roxas,[47] we had the occasion to rule that Article 1544 does not apply to a case where there was a sale to one party of the land itself while the other contract was a mere promise to sell the land or at most an actual assignment of the right to repurchase the same land. Accordingly, there was no double sale of the same land in that case. WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs. SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

G.R. No. L-40195 May 29, 1987 VICTORIA vs. THE HONORABLE COURT OF APPEALS and THE HONORABLE JUDGE FRANCISCO LLAMAS, Pasay City Court, respondents. Francisco G.H. Salva for petitioner. R. VALLARTA, petitioner,

CORTES, J.: The petitioner seeks a reversal of the Court of Appeals decision dated December 13, 1974 affirming the Trial Court's judgment convicting her of estafa. We denied the petition initially but granted a motion for reconsideration and gave the petition due course. As found by the trial court and the Court of Appeals, Rosalinda Cruz, the private offended party, and accused Victoria Vallarta are long time friends and business acquaintances. On November 20, 1968, Cruz entrusted to Victoria Vallarta seven pieces of jewelry. In December of the same year, Vallarta decided to buy some items, exchanged one item with another, and issued a postdated check in the amount of P5,000 dated January 30, 1969. Rosalinda Cruz deposited said check with the bank. However, upon presentment, the check was dishonored and Cruz was informed that Vallarta's account had been closed. Cruz apprised Vallarta of the dishonor and the latter promised to give another check. Later, Vallarta pleaded for more time. Still later, she started avoiding Cruz. Hence, this criminal action was instituted.

Based on the foregoing facts, both the trial court and the Court of Appeals found Vallarta guilty beyond reasonable doubt of the crime of estafa. WE affirm. Petitioner is charged under Art. 315 (2) (d) as amended by Rep. Act No. 4885, of the Revised Penal Code, which penalizes any person who shall defraud another "(b)y postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check." By virtue of Rep. Act No. 4885, "(t)he failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds" is deemed prima facie evidence of deceit constituting false pretense or fraudulent act. To constitute estafa under this provision the act of post-dating or issuing a check in payment of an obligation must be the efficient cause of defraudation, and as such it should be either prior to, or simultaneous with the act of fraud. The offender must be able to obtain money or property from the offended party because of the issuance of a check whether post-dated or not. That is, the latter would not have parted with his money or other property were it not for the issuance of the check. likewise, the check should not be, issued in payment of a pre-existing obligation (People v. Lilius, 59 Phil. 339 [1933]). In seeking acquittal, petitioner stresses that the transaction between her and Cruz was a "sale or return," perfected and consummated on November 20, 1968 when the seven pieces of jewelry were delivered. The check issued in December 1968 was therefore in payment of a preexisting obligation. Thus, even if it was dishonored, petitioner claims that she can only be held civilly liable, but not criminally liable under Art. 315 (2) (d), Revised Penal Code. She also argues that at any rate, what prompted Cruz to deliver the jewelry was the social standing of petitioner Vallarta and not the postdated check. She thus assigns as errors the finding of that Court a quo that the jewelries were entrusted on November 20, 1968, but the sale was perfected in December 1968, and the finding that there was deceit in the issuance of the postdated check.

In order to arrive at the proper characterization of the transaction between Vallarta and Cruz, that is, whether it was a "sale or return" or some other transaction, it is necessary to determine the intention of the parties. The following excerpts from the transcript of stenographic notes are significant: I. Direct Examination of Rosalinda Cruz Q: Now, what happened with that business transaction of yours with Mrs. Vallarta? A: After that and after she finally agreed to buy two sets and changed the ruby ring with another ring, she gave me postdated check; I waited for January 30, 1969. 1 deposited the check in the Security Bank. And after that I knew (learned) that it was closed account (TSN, June 29, 1972, p. 9) (Emphasis supplied). II. Cross-Examination of Rosalinda Cruz Q: Now, you mentioned about certain jewelries in Exh. "A. Could you tell under your oath whether all the jewelries listed here (Exh. "A") were taken by Mrs. Vallarta at one single instance? A: Yes, Sir. It was on one (1) day when I entrusted them to her so she can select what she wants (Id at p. 22) (Emphasis supplied). III. Cross-Examination of Rosalinda Cruz COURT: But could you still recall or you cannot recall whether you agreed to reduce the cost to Five Thousand Eight Hundred ( P5,800.00) Pesos? A Yes, Sir. I agreed to reduce it to Five Thousand Eight Hundred (P5,800.00) Pesos, Sir, when I went to see her in her house to finalize what jewelries she wanted (Id. at p. 26).

Note that Vallarta changed the ruby ring because it was not acceptable to her, and chose another ring. Likewise, the price to be paid for the jewelry was finally agreed upon only in December 1968. Thus, there was a meeting of the minds between the parties as to the object of the contract and the consideration therefore only in December 1968, the same time that the check was issued. The delivery made on November 20, 1968 was only for the purpose of enabling Vallarta to select what jewelry she wanted. Properly, then, the transaction entered into by Cruz and Vallarta was not a "sale or return." Rather, it was a "sale on approval " (also called " sale on acceptance, " "sale on trial." or "sale on satisfaction" [CIVIL CODE, art. 1502]). In a "sale or return," the ownership passes to the buyer on delivery (CIVIL CODE, art. 1502). (The subsequent return of the goods reverts ownership in the seller [CIVIL CODE, art. 1502]). Delivery, or tradition. as a mode of acquiring ownership must be in consequence of a contract (CIVIL CODE, art. 712), e.g. sale. If there was no meeting of the minds on November 20, 1968, then, as of that date, there was yet no contract of sale which could be the basis of delivery or tradition. Thus, the delivery made on November 20, 1968 was not a delivery for purposes of transferring ownership the prestation incumbent on the vendor. If ownership over the jewelry was not transmitted on that date, then it could have been transmitted only in December 1968, the date when the check was issued. In which case, it was a "sale on approval" since ownership passed to the buyer. Vallarta, only when she signified her approval or acceptance to the seller, Cruz, and the price was agreed upon. Thus, when the check which later bounced was issued, it was not in payment of a pre-existing obligation. Instead the issuance of the check was simultaneous with the transfer of ownership over the jewelry. But was the check issued simultaneously with the fraud? Republic Act No. 4885, amending Art. 315 (2) (d), Revised Penal Code, establishes a prima facie evidence of deceit upon proof that the drawer of the check failed to deposit the amount necessary to cover his check within three (3) days from receipt of notice of dishonor for lack or insufficiency of funds. Admittedly, (1) the check was dishonored as Vallarta's account had been earlier closed; (2) she was notified by Cruz of the dishonor: and, (3) Vallarta failed to make it good within three days. Deceit is therefore presumed.

Petitioner lays stress on her being an alumna of a reputable school, on her having a husband who is a bank manager, and on the big land-holdings of her father, and argues that it was these qualifications and not the post-dated check which prompted Cruz to deliver the jewelry (Rollo, pp. 78-79: Motion for Reconsideration, pp. 10-11). Hence, there was no deceit. It is thus suggested that a person of petitioner's social standing cannot be guilty of deceit, at least in so far as issuing bouncing checks is concerned. This reasoning does not merit serious consideration. If accepted, it could result in a law that falls unequally on persons depending on their social position. Did Cruz part with the jewelry solely because she knew Vallarta to be rich, or did she do so because of the check issued to her? As the trial court and the Court of Appeals found, petitioner was able to obtain the jewelry because she issued the check. Her failure to deposit the necessary amount to cover it within three days from notice of dishonor created the prima facie presumption established by the amendatory law, Rep. Act No. 4885, which she failed to rebut. Petitioner, however, contends that Rep. Act No. 4885 is unconstitutional. She claims that even as the presumption of deceit established by Rep. Act No. 4885 is stated under the guise of being prima facie. It is in effect a conclusive presumption, because after the prosecution has proved that: (1) the check has been dishonored; (2) notice has been given to the drawer; and, (3) three days from notice, the check is not funded or the obligation is not paid, the accused is held guilty. Thus, it is alleged, the constitutional presumption of innocence is violated. Contrary to petitioner's assertion, the presumption of deceit under Rep. Act No. 4885 is not conclusive. It is rebuttable. For instance, We ruled in the case of People v. Villapando (56 Phil. 31 [1931]) that good faith is a defense to a charge of estafa by postdating a check, as when the drawer, foreseeing his inability to pay the check at maturity, made an arrangement with his creditor as to the manner of payment of the debt.* Moreover, it is now well settled that "there is no constitutional objection to the passage of a law providing that the presumption of innocence may be overcome by a contrary presumption founded upon the experience of human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence" (People v. Mingoa, 92 Phil. 856 [1953] at 858-59, citing I COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have been proved they shall be prima facie

evidence of the existence of the guilt of the accused and shift the burden of proof provided there be a rational connection between the facts proved and the ultimate fact presumed so that the inference of the one from proof of the others is not unreasonable and arbitrary because of lack of connection between the two in common experience" (People v. Mingoa, supra. See also US v. Luling, 34 Phil. 725 [1916]). There can be no doubt that the "postdating or issuing of a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check," is a false pretense or a fraudulent act. It is so characterized by Art. 315 (2) (d), Revised Penal Code. Republic Act No. 4885 does nothing more than limit the period within which the drawer/issuer must pay the creditor. Petitioner also argues that Rep. Act No. 4885 violates the constitutional injunction against imprisonment for non-payment of debt. Ironically, she does not question the constitutionality of Art. 315 (2) (d), Revised Penal Code, which defines the crime she is being accused of, and provides for its punishment. In fact, she concedes the constitutionality of the latter statute. She further concedes that a person may be imprisoned for "criminal fraud" covered by Art. 315 (2) of the Revised Penal Code. In People v. Sabio (No. L-45490, November 20, 1978, 86 SCRA 568), this Court ruled that Rep. Act No. 4885 has not changed the rule established in Art. 315 (2) (d) prior to the amendment; that Republic Act No. 4885 merely established the prima facie evidence of deceit, and eliminated the requirement that the drawer inform the payee that he had no funds in the bank or the funds deposited by him were not sufficient to cover the amount of the check. Thus, even with the amendment introduced by Rep. Act No. 4885 it is still criminal fraud or deceit in the issuance of a check which is made punishable under the Revised Penal Code, and not the nonpayment of the debt. Petitioner also assigns as error the denial by the trial court of her motion for reconsideration. Her motion was directed at the finding of the trial court that no payments were made. Alleging that a check drawn by one Sison was given by petitioner to Cruz in payment of the rubber check, petitioner claims that had her motion for reconsideration been granted, she would have called to the witness stand the Branch Manager of Security Bank and Trust Company, Pasay City, where the check was allegedly deposited by Cruz, for said bank manager to Identify the

owner-holder of the savings account to which the amount in Sison's check had been credited (Brief for Petitioner, p. 46). Granting that the bank manager's testimony would have been as alleged by petitioner, Our decision would remain. As correctly observed by both the trial court and the Court of Appeals (Court of Appeals Decision, pp. 2-3), the payments petitioner allegedly made were not shown to have any relevance to the obligation in question. WHEREFORE, finding no error in the assailed decision of the Court of Appeals, the same is AFFIRMED. Costs against the petitioner. SO ORDERED. Teehankee, C.J., Yap, Fernando, Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Gancayco, Padilla, Bidin and Sarmiento, JJ., concur. Feliciano, J., is on leave.

