Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-25885 August 18, 1972 LUZON BROKERAGE CO., INC., plaintiff-appellee, vs. MARITIME BUILDING CO., INC. and MYERS BUILDING CO., INC., defendants, MARITIME BUILDING CO., INC., defendant-appellant. RESOLUTION REYES J.B.L., J.:p Appellant Maritime Building Co., Inc. moves to reconsider this Court's decision of 31 January 1972