G.R. No. L-2724

August 24, 1950

JOSE DE LEON, CECILIO DE LEON, in their individual capacity, and JOSE DE LEON and CECILIO DE LEON , as administrators of the intestate estate of Felix de Leon, petitioner, vs. ASUNCION SORIANO, respondent. Lorenzo Sumulong and Jose Santos for petitioners.

Vicente J. Francisco for respondent. TUASON, J.:

This is an appeal by certiorari from a decision of the Court of Appeals affirming a judgment of the Court of First Instance of Bulacan. Jose de Leon, Cecilio de Leon and Albina de Leon, petitioners herein and defendants in the court below, were natural children of Felix de Leon, deceased, while Asuncion Soriano, respondent herein and plaintiff below, is his widow. In the administration and settlement of the decedent's estate then pending in the Court of First Instance, the said widow, on the one hand, and the natural children, on the other, reached on March 23, 1943 an agreement, approved by the probate court, whereby the natural children obligated themselves, among other things, as follows: 2. At the end of each of agricultural year, by which shall understood for the purposes of this agreement the month of March of every year, the following amounts of palay shall be given to the party of the FIRST PART (Asuncion Soriano) by the parties of the SECOND PART (De Leons): in the month of March of the current year 1943; one thousand two hundred (1,200) cavanes of palay (macan); in the month of March 1944, one thousand four hundred (1,400) cavanes of palay (macan); in the month March of 1945, one thousand five hundred (1,500) cavanes of palay (macan); and in the month of March 1946 and every succeeding year thereafter, one thousand six hundred (1,600) cavanes of palay (macan). Delivery of the palay shall be made in the warehouse required by the government, or if there be none such, at the warehouse to be selected by the party of the FIRST PART, in San Miguel, Bulacan, free from the cost of hauling, transportation, and from any all taxes or charges. It is expressly stipulated that this annual payment of palay shall cease upon the death of the party of the FIRST PART and shall not be transmissible to her heirs or to any other person, but during her lifetime this obligation for the annual payment of the palay hereinabove mentioned shall constitute a first lien upon all the rice lands of the estate of Dr. Felix de Leon in San Miguel, Bulacan. The defendants made deliveries to the plaintiff of 1,200 cavanes of palay in 1934, 700 in 1944, 200 in 1945, and another 200 in 1946, a total of 2,300 cavanes which was 3,400 cavanes short of the 5,700 cavanes which should have been delivered up to and including 1946. It was to recover this shortage or its value that this action was commenced.

For answer, the defendants averred that their failure to pay the exact quantities of palay promised for 1944, 1945 and 1946 was due to "the Huk troubles in Central Luzon which rendered impossible full compliance with the terms of the agreement;" and it was contended that "inasmuch as the obligations of the defendants to deliver the full amount of the palay is depending upon the produce as this is in the nature of an annuity, . . . the obligations of the defendants have been fully fulfilled by delivering in good faith all that could be possible under the circumstances." The court gave judgment for the plaintiff for 3,400 cavanes of palay or its equivalent in cash, which was found to be 24,900, and legal interest. As above stated, that judgment was affirmed by the appellate court. Article 1182 of the Civil Code which was in force at the time agreement in question was entered into, provide that "Any obligation which consists in the delivery of a determinate thing shall be extinguished if such thing should be lost or destroyed without fault on the part of the debtor and before he is in default. Inversely, the obligation is not extinguished if the thing that perishes is indeterminate. Manresa explains the distinction between determinate and generic thing in his comment on article 1096 of the Civil Code of Spain, saying that the first is a concrete, particularized object, indicated by its own individuality, while a generic thing is one of whose determination is confined to that of its nature, to the genus (genero) to which it pertains, such as a horse, a chair. These definitions are in accord with the popular meaning of the terms defined. Except as to quality and quantity, the first of which is itself generic, the contract sets no bounds or limits to the palay to be paid, nor was there even any stipulation that the cereal was to be the produce of any particular land. Any palay of the quality stipulated regardless of origin on however acquired (lawfully) would be obligatory on the part of the obligee to receive and would discharge the obligation. It seems therefore plain that the alleged failure of crops through alleged fortuitous cause did not excuse performance. As Escriche, in his Diccionario Razonado de Legislacion y Jurisprudencia, puts it, speaking of the effects of the loss of a thing: Extingue la obligacion del deudor cuando la cosa debida es un cuerpo cierto y determinado; pero si fuese generica o no estuviese determinada sino en cuanto a la

especie, como por ejemplo, unaonza de oro, 50 panegas de trigo o 3 toneladas de vino, siempre se perderia, para el deudor, el cual, por consiguiente, no se libraria de la deuda, ya que se supone que el genero por su naturaleza nunca parece, "nun quan genusperit", ya porque aunque se diga que parece no puede parecer, sino para su dueo, que es el deudor "res domino suo perit". (Libro 18 y su glosa La Titulo 11, Partida 5.a) And he gives this example: Si prestais, pues, a Pedro una onza de oro que luego le roban, tendra que pagartela, porque su obligacion no consistia en haberte de dar aquella misma onza, sino generalmente una onza. In the case of Yu Tek & Co., vs. Gonzales (29 Phil., 384), it appeared that the plaintiff advanced P3,000 to defendant in payment of 600 piculs of sugar. The contract in writing did not specify that the sugar was to come from the crop on defendant's land which was destroyed. It was held that the sugar to be sold not having been segregated, the sale was not perfected and the loss of the crop, even though through force majeure did not extinguish defendant's obligation to deliver the sugar. In the more recent decision of this Court, in the case of Reyes vs. Caltex (Phil.) Inc. (47 Off. Gaz., 1193; 84 Phil., 654), a question similar to that at bar arose. There, we ruled that the inability of the lessee of a commercial property to pay the stipulated rent because of war and because the premises had been occupied by Japanese forces did not affect the lessee's liability to fulfill its commitments. Shifting to American authorities, we cited Pollardvs. Shaefer (1 Dall. [Pa.], 210), where the Court said that, "since by the lease, the lessee was to have the advantage of casual profits of the leased premises, he should run the hazard of casual losses during the term and not lay the whole burden of them upon the lessor." This court went on to say: The general rule on performance of contracts is graphically set forth in American treatises, which is also the rule, in our opinion, obtaining under the Civil Code. Where a person by a contract charges himself with an obligation possible to be performed, he must perform it, unless its performance is rendered impossible by the act of God, by the law, or by the other party, it being the rule that in case the party desires to

be excused from performance in the event of contingencies arising, it is his duty to provide therefor in his contract. Hence, performance is not excused by subsequent" inability to perform, by unforseen difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by the breaking of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits to be had under the contract, by weather conditions, by financial stringency, or by stagnation of business. Neither is performance excused by the fact that the contract turns out to be hard and improvident, unprofitable or impracticable, ill advised, or even foolish, or less profitable, or unexpectedly burdensome. (17 C. J. S. 946 - 948). In the absence of a statute to the contrary, conditions arising from a state of war in which the country is engaged, will not ordinarily constitute an excuse for non-performance of contract; and impossibility of performance arising from the acts of the legislature and the executive branch of government in war time does not, without more, constitute an excuse for non-performance. (17 C.J.S., 953, 954.) A few words are in order to straighten out the apparent confusion (of ideas) that exists regarding the influence of fortuitous events in contracts; when they excuse performance and when not. In considering the effect of impossibility of performance on the rights of the parties, it is necessary to keep in mind the distinction between: (1) Natural impossibility preventing performance from the nature of the thingsand (2) impossibility in fact, in the absence of inherent impossibility in the nature of the thing stipulated to be performed. (17 C.J.S., 951.) In the words of one Court impossibility must consist in the nature of thing to be done and not in the inability of the party to do it. (City of Montpelier vs. National Surety Co., 122 A., 484; 97 Vt., Ill; 33 A.L.R., 489.) As others have put it, to bring the case within the rule of impossibility, it must appear that the thing to be done cannot by any means be accomplished, for if it is only improbable or out of the power of the obligor, it is not in law deemed impossible. (17 C.J.S., 442). The first class of impossibility goes to the consideration and renders the contract void. The second, which is the class of impossibility that we have to do here, does not. (17 C.J.S., 951, 952.) For illustration, where the entire product of a manufacturer was taken by the government under orders pursuant to a commandeering statute during the World War, it was held

that such action excused non-performance of a contract to supply civilian trade. (40 S. Ct., 5; U.S., 493; 64 Law. ed., 1031.) Another example: where a party obligates himself to deliver certain (determinate) things and the things perish through war or in a shipwreck performance is excused, the destruction operating as a rescission or dissolution of the covenant. But if the promisor is unable to deliver the goods promised and his inability arises, not from their destruction but from, say, his inability to raise money to buy them due to sickness, typhoons, or the like, his liability is not discharged. In the first case the doing of the thing which the obligor finds impossible is the foundation of the undertaking. (C.J.S., 951, note.) In the second, the impossibility partakes of the nature of the risk which the promisor took within the limits of his undertaking of being able to perform. (C.J.S., supra, 946, note). It is a contingency which he could have taken due precaution to guard against in the contract. Summoning the above principles to our aid, and by way of hypothesis the defendantappellee here would be relieved from the obligation to pay rent if the subject matter of the lease, were this possible had disappeared, for the personal occupation of the premises is the foundation of the contract, the consideration that induced it (lessee) to enter into the agreement. But a mere trespass with which the landlord had nothing to do is a casual disturbance not going to the essence of the undertaking. It is a collateral incident which might have been provided for by a proper stipulation. See also Lacson et al. vs. Diaz, supra, p. 150. The decision of the Court of Appeals is affirmed with costs against the petitioners and appellants. Moran, C.J., Ozaeta, Pablo, Bengzon, Montemayor, and Reyes, JJ., concur.

[G.R. No. 117187. July 20, 2001]

UNION MOTOR CORPORATION, petitioner-appellant, vs. THE COURT OF APPEALS, JARDINE-MANILA FINANCE, INC., SPOUSES ALBIATO BERNAL and MILAGROS BERNAL, respondents-appelles. DECISION
DE LEON, JR., J.:

Before us on appeal, by way of a petition for review on certiorari, is the Decision[1] dated March 30, 1994 and Resolution[2] dated September 14, 1994 of the Court of Appeals[3] which affirmed the Decision dated March 6, 1989 of the Regional Trial Court of Makati, Metro Manila, Branch 150, in Civil Case No. 920 as well as its Resolution dated September 14, 1994 which denied the Motion for Reconsideration of the petitioner. The facts are as follows: On September 14, 1979, the respondent Bernal spouses purchased from petitioner Union Motor Corporation one Cimarron Jeepney for Thirty Seven Thousand Seven Hundred Fifty Eight Pesos and Sixty Centavos (P37,758.60) to be paid in installments. For this purpose, the respondent spouses executed a promissory note and a deed of chattel mortgage in favor of the

petitioner. Meanwhile, the petitioner entered into a contract of assignment of the promissory note and chattel mortgage with Jardine-Manila Finance, Inc. Through Manuel Sosmea, an agent of the petitioner, the parties agreed that the respondent spouses would pay the amount of the promissory note to Jardine-Manila Finance, Inc., the latter being the assignee of the petitioner. To effectuate the sale as well as

the assignment of the promissory note and chattel mortgage, the respondent spouses were required to sign a notice of assignment, a deed of assignment, a sales invoice, a registration certificate, an affidavit, and a disclosure statement. The respondent spouses were obliged to sign all these documents for the reason that, according to Sosmea, it was a requirement of petitioner Union Motor Corporation and Jardine-Manila Finance, Inc. for the respondent spouses to accomplish all the said documents in order to have their application approved. Upon the respondent spouses tender of the downpayment worth Ten Thousand Thirty-Seven Pesos (P10,037.00), and the petitioners acceptance of the same, the latter approved the sale. Although the respondent spouses have not yet physically possessed the vehicle, Sosmea required them to sign the receipt as a condition for the delivery of the vehicle. The respondent spouses continued paying the agreed installments even if the subject motor vehicle remained undelivered inasmuch as Jardine-Manila Finance, Inc. promised to deliver the subject jeepney. The respondent spouses have paid a total of Seven Thousand Five Hundred Seven Pesos (P7,507.00) worth of installments before they discontinued paying on account of non-delivery of the subject motor vehicle. According to the respondent spouses, the reason why the vehicle was not delivered was due to the fact that Sosmea allegedly took the subject motor vehicle in his personal capacity. On September 11, 1981, Jardine-Manila Finance, Inc., filed a complaint for a sum of money, docketed as Civil Case No. 42849, against the respondent Bernal spouses before the then Court of First Instance of Manila. This case was later on transferred to the Regional Trial Court of Makati, Branch 150. On November 10, 1981, the complaint was amended to include petitioner Union Motor Corporation as alternative defendant, the reason being that if the respondent spouses refusal to

pay Jardine-Manila Finance, Inc. was due to petitioners non-delivery of the unit, the latter should pay Jardine-Manila Finance, Inc. what has been advanced to the petitioner. After the petitioner filed its answer, the respondent spouses filed their amended answer with cross-claim against the former and counterclaim against Jardine-Manila Finance, Inc. Following the presentation of evidence of JardineManila Finance, Inc., the respondent spouses presented as witnesses Albiato Bernal and Pacifico Tacub in support of their defense and counterclaim against the plaintiff and cross-claim against the petitioner. The petitioner did not present any evidence inasmuch as the testimony of the witness it presented was ordered stricken off the record for his repeated failure to appear for cross-examination on the scheduled hearings. The trial court deemed the presentation of the said witness as having been waived by the petitioner. On March 6, 1989, the trial court rendered a decision, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering:
1. Plaintiff to pay spouses Bernals the sum of P7,507.15 plus legal interest until fully paid; 2. Union Motor Corporation to pay defendants spouses Bernals the downpayment in the amount of P10,037.00, plus legal interest until fully paid; 3. Union Motor Corporation to pay plaintiff P23,268.29, plus legal interest until fully paid, and attorneys fees equivalent to 20% of the amount due to plaintiff.

Union Motor Corporation shall further pay defendants spouses Bernals the sum of P20,000.00 as moral damages, P10,000.00 as attorneys fees and costs of suit.[4]

The petitioner interposed an appeal before the Court of Appeals while the respondent spouses appealed to hold the petitioner solidarily liable with JardineManila Finance, Inc. The appellate court denied both appeals and affirmed the trial courts decision by holding that: Now, as to the appeal of defendant Union Motors, it must be noted that said defendant had failed to adduce evidence in court to support its claim of nonliability. We cannot see how the absence of any evidence in favor of said defendant can result in favorable reliefs to its side on appeal. There is simply no evidence to speak of in appellant Union Motors favor to cause a reversal of the lower courts decision. In the case of Tongson v. C.A. G.R. No. 77104, Nov. 6, 1992, the Supreme Court reiterated that: As mandated by the Rules of Court, each party must prove his own affirmative allegation, i.e., one who asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment: by preponderance of evidence in civil cases, and by proof beyond reasonable doubt in criminal cases. x x x. Hence, the instant petition anchored on the following assigned errors:
I

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) GRAVELY ERRED AND ABUSED ITS DISCRETION IN NOT FINDING THAT THE LOWER COURT A QUOS DECISION OF MARCH 6, 1989 IS CONTRARY TO LAW AND THE EVIDENCE ON RECORD;
II

THE HONORALBLE COURT OF APPEALS (SECOND DIVISION) GRAVELY ERRED AND ABUSED ITS DISCRETION IN NOT FINDING THAT THE APPEALED DECISION WAS RENDERED IN DEPRIVATION AND IN DENIAL OF HEREIN PETITIOENR-APPELLANTS RIGHT TO DUE PROCESS. The first issue to be resolved in the instant case is whether there has been a delivery, physical or constructive, of the subject motor vehicle. On this score, petitioner Union Motor Corporation maintains that the respondent spouses are not entitled to a return of the downpayment for the reason that there was a delivery of the subject motor vehicle. According to the petitioner, the appellate court erred in holding that no delivery was made by relying exclusively on the testimonial evidence of respondent Albiato Bernal without considering the other evidence on record, like the sales invoice and delivery receipt which constitute an admission that there was indeed delivery of the subject motor vehicle. Also, there was a constructive delivery of the vehicle when respondent Albiato Bernal signed the registration certificate of the subject vehicle. Inasmuch as there was already delivery of the subject motor vehicle, ownership has been transferred to the respondent spouses. The Chattel Mortgage Contract signed by the respondent Bernal spouses in favor of the petitioner likewise proves that ownership has already been transferred to them for the reason that, under Article 2085 of the New Civil Code, the mortgagor must be the owner of the property.[5] As owners of the jeepney, the respondent Bernal spouses should bear the loss thereof in accordance with Article 1504 of the New Civil Code which provides that when the ownership of goods is transferred to the buyer, the goods are at the buyers risk whether actual delivery has been made or not. These, then, are the contentions of the petitioner.

The main allegation of the respondent Bernal spouses, on the other hand, is that they never came into possession of the subject motor vehicle. Thus, it is but appropriate that they be reimbursed by the petitioner of the initial payment which they made. They also claim that Jardine-Manila Finance, Inc., and the petitioner conspired to defraud and deprive them of the subject motor vehicle for which they suffered damages. We rule in favor of the respondent Bernal spouses. Undisputed is the fact that the respondent Bernal spouses did not come into possession of the subject Cimarron jeepney that was supposed to be delivered to them by the petitioner. The registration certificate, receipt and sales invoice that the respondent Bernal spouses signed were explained during the hearing without any opposition by the petitioner. According to testimonial evidence adduced by the respondent spouses during the trial of the case, the said documents were signed as a part of the processing and for the approval of their application to buy the subject motor vehicle. Without such signed documents, no sale, much less delivery, of the subject jeepney could be made. The documents were not therefore an acknowledgment by respondent spouses of the physical acquisition of the subject motor vehicle but merely a requirement of petitioner so that the said subject motor vehicle would be delivered to them. We have ruled that the issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer; an invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale.[6]

The registration certificate signed by the respondent spouses does not conclusively prove that constructive delivery was made nor that ownership has been transferred to the respondent spouses. Like the receipt and the invoice, the signing of the said documents was qualified by the fact that it was a requirement of petitioner for the sale and financing contract to be approved. In all forms of delivery, it is necessary that the act of delivery, whether constructive or actual, should be coupled with the intention of delivering the thing. The act, without the intention, is insufficient.[7] The critical factor in the different modes of effecting delivery which gives legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition.[8] Enlightening is Addison v. Felix and Tioco[9] wherein we ruled that: The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed in the hands and possession of the vendee. (Civil Code, Art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such

tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality-the delivery has not been effected. (Italics supplied) The act of signing the registration certificate was not intended to transfer the ownership of the subject motor vehicle to respondent Bernal spouses inasmuch as the petitioner still needed the same for the approval of the financing contract with Jardine-Manila Finance, Inc. The record shows that the registration certificate was submitted to Jardine-Manila Finance, Inc., which took possession thereof until Sosmea requested the latter to hand over the said document to him. The fact that the registration certificate was still kept by Jardine-Manila Finance, Inc. and its unhesitating move to give the same to Sosmea just goes to show that the respondent spouses still had no complete control over the subject motor vehicle as they did not even possess the said certificate of registration nor was their consent sought when Jardine-Manila Finance, Inc. handed over the said document to Sosmea. Inasmuch as there was neither physical nor constructive delivery of a determinate thing, (in this case, the subject motor vehicle) the thing sold remained at the sellers risk.[10] The petitioner should therefore bear the loss of the subject motor vehicle after Sosmea allegedly stole the same. Petitioners reliance on the Chattel Mortgage Contract executed by the respondent spouses does not help its assertion that ownership has been transferred to the latter since there was neither delivery nor transfer of possession of the subject motor vehicle to respondent spouses. Consequently, the said accessory contract of chattel mortgage has no legal effect whatsoever inasmuch as the respondent spouses are not the absolute owners thereof, ownership of the mortgagor being an essential requirement of a valid mortgage

contract. The Carlos case[11] cited by the petitioner is not applicable to the case at bar for the reason that in the said case, apart from the fact that it has a different issue, the buyer took possession of the personal property and was able to sell the same to a third party. In the instant case, however, the respondent spouses never acquired possession of the subject motor vehicle. The manifestations of ownership are control and enjoyment over the thing owned. The respondent spouses never became the actual owners of the subject motor vehicle inasmuch as they never had dominion over the same. The petitioner also disputes the finding of the appellate court that there was no delivery. It did not consider, according to the petitioner, the fact that the circumstance of non-delivery was not shown and that the respondent spouses never made any demand for the possession of the vehicle. Contrary to the petitioners allegation, the respondent spouses presented sufficient evidence to prove that Sosmea took delivery and possession of that subject motor vehicle in his personal capacity as shown by a document[12] on which he (Sosmea) personally acknowledged receipt of the registration certificate from Jardine-Manila Finance, Inc. Also, respondent Albiato Bernal testified to the effect that they went several times to the office of the petitioner to demand the delivery of the subject motor vehicle. The petitioner failed to refute that testimonial evidence considering that it waived its right to present evidence. Anent the second issue, the petitioner claims that the trial court committed a violation of due process when it ordered the striking off of the testimony of the petitioners witness as well as the declaration that petitioner has abandoned its right to present evidence. According to the petitioner, the delays in the hearing of the case were neither unjust nor deliberate. It just so happened that from August 5, 1986 up to June 1987, the designated counsel for the petitioner was either

appointed to the government or was short of time to go over the records of the case inasmuch as he was a new substitute counsel. During the last time the petitioners counsel moved for the postponement of the case, witness Ambrosio Balones was not available due to gastro-enteritis as shown by a medical certificate. Well-settled is the rule that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by the Supreme Court and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court.[13] In the present case, the trial court found that after the direct testimony of petitioners witness, Ambrosio Balones, the continuation of the crossexamination was postponed and re-scheduled for four (4) times from November 21, 1986 up to June 19, 1987, all at the instance of petitioner Union Motor Corporation. For three (3) times, the witness did not appear whenever the case was called for hearing. On June 19, 1987, when asked by the trial court why the witness was not present, the petitioners counsel could not give any good reason for his absence. Neither did the petitioner offer to present any other witness to testify on that day. The appellate court assented to these findings by quoting the decision of the trial court, to wit: Defendant Union Motors Corporation has no evidence as the testimony of its only witness, Ambrosio Balones, was orderd stricken off the record in the hearing of June 19, 1987, for his continuous failure to appear on scheduled hearings. The Court further considered said defendant to have waived further presentation of evidence.[14] The petitioner attempts to shift the blame on the respondents for the failure of its witness, Balones, to finish his testimony. It was at the instance of Atty. Tacub, counsel for the respondents, that the testimony of petitioners witness, Balones,

was discontinued after Atty. Tacub asked for a recess and later on for the postponement of the cross-examination of the said witness. The petitioner had the duty to produce its witness when he was called to finish his testimony. To place the blame on the respondent spouses is to put a premium on the negligence of the petitioner to require its own witness to testify on cross-examination. By presenting witness Balones on direct-examination, the petitioner had the corresponding duty to make him available for cross-examination in accordance with fair play and due process. The respondents should not be prejudiced by the repeated failure of the petitioner to present its said witness for cross-examination. Hence, the trial court ordered that the unfinished testimony of said witness be stricken off the record. However, we cannot affirm that part of the ruling of the courts a quo awarding moral damages to the respondents. For moral damages to be awarded in cases of breach of contract, the plaintiff must prove bad faith or fraudulent act on the part of the defendant.[15] In the instant case, the allegations about connivance and fraudulent schemes by the petitioner and Manuel Sosmea were merely general allegations and without any specific evidence to sustain the said claims. In fact, Exhibit 1 which bears the name and signature of Sosmea as the person who received the registration certificate militates against the respondent spouses claim that the petitioner connived with its agent to deprive them of the possession of the subject motor vehicle. The said document shows that Sosmea acted only in his personal and private capacity, thereby effectively excluding any alleged participation of the petitioner in depriving them of the possession of the subject motor vehicle. The petitioner should not be held liable for the acts of its agent which were done by the latter in his personal capacity. However, we affirm the award of attorneys fees. When a party is compelled to litigate with third persons or to incur expenses to protect his interest, attorney s

fees should be awarded.[16] In the present case, the respondent spouses were forced to implead the petitioner Union Motor Corporation on account of the collection suit filed against them by Jardine-Manila Finance, Inc., a case which was eventually won by the respondent spouses. WHEREFORE, the appealed Decision dated March 30, 1994 of the Court of Appeals is hereby AFFIRMED with the MODIFICATION that the award of moral damages is deleted. With costs against the petitioner. SO ORDERED. Bellosillo, (Chairman), Mendoza, and Buena, JJ., concur. Quisumbing, J., on official leave.

EN BANC G.R. No. L-2412 April 11, 1906 PEDRO ROMAN, Plaintiff-Appellant, vs. ANDRES GRIMALT, Defendant-Appellee. Alberto Barretto, for appellant.

Chicote, Miranda and Sierra, for appellee. TORRES, J.: On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First Instance of this city against Andres Grimalt, praying that judgment be entered in his favor and against

the defendant (1) for the purchase price of the schooner Santa Marina, to wit, 1,500 pesos or its equivalent in Philippine currency, payable by installments in the manner stipulated; (2) for legal interest on the installments due on the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such other and further remedy as might be considered just and equitable.
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On October 24 of the same year the court made an order sustaining the demurer filed by defendant to the complaint and allowing plaintiff ten days within which to amend his complaint. To this order the plaintiff duly excepted.
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Counsel for plaintiff on November 5 amended his complaint and alleged that between the 13th and the 23rd day of June, 1904, both parties, through one Fernando Agustin Pastor, verbally agreed upon the sale of the said schooner; that the defendant in a letter dated June 23 had agreed to purchase the said schooner and of offered to pay therefor in three installment of 500 pesos each, to wit, on July 15, September 15, and November 15, adding in his letter that if the plaintiff accepted the plan of payment suggested by him the sale would become effective on the following day; that plaintiff on or about the 24th of the same month had notified the defendant through Agustin Pastor that he accepted the plan of payment suggested by him and that from that date the vessel was at his disposal, and offered to deliver the same at once to defendant if he so desired; that the contract having been closed and the vessel being ready for delivery to the purchaser, it was sunk about 3 o'clock p. m., June 25, in the harbor of Manila and is a total loss, as a result of a severe storm; and that on the 30th of the same month demand was made upon the defendant for the payment of the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally prayed that judgment be rendered in accordance with the prayer of his previous complaint.
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Defendant in his answer asked that the complaint be dismissed with costs to the plaintiff, alleging that on or about June 13 both parties met in a public establishment of this city and the plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating that the vessel belonged to him and that it was then in a sea worthy condition; that defendant accepted the offer of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a seaworthy condition; that both parties then called on Calixto Reyes, a notary public, who, after examining the documents, informed them that they were insufficient to show the ownership of the vessel and to transfer title thereto; that plaintiff then promised to perfect his title and about June 23 called on defendant to close the

sale, and the defendant believing that plaintiff had perfected his title, wrote to him on the 23d of June and set the following day for the execution of the contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he would buy the vessel only when the title papers were perfected and the vessel duly inspected.
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Defendant also denied the other allegations of the complaint inconsistent with his own allegations and further denied the statement contained in paragraph 4 of the complaint to the effect that the contract was completed as to the vessel; that the purchase price and method of payment had been agreed upon; that the vessel was ready for delivery to the purchaser and that an attempt had been made to deliver the same, but admitted, however, the allegations contained in the last part of the said paragraph.
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The court below found that the parties had not arrived at a definite understanding. We think that this finding is supported by the evidence introduced at the trial.
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A sale shall be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the object of the contract and as to the price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.)
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Ownership is not considered transmitted until the property is actually delivered and the purchaser has taken possession of the value and paid the price agreed upon, in which case the sale is considered perfected.
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When the sale is made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. (Art. 1462 of the Civil Code.)
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Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days negotiating for the purchase of the schooner Santa Marina - from the 13th to the 23d of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500 pesos, payable in three installments, provided the title papers to the vessel were in proper form. It is so stated in the letter written by the purchaser to the owner on the 23rd of June.
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The sale of the schooner was not perfected and the purchaser did not consent to the execution of the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron and not in the name of Pedro Roman, the alleged owner. Roman

promised, however, to perfect his title to the vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the vessel.
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If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale.
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The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a severe storm and before the owner had complied with the condition exacted by the proposed purchaser, to wit, the production of the proper papers showing that the plaintiff was in fact the owner of the vessel in question.
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The defendant was under no obligation to pay the price of the vessel, the purchase of which had not been concluded. The conversations had between the parties and the letter written by defendant to plaintiff did not establish a contract sufficient in itself to create reciprocal rights between the parties.
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It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of the thing sold after a contract has been perfected and articles 1096 and 1182 of the same code relative to the obligation to deliver a specified thing and the extinction of such obligation when the thing is either lost or destroyed, are not applicable to the case at bar.
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The first paragraph of article 1460 of the Civil Code and section 335 of the Code of Civil Procedure are not applicable. These provisions contemplate the existence of a perfected contract which can not, however, be enforced on account of the entire loss of the thing or made the basis of an action in court through failure to conform to the requisites provided by law.
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The judgment of the court below is affirmed and the complaint is dismissed with costs against the plaintiff. After the expiration of twenty days from the date hereof let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the Court of First Instance for proper action. So ordered.
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Arellano, C.J., Mapa, Johnson, Carson and Willard, JJ., concur.

G.R. No. L-9935 YU vs.

February 1, 1915 TEK and CO., plaintiff-appellant,

BASILIO GONZALES, defendant-appellant. Beaumont, Tenney and Ferrier for plaintiff.

Buencamino and Lontok for defendant. TRENT, J.: The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which follow: 1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000 Philippine currency from Messrs. Yu Tek and Co., and that in consideration of said sum be obligates himself to deliver to the said Yu Tek and Co., 600 piculs of sugar of the first and second grade, according to the result of the polarization, within the period of three months, beginning on the 1st day of January, 1912, and ending on the 31st day of March of the same year, 1912. 2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs. Yu Tek and Co., of this city the said 600 piculs of sugar at any place within the said municipality of Santa Rosa which the said Messrs. Yu Tek and Co., or a representative of the same may designate. 3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and Co. the 600 piculs of sugar within the period of three months, referred to in the second paragraph of this document, this contract will be rescinded and the said Mr. Basilio Gonzales will then be obligated to return to Messrs. Yu Tek and Co. the P3,000 received and also the sum of P1,200 by way of indemnity for loss and damages.

Plaintiff proved that no sugar had been delivered to it under this contract nor had it been able to recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for P1,200 under paragraph 4, supra. Judgment was rendered for P3,000 only, and from this judgment both parties appealed. The points raised by the defendant will be considered first. He alleges that the court erred in refusing to permit parol evidence showing that the parties intended that the sugar was to be secured from the crop which the defendant raised on his plantation, and that he was unable to fulfill the contract by reason of the almost total failure of his crop. This case appears to be one to which the rule which excludes parol evidence to add to or vary the terms of a written contract is decidedly applicable. There is not the slightest intimation in the contract that the sugar was to be raised by the defendant. Parties are presumed to have reduced to writing all the essential conditions of their contract. While parol evidence is admissible in a variety of ways to explain the meaning of written contracts, it cannot serve the purpose of incorporating into the contract additional contemporaneous conditions which are not mentioned at all in the writing, unless there has been fraud or mistake. In an early case this court declined to allow parol evidence showing that a party to a written contract was to become a partner in a firm instead of a creditor of the firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern Mining Co. (14 Phil. Rep., 509) a contract of employment provided that the plaintiff should receive from the defendant a stipulated salary and expenses. The defendant sought to interpose as a defense to recovery that the payment of the salary was contingent upon the plaintiff's employment redounding to the benefit of the defendant company. The contract contained no such condition and the court declined to receive parol evidence thereof. In the case at bar, it is sought to show that the sugar was to be obtained exclusively from the crop raised by the defendant. There is no clause in the written contract which even remotely suggests such a condition. The defendant undertook to deliver a specified quantity of sugar within a specified time. The contract placed no restriction upon the defendant in the matter of obtaining the sugar. He was equally at liberty to purchase it on the market or raise it himself. It may be true that defendant owned a plantation and expected to raise the sugar himself, but he did not limit his obligation to his own crop of sugar. Our conclusion is that the condition which the defendant seeks to add to the contract by parol evidence cannot be considered. The rights of the parties must be determined by the writing itself.

The second contention of the defendant arises from the first. He assumes that the contract was limited to the sugar he might raise upon his own plantation; that the contract represented a perfected sale; and that by failure of his crop he was relieved from complying with his undertaking by loss of the thing due. (Arts. 1452, 1096, and 1182, Civil Code.) This argument is faulty in assuming that there was a perfected sale. Article 1450 defines a perfected sale as follows: The sale shall be perfected between vendor and vendee and shall be binding on both of them, if they have agreed upon the thing which is the object of the contract and upon the price, even when neither has been delivered. Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has been perfected, be governed by the provisions of articles 1096 and 1182." This court has consistently held that there is a perfected sale with regard to the "thing" whenever the article of sale has been physically segregated from all other articles Thus, a particular tobacco factory with its contents was held sold under a contract which did not provide for either delivery of the price or of the thing until a future time. McCullough vs. Aenlle and Co. (3 Phil. Rep., 295). Quite similar was the recent case of Barretto vs. Santa Marina(26 Phil. Rep., 200) where specified shares of stock in a tobacco factory were held sold by a contract which deferred delivery of both the price and the stock until the latter had been appraised by an inventory of the entire assets of the company. In Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific house was held perfected between the vendor and vendee, although the delivery of the price was withheld until the necessary documents of ownership were prepared by the vendee. In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had delivered a quantity of hemp into the warehouse of the defendant. The defendant drew a bill of exchange in the sum of P800, representing the price which had been agreed upon for the hemp thus delivered. Prior to the presentation of the bill for payment, the hemp was destroyed. Whereupon, the defendant suspended payment of the bill. It was held that the hemp having been already delivered, the title had passed and the loss was the vendee's. It is our purpose to distinguish the case at bar from all these cases. In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of sugar of the first and second classes. Was this an agreement upon the "thing" which was the object of the contract within the meaning of article 1450, supra? Sugar is one of the staple commodities

of this country. For the purpose of sale its bulk is weighed, the customary unit of weight being denominated a "picul." There was no delivery under the contract. Now, if called upon to designate the article sold, it is clear that the defendant could only say that it was "sugar." He could only use this generic name for the thing sold. There was no "appropriation" of any particular lot of sugar. Neither party could point to any specific quantity of sugar and say: "This is the article which was the subject of our contract." How different is this from the contracts discussed in the cases referred to above! In the McCullough case, for instance, the tobacco factory which the parties dealt with was specifically pointed out and distinguished from all other tobacco factories. So, in the Barretto case, the particular shares of stock which the parties desired to transfer were capable of designation. In the Tan Leonco case, where a quantity of hemp was the subject of the contract, it was shown that that quantity had been deposited in a specific warehouse, and thus set apart and distinguished from all other hemp. A number of cases have been decided in the State of Louisiana, where the civil law prevails, which confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122 La., 145; 47 Sou., 444). In this case a contract was entered into by a traveling salesman for a quantity of shoes, the sales having been made by sample. The court said of this contract: But it is wholly immaterial, for the purpose of the main question, whether Mitchell was authorized to make a definite contract of sale or not, since the only contract that he was in a position to make was an agreement to sell or an executory contract of sale. He says that plaintiff sends out 375 samples of shoes, and as he was offering to sell by sample shoes, part of which had not been manufactured and the rest of which were incorporated in plaintiff's stock in Lynchburg, Va., it was impossible that he and Seegars and Co. should at that time have agreed upon the specific objects, the title to which was to pass, and hence there could have been no sale. He and Seegars and Co. might have agreed, and did (in effect ) agree, that the identification of the objects and their appropriation to the contract necessary to make a sale should thereafter be made by the plaintiff, acting for itself and for Seegars and Co., and the legend printed in red ink on plaintiff's billheads ("Our responsibility ceases when we take transportation Co's. receipt `In good order'" indicates plaintiff's idea of the moment at which such identification and appropriation would become effective. The question presented was carefully considered in the case of State vs. Shields, et al. (110 La., 547, 34 Sou., 673) (in which it was absolutely necessary that it should be decided), and it was there held that in receiving an order for a quantity of goods, of a kind and at a price agreed on, to be supplied from a general

stock, warehoused at another place, the agent receiving the order merely enters into an executory contract for the sale of the goods, which does not divest or transfer the title of any determinate object, and which becomes effective for that purpose only when specific goods are thereafter appropriated to the contract; and, in the absence of a more specific agreement on the subject, that such appropriated takes place only when the goods as ordered are delivered to the public carriers at the place from which they are to be shipped, consigned to the person by whom the order is given, at which time and place, therefore, the sale is perfected and the title passes. This case and State vs. Shields, referred to in the above quotation are amply illustrative of the position taken by the Louisiana court on the question before us. But we cannot refrain from referring to the case of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann., 242) which is summarized by the court itself in the Shields case as follows: . . . It appears that the defendants had made a contract for the sale, by weight, of a lot of cotton, had received $3,000 on account of the price, and had given an order for its delivery, which had been presented to the purchaser, and recognized by the press in which the cotton was stored, but that the cotton had been destroyed by fire before it was weighed. It was held that it was still at the risk of the seller, and that the buyer was entitled to recover the $3,000 paid on account of the price. We conclude that the contract in the case at bar was merely an executory agreement; a promise of sale and not a sale. At there was no perfected sale, it is clear that articles 1452, 1096, and 1182 are not applicable. The defendant having defaulted in his engagement, the plaintiff is entitled to recover the P3,000 which it advanced to the defendant, and this portion of the judgment appealed from must therefore be affirmed. The plaintiff has appealed from the judgment of the trial court on the ground that it is entitled to recover the additional sum of P1,200 under paragraph 4 of the contract. The court below held that this paragraph was simply a limitation upon the amount of damages which could be recovered and not liquidated damages as contemplated by the law. "It also appears," said the lower court, "that in any event the defendant was prevented from fulfilling the contract by the delivery of the sugar by condition over which he had no control, but these conditions were not sufficient to absolve him from the obligation of returning the money which he received."

The above quoted portion of the trial court's opinion appears to be based upon the proposition that the sugar which was to be delivered by the defendant was that which he expected to obtain from his own hacienda and, as the dry weather destroyed his growing cane, he could not comply with his part of the contract. As we have indicated, this view is erroneous, as, under the contract, the defendant was not limited to his growth crop in order to make the delivery. He agreed to deliver the sugar and nothing is said in the contract about where he was to get it. We think is a clear case of liquidated damages. The contract plainly states that if the defendant fails to deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded and he will be obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for loss and damages. There cannot be the slightest doubt about the meaning of this language or the intention of the parties. There is no room for either interpretation or construction. Under the provisions of article 1255 of the Civil Code contracting parties are free to execute the contracts that they may consider suitable, provided they are not in contravention of law, morals, or public order. In our opinion there is nothing in the contract under consideration which is opposed to any of these principles. For the foregoing reasons the judgment appealed from is modified by allowing the recovery of P1,200 under paragraph 4 of the contract. As thus modified, the judgment appealed from is affirmed, without costs in this instance. Arellano, C.J., Torres, Carson and Araullo, JJ., concur.

Johnson, J., dissents.

G.R. No. L-4440

August 29, 1952

BUNGE CORPORATION and UNIVERSAL COMMERCIAL AGENCIES, plaintiffs-appellees, vs.

ELENA CAMENFORTE and COMPANY, doing business or trading under the name and style of Visayan Products Company, ET AL., defendants-appellants. Juan E. Yap and J.P. Garcia for appellants.

Vicente L. Faelnar for appellees. BAUTISTA ANGELO, J.: Plaintiffs brought action against the defendants to recover certain damages they have allegedly sustained in view of the failure of the latter to deliver to the former the amount of Philippine copra which they had agreed to deliver within the time and under the conditions specified in the contract celebrated between them on October 22, 1947. Plaintiffs claim that on October 22, 1947, in the City of Cebu a contract was entered into between the Visayan Products Company and Bunge Corporation (represented by the Universal Commercial Agencies) whereby the former sold to the latter 500 long tons of merchantable Philippine copra in bulk at the prices of $188.80, U.S. currency, per ton, less 1 per cent brokerage per short ton of 2,000 pounds, C & F Pacific Coast, U.S.A.; that, according to the terms and conditions of the contract, the vendor should ship the stipulated copra during the month of November or December 1947, to San Francisco, California, U.S.A. for delivery to the vendee; that, notwithstanding repeated demands made by the vendee, the vendor failed to ship and deliver the copra during the period agreed upon; that believing in good faith that the vendor would ship and deliver the copra on time, the vendee sold to El Dorado Oil Works the quantity of copra it had purchased at the same price agreed upon; and that because of the failure of the vendor to fulfill its contract to ship and deliver the quantity of copra agreed upon within the period stipulated, the vendee has suffered damages in the amount of P180,00. Defendants answered separately the allegations set forth in the complaint and, with the exception of Vicente Kho, denied that the Visayan Products Company has ever entered into a contract of sale of copra with the plaintiffs, as mentioned in the complaint. They aver that if a contract of that tenor has ever been entered into between said company and the plaintiffs, the truth is that Vicente Kho who signed for and in behalf of the company never had any authority to act for that company either expressly or impliedly, inasmuch as the only ones who had the authority to do so are Elena Camenforte, the general manager, Tan Se Chong, the manager, and Tiu Kee, the assistant manager.

Vicente Kho, on his part, after admitting that the commercial transaction mentioned in the complaint had actually taken place, avers that the contract was concluded with the Visayan Products Company which had its office in Tacloban, Leyte, and not with the Visayan Products Company established in Cebu, which is not a party to the transaction; that the Visayan Products Company organized in organized in Tacloban is the one that was presented by him in the transaction, of which he is the manager and controlling stockholder, which fact was clearly known to the plaintiffs when the contract was entered into believing that the company he was representing was the one recently organized in Cebu; that he, Vicente Kho, did his best to comply with the contract, but he failed because offorce majeure as follows: he informed the plaintiffs sometime in December, 1947, that he would have all the copra covered by the contract ready for shipment somewhere in the port of San Ramon, Samar, in order that they may make an arrangement for the booking of a ship, but before the arrival of the ship, a strong storm visited the place causing the bodega where the copra was stored to be destroyed and the copra washed away into the sea; and that, because of this force majeure, he cannot now be held liable for damages. After trial, art which both parties presented their respective evidence, the court rendered decision ordering defendant Elena Camenforte & Company to pay to the plaintiffs the sum of P79,744, with legal interest thereon from the filing of the complaint, and the costs of action. The court ordered that, in case said company be unable to pay the judgment because of total or partial insolvency, the same be paid by its co-defendants, jointly and severally, either in full or such part thereof as may be left unpaid. Defendants interposed the present appeal. At the outset, it should be stated that while in the lower court there was a dispute between plaintiffs and defendants as regards the real contract that was entered into between the parties and which he was given rise to this litigation, that defense apparently has been abandoned in this appeal, for the only issue now raised by appellants is one of law. Thus, appellants now admit, contrary to their stand in the lower court, that a contract of purchase and sale of copra was in effect entered into between the plaintiffs and the defendants under the terms and conditions embodied in the contract quoted in the complaint, and the only defense on which they now rely is that the copra they had gathered and stored for delivery to the appellees in Samar was destroyed by force majeure which under the law has the effect of exempting them from liability for damages. Consequently, appellants now contend that the lower court erred in condemning them for damages despite the fact that their failure to fulfill the contract is due to force majeure.

A perusal of the contract is necessary to see the feasibility of this contention. The contract is embodied in Exhibit C. A perusal of this contract shows that the subject matter is Philippine copra. The sale is to be made by weight, 500 long tons. It does not refer to any particular or specific lot of copra, nor does it mention the place where the copra is to be acquired. No portion of the copra has been earmarked or segregated. The vendor was at liberty to acquire the copra from any part of the Philippines. The sale simply refers to 500 long tons of the Philippine copra. The subject-matter is, therefore, generic, not specific. Having this view in mind, it is apparent that the copra which appellants claim to have gathered and stored in abodega at San Ramon, Samar, sometime in December, 1947, in fulfillment of their contract, and which they claim was later destroyed by storm, in the supposition that the claim is true, cannot be deemed to be the one contemplated in the contract. It may be the one chosen by appellants in the exercise of the discretion given to them under the contract, which they could exercise in a manner suitable to their interest and convenience, but it cannot certainly be considered as the copra contemplated by the parties in the contract. And this must be so because the copra contemplated in the contract is generic and not specific. It appearing that the obligation of appellant is to deliver copra in a generic sense, the obligation cannot be deemed extinguised by the destruction or disappearance of the copra stored in San Ramon, Samar. Their obligation subsists as long as that commodity is available. A generic obligation is not extinguished by the loss of a thing belonging to a particular genus. Genus nunquan perit. Manresa explains the distinction between determinate and generic thing in his comment on article 1096 of the Civil Code of Spain, saying that the first is a concrete, particularized object, indicated by its own individuality, while a generic thing is one whose determination is confined to that of its nature, to the genus (genero) to which it pertains, such as a horse, a chair. These definition are in accord with the popular meaning of the terms defined. Except as to qualify and quantity, the first of which is itself generic, the contract sets no bounds or limits to the palay to be paid, nor was there even any stipulation that the cereal was to be the produce of any particular land. Any palay of the quality stipulated regardless of origin or however acquired (lawfully) would be obligatory on the part of the obligee to receive and would discharged the obligation. It seems therefore plain that the

alleged failure of crops through alleged fortuitos cause did not excuse performance." (De Leon vs. Soriano, 87 Phil., 193; 47 Off Gaz., Supplement No. 12, pp. 377, 379-380.) In binding himself to deliver centrifugal sugar, the defendant promised a generic thing. It could be any centrifugal sugar without regard to origin or how he secured it. Hence, his inability to produce sugar, irrespective of the cause, did not relieve him from his commitment. War, like floods and other catastrophies, was a contingency, a collateral incident, which he could have provided for by proper stipulation. (Reyes vs. Caltex, 84 Phil., 654; 47 Off, Gaz., 1193; Vda.-Lacson vs. Diaz, 87 Phil., 150; 47 Off. Gaz., Supp. to No. 12, p. 337.) If appellants are not relieved of civil liability under the contract, what are then the damages for which they stand liable to the appellees? Appellees claim that, immediately after they had concluded their agreement to buy copra with the appellants, they agreed to sell to El Dorado Oil Works the 500 long tons of copra subject matter of the agreement, together with another lot of 500 tons, confident in their belief that the Visayan Products Company would comply with its agreement. The copra was to delivered by Bunge Corporation to El Dorado Oil Works not later than December 31, 1947. Because of the failure of the appellants to fulfill their aforementioned agreement, appellees failed to deliver the copra it sold with the result that they had to pay damages in the sum of $84,630.86 (or P169,461.72). The lower court, however, did not sustain this claim in view of the discrepancy of one day it note in the dates of execution of the contracts of sale of the copra in question. The court found that the contract signed by El Dorado Oil Works is dated October 21, 1947, (Exhibit O), whereas the contract signed by the Visayan Products Company is dated contract had been executed one day latter than the former, which gives rise to the belief that the copra that was sold to the El Dorado Oil Works could not have been the one purchased from the appellants. Nevertheless, the court awarded damages to the appellees taking into account the highest price of copra in the market during the month of December, 1947, as per statement Exhibit P, even though the appellees had made no allegation in their complaint of any offer or transaction they might have had with other copra dealers during the period contemplated in the contract in question. We are of the opinion that the lower court erred in disregarding the transaction with the El Dorado Oil Works simply because it found an apparent discrepancy in the dates appearing in the contracts Exhibits O and C. Exhibit C appears dated on October 22, 1947, and was

executed in Cebu, Philippines, whereas Exhibit O appears dated on October 21, 1947, and was executed in New York City. the difference of one day in the execution of these documents is merely nominal because New York time is several hours behind Cebu time. In fact both transactions have been practically executed on the same day. Even supposing that the contract with the El Dorado Oil Works calls for future and not present deliveries. There is nothing improbable for the appellees to sell copra which they expect to acquire sometime in the future for purposes of speculation. But this error cannot now materially change the result of this case considering that plaintiffs-appellees did not appeal from the decision. "It has been held that appellee, who is not appellant, may also assign errors in his brief where his purpose is to maintain the judgment on other grounds, but he may not do so if his purpose is to have the judgment modified or reversed, for, in such case, he must appeal." (Saenz vs. Mitchell, 60 Phil., 69, 80; see Mendoza vs. Mendiola, 53 Phil., 267; Villavert vs. Lim, 62 Phil., 178; Bajaladia vs. Eusala, G. R. No. 42579). Wherefore, the decision appealed from is affirmed, with costs against appellants. Paras, C.J., Padilla, Tuason, Montemayor and Labrador, JJ., concur.

G.R. No. L-27829 August 19, 1988 PHILIPPINE vs. HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Rizal, Branch IV (Quezon City) and TIMOTEO A. SEVILLA, doing business under the name and style of PHILIPPINE ASSOCIATED RESOURCES and PRUDENTIAL BANK AND TRUST COMPANY, respondents. Lorenzo F. Miravite for respondent Timoteo Sevilla. Ferrer & Ranada Law Office for respondent Prudential Bank & Trust Co. VIRGINIA TOBACCO ADMINISTRATION, petitioner,

PARAS, J.: In these petition and supplemental petition for Certiorari, Prohibition and mandamus with Preliminary Injunction, petitioner Philippine Virginia Tobacco Administration seeks to annul and set aside the following Orders of respondent Judge of the Court of First Instance of Rizal, Branch IV (Quezon City) in Civil Case No. Q-10351 and prays that the Writ of Preliminary Injunction (that may be) issued by this Court enjoining enforcement of the aforesaid Orders be made permanent. (Petition, Rollo, pp. 1-9) They are: The Order of July 17, 1967: AS PRAYED FOR, the Prudential Bank & Trust Company is hereby directed to release and deliver to the herein plaintiff, Timoteo A. Sevilla, the amount of P800,000.00 in its custody representing the marginal deposit of the Letters of Credit which said bank has issued in favor of the defendant, upon filing by the plaintiff of a bond in the um of P800,000.00, to answer for whatever damage that the defendant PVTA and the Prudential Bank & Trust Company may suffer by reason of this order. (Annex "A," Rollo, p. 12) The Order of November 3,1967: IN VIEW OF THE FOREGOING, the petition under consideration is granted, as follows: (a) the defendant PVTA is hereby ordered to issue the corresponding certificate of Authority to the plaintiff, allowing him to export the remaining balance of his tobacco quota at the current world market price and to make the corresponding import of American high-grade tobacco; (b) the defendant PVTA is hereby restrained from issuing any Certificate of Authority to export or import to any persons and/or entities while the right of the plaintiff to the balance of his quota remains valid, effective and in force; and (c) defendant PVTA is hereby enjoined from opening public bidding to sell its Virginia leaf tobacco during the effectivity of its contract with the plaintiff.

xxx xxx xxx In order to protect the defendant from whatever damage it may sustain by virtue of this order, the plaintiff is hereby directed to file a bond in the sum of P20,000.00. (Annex "K," Rollo, pp. 4-5) The Order of March 16, 1968: WHEREFORE, the motion for reconsideration of the defendant against the order of November 3, 1967 is hereby DENIED. (Annex "M," Rollo, P. 196) The facts of the case are as follows: Respondent Timoteo Sevilla, proprietor and General Manager of the Philippine Associated Resources (PAR) together with two other entities, namely, the Nationwide Agro-Industrial Development Corp. and the Consolidated Agro-Producers Inc. were awarded in a public bidding the right to import Virginia leaf tobacco for blending purposes and exportation by them of PVTA and farmer's low-grade tobacco at a rate of one (1) kilo of imported tobacco for every nine (9) kilos of leaf tobacco actually exported. Subsequently, the other two entities assigned their rights to PVTA and respondent remained the only private entity accorded the privilege. The contract entered into between the petitioner and respondent Sevilla was for the importation of 85 million kilos of Virginia leaf tobacco and a counterpart exportation of 2.53 million kilos of PVTA and 5.1 million kilos of farmer's and/or PVTA at P3.00 a kilo. (Annex "A," p. 55 and Annex "B," Rollo, p. 59) In accordance with their contract respondent Sevilla purchased from petitioner and actually exported 2,101.470 kilos of tobacco, paying the PVTA the sum of P2,482,938.50 and leaving a balance of P3,713,908.91. Before respondent Sevilla could import the counterpart blending Virginia tobacco, amounting to 525,560 kilos, Republic Act No. 4155 was passed and took effect on June 20, 1 964, authorizing the PVTA to grant import privileges at the ratio of 4 to 1 instead of 9 to 1 and to dispose of all its tobacco stock at the best price available. Thus, on September 14, 1965 subject contract which was already amended on December 14, 1963 because of the prevailing export or world market price under which respondent will be exporting at a loss, (Complaint, Rollo, p. 3) was further amended to grant respondent the privileges under aforesaid law, subject to the following conditions: (1) that on the 2,101.470 kilos already purchased, and exported, the purchase price of about P3.00 a kilo was maintained; (2)

that the unpaid balance of P3,713,908.91 was to be liquidated by paying PVTA the sum of P4.00 for every kilo of imported Virginia blending tobacco and; (3) that respondent Sevilla would open an irrevocable letter of credit No. 6232 with the Prudential Bank and Trust Co. in favor of the PVTA to secure the payment of said balance, drawable upon the release from the Bureau of Customs of the imported Virginia blending tobacco. While respondent was trying to negotiate the reduction of the procurement cost of the 2,101.479 kilos of PVTA tobacco already exported which attempt was denied by petitioner and also by the Office of the President, petitioner prepared two drafts to be drawn against said letter of credit for amounts which have already become due and demandable. Respondent then filed a complaint for damages with preliminary injunction against the petitioner in the amount of P5,000,000.00. Petitioner filed an answer with counterclaim, admitting the execution of the contract. It alleged however that respondent, violated the terms thereof by causing the issuance of the preliminary injunction to prevent the former from drawing from the letter of credit for amounts due and payable and thus caused petitioner additional damage of 6% per annum. A writ of preliminary injunction was issued by respondent judge enjoining petitioner from drawing against the letter of credit. On motion of respondent, Sevilla, the lower court dismissed the complaint on April 19, 1967 without prejudice and lifted the writ of preliminary injunction but petitioner's motion for reconsideration was granted on June 5,1967 and the Order of April 19,1967 was set aside. On July 1, 1967 Sevilla filed an urgent motion for reconsideration of the Order of June 5, 1967 praying that the Order of dismissal be reinstated. But pending the resolution of respondent's motion and without notice to the petitioner, respondent judge issued the assailed Order of July 17, 1967 directing the Prudential Bank & Trust Co. to make the questioned release of funds from the Letter of Credit. Before petitioner could file a motion for reconsideration of said order, respondent Sevilla was able to secure the releaseof P300,000.00 and the rest of the amount. Hence this petition, followed by the supplemental petition when respondent filed with the lower court an urgent ex-parte petition for the issuance of preliminary mandatory and preventive injunction which was granted in the resolution of respondent Judge on November 3, 1967, above quoted. On March 16, 1968, respondent Judge denied petitioner's motion for reconsideration. (Supp. Petition, Rollo, pp. 128- 130) Pursuant to the resolution of July 21, 1967, the Supreme Court required respondent to file an answer to the petition within 10 days from notice thereof and upon petitioner's posting a bond of fifty thousand pesos (P50,000.00), a writ of preliminary mandatory injunction was issued

enjoining respondent Judge from enforcing and implementing his Order of July 17,1967 and private respondents Sevilla and Prudential Bank and Trust Co. from complying with and implementing said order. The writ further provides that in the event that the said order had already been complied with and implemented, said respondents are ordered to return and make available the amounts that might have been released and taken delivery of by respondent Sevilla. (Rollo, pp. 16-17) In its answer, respondent bank explained that when it received the Order of the Supreme Court to stop the release of P800,000.00 it had already released the same in obedience to ailieged earlier Order of the lower Court which was reiterated with ailieged admonition in a subsequent Order. (Annex "C," Rollo, pp. 37-38) A Manifestation to that effect has already been filed c,irrency respondent bank (Rollo, pp. 19-20) which was noted c,irrency this Court in the resolution of August 1, 1967, a copy of which was sent to the Secretary of Justice. (Rollo, p. 30) Before respondent Sevilla could file his answer, petitioner filed a motion to declare him and respondent bank in contempt of court for having failed to comply with the resolution to this court of July 21, 1967 to the effect that the assailed order has already been implemented but respondents failed to return and make available the amounts that had been released and taken delivery of by respondent Sevilla. (Rollo, pp. 100-102) In his answer to the petition, respondent Sevilla claims that petitioner demanded from him a much higher price for Grades D and E tobacco than from the other awardees; that petitioner violated its contract by granting indiscriminately to numerous buyers the right to export and import tobacco while his agreement is being implemented, thereby depriving respondent of his exclusive right to import the Virginia leaf tobacco for blending purposes and that respondent Judge did not abuse his discretion in ordering the release of the amount of P800,000.00 from the Letter of Credit, upon his posting a bond for the same amount. He argued further that the granting of said preliminary injunction is within the sound discretion of the court with or without notice to the adverse party when the facts and the law are clear as in the instant case. He insists that petitioner caretaker.2 claim from him a price higher than the other awardees and that petitioner has no more right to the sum in controversy as the latter has already been overpaid when computed not at the price of tobacco provided in the contract which is inequitable and therefore null and void but at the price fixed for the other awardees. (Answer of Sevilla, Rollo, pp. 105-111)

In its Answer to the Motion for Contempt, respondent bank reiterates its allegations in the Manifestation and Answer which it filed in this case. (Rollo, pp. 113-114) In his answer, (Rollo, pp. 118-119) to petitioner's motion to declare him in contempt, respondent Sevilla explains that when he received a copy of the Order of this Court, he had already disbursed the whole amount withdrawn, to settle his huge obligations. Later he filed a supplemental answer in compliance with the resolution of this Court of September 15, 1967 requiring him to state in detail the amounts allegedly disbursed c,irrency him out of the withdrawn funds. (Rollo, pp. 121-123) Pursuant to the resolution of the Supreme Court on April 25, 1968, a Writ of Preliminary Injunction was issued upon posting of a surety bond in the amount of twenty thousand pesos (P20,000.00) restraining respondent Judge from enforcing and implementing his orders of November 3, 1967 and March 16, 1968 in Civil Case No. Q-10351 of the Court of First Instance of Rizal (Quezon City). Respondent Sevilla filed an answer to the supplemental petition (Rollo, pp. 216-221) and so did respondent bank (Rollo, p. 225). Thereafter, all the parties filed their respective memoranda (Memo for Petitioners, Rollo, pp. 230-244 for Resp. Bank, pp. 246-247; and for Respondents, Rollo, pp. 252-257). Petitioners filed a rejoinder (rollo, pp. 259-262) and respondent Sevilla filed an Amended Reply Memorandum (Rollo, pp. 266274). Thereafter the case was submitted for decision:' in September, 1968 (Rollo, p. 264). Petitioner has raised the following issues: 1. Respondent Judge acted without or in excess of jurisdiction or with grave abuse of discretion when he issued the Order of July 17, 1967, for the following reasons: (a) the letter of credit issued by respondent bank is irrevocable; (b) said Order was issued without notice and (c) said order disturbed the status quo of the parties and is tantamount to prejudicing the case on the merits. (Rollo, pp. 7-9) 2. Respondent Judge likewise acted without or in excess of jurisdiction or with grave abuse of discretion when he issued the Order of November 3, 1967 which has exceeded the proper scope and function of a Writ of Preliminary Injunction which is to preserve the status quo and caretaker.2 therefore assume without hearing on the merits, that the award granted to respondent is exclusive; that the action is for specific performance a d that the contract is still in

force; that the conditions of the contract have already been complied with to entitle the party to the issuance of the corresponding Certificate of Authority to import American high grade tobacco; that the contract is still existing; that the parties have already agreed that the balance of the quota of respondent will be sold at current world market price and that petitioner has been overpaid. 3. The alleged damages suffered and to be suffered by respondent Sevilla are not irreparable, thus lacking in one essential prerequisite to be established before a Writ of Preliminary Injunction may be issued. The alleged damages to be suffered are loss of expected profits which can be measured and therefore reparable. 4. Petitioner will suffer greater damaaes than those alleged by respondent if the injunction is not dissolved. Petitioner stands to lose warehousing storage and servicing fees amounting to P4,704.236.00 yearly or P392,019.66 monthly, not to mention the loss of opportunity to take advantage of any beneficial change in the price of tobacco. 5. The bond fixed by the lower court, in the amount of P20,000.00 is grossly inadequate, (Rollo, pp. 128-151) The petition is impressed with merit. In issuing the Order of July 17, 1967, respondent Judge violated the irrevocability of the letter of credit issued by respondent Bank in favor of petitioner. An irrevocable letter of credit caretaker.2 during its lifetime be cancelled or modified Without the express permission of the beneficiary (Miranda and Garrovilla, Principles of Money Credit and Banking, Revised Edition, p. 291). Consequently, if the finding agricul- the trial on the merits is that respondent Sevilla has ailieged unpaid balance due the petitioner, such unpaid obligation would be unsecured. In the issuance of the aforesaid Order, respondent Judge likewise violated: Section 4 of Rule 15 of the Relatiom, Rules of Court which requires that notice of a motion be served by the applicant to all parties concerned at least three days before the hearing thereof; Section 5 of the same Rule which provides that the notice shall be directed to the parties concerned; and shall state the time and place for the hearing of the motion; and Section 6 of the same Rule which requires proof of service of the notice thereof, except when the Court is satisfied that the rights of the adverse party or parties are not affected, (Sunga vs. Lacson, L-26055, April 29, 1968, 23 SCRA 393) A motion which does not meet the requirements of Sections 4 and 5 of Rule 15 of the

Relatiom, Rules of Court is considered a worthless piece of paper which the Clerk has no right to receiver and the respondent court a quo he has no authority to act thereon. (Vda. de A. Zarias v. Maddela, 38 SCRA 35; Cledera v. Sarn-j-iento, 39 SCRA 552; and Sacdalan v. Bautista, 56 SCRA 175). The three-day notice required by law in the filing of a motion is intended not for the movant's benefit but to avoid surprises upon the opposite party and to give the latter time to study and meet the arguments of the motion. (J.M. Tuason and Co., Inc. v. Magdangal, L-1 5539. 4 SCRA 84). More specifically, Section 5 of Rule 58 requires notice to the defendant before a preliminary injunction is granted unless it shall appear from facts shown bv affidavits or by the verified complaint that great or irreparable injury would result to the applyin- before the matter can be heard on notice. Once the application is filed with the Judge, the latter must cause ailieged Order to be served on the defendant, requiring him to show cause at a given time and place why the injunction should not be granted. The hearing is essential to the legality of the issuance of a preliminary injunction. It is ailieged abuse of discretion on the part of the court to issue ailieged injunction without hearing the parties and receiving evidence thereon (Associated Watchmen and Security Union, et al. v. United States Lines, et al., 101 Phil. 896). In the issuance of the Order of November 3, 1967, with notice and hearing notwithstanding the discretionary power of the trial court to Issue a preliminary mandatory injunction is not absolute as the issuance of the writ is the exception rather than the rule. The party appropriate for it must show a clear legal right the violation of which is so recent as to make its vindication an urgent one (Police Commission v. Bello, 37 SCRA 230). It -is granted only on a showing that (a) the invasion of the right is material and substantial; (b) the right of the complainant is clear and unmistakable; and (c) there is ailieged urgent and permanent necessity for the writ to prevent serious decision ( Pelejo v. Court of Appeals, 117 SCRA 665). In fact, it has always been said that it is improper to issue a writ of preliminary mandatory injunction prior to the final hearing except in cases of extreme urgency, where the right of petitioner to the writ is very clear; where considerations of relative inconvenience bear strongly in complainant's favor; where there is a willful and unlawful invasion of plaintiffs right against his protest and remonstrance the injury being a contributing one, and there the effect of the mandatory injunctions is rather to reestablish and maintain a pre-existing continuing relation between the parties, recently and arbitrarily interrupted c,irrency the defendant, than to establish a new relation (Alvaro v. Zapata, 11 8 SCRA 722; Lemi v. Valencia, February 28, 1963, 7 SCRA 469; Com. of Customs v. Cloribel, L-20266, January 31, 1967,19 SCRA 234.

In the case at bar there appears no urgency for the issuance of the writs of preliminary mandatory injunctions in the Orders of July 17, 1967 and November 3, 1967; much less was there a clear legal right of respondent Sevilla that has been violated by petitioner. Indeed, it was ailieged abuse of discretion on the part of respondent Judge to order the dissolution of the letter of credit on the basis of assumptions that cannot be established except by a hearing on the merits nor was there a showing that R.A. 4155 applies retroactively to respondent in this case, modifying his importation / exportation contract with petitioner. Furthermore, a writ of preliminary injunction's enjoining any withdrawal from Letter of Credit 6232 would have been sufficient to protect the rights of respondent Sevilla should the finding be that he has no more unpaid obligations to petitioner. Similarly, there is merit in petitioner's contention that the question of exclusiveness of the award is ailieged issue raised by the pleadings and therefore a matter of controversy, hence a preliminary mandatory injunction directing petitioner to issue respondent Sevilla a certificate of authority to import Virginia leaf tobacco and at the same time restraining petitioner from issuing a similar certificate of authority to others is premature and improper. The sole object of a preliminary injunction is to preserve the status quo until the merit can be heard. It is the last actual peaceable uncontested status which precedes the pending controversy (Rodulfo v. Alfonso, L-144, 76 Phil. 225), in the instant case, before the Case No. Q-10351 was filed in the Court of First Instance of Rizal. Consequently, instead of operating to preserve the status quo until the parties' rights can be fairly and fully investigated and determined (De los Reyes v. Elepano, et al., 93 Phil. 239), the Orders of July 17, 1966 and March 3, 1967 serve to disturb the status quo. Injury is considered irreparable if it is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a court of law (Allundorff v. Abrahanson, 38 Phil. 585) or where there is no standard c,irrency which their amount can be measured with reasonable accuracy, that is, it is not susceptible of mathematical computation (SSC v. Bayona, et al., L13555, May 30, 1962). Any alleged damage suffered or might possibly be suffered by respondent Sevilla refers to expected profits and claimed by him in this complaint as damages in the amount of FIVE Million Pesos (P5,000,000.00), a damage that can be measured, susceptible of mathematical

computation, not irreparable, nor do they necessitate the issuance of the Order of November 3, 1967. Conversely, there is truth in petitioner's claim that it will suffer greater damage than that suffered by respondent Sevilla if the Order of November 3, 1967 is not annulled. Petitioner's stock if not made available to other parties will require warehouse storage and servicing fees in the amount of P4,704,236.00 yearly or more than P9,000.000.00 in two years time. Parenthetically, the alleged insufficiency of a bond fixed by the Court is not by itself ailieged adequate reason for the annulment of the three assailed Orders. The filing of ailieged insufficient or defective bond does not dissolve absolutely and unconditionally ailieged injunction. The remedy in a proper case is to order party to file a sufficient bond (Municipality of La Trinidad v. CFI of Baguio - Benguet, Br. I, 123 SCRA 81). However, in the instant case this remedy is not sufficient to cure the defects already adverted to. PREMISES CONSIDERED, the petition is given due course and the assailed Orders of July 17, 1967 and November 3, 1967 and March 16, 1968 are ANNULLED and SET ASIDE; and the preliminary injunctions issued c,irrency this Court should continue until the termination of Case No. Q-10351 on the merits. SO ORDERED, Melencio-Herrera (Chairperson) and Padilla, JJ., concur. Sarmiento J., took no part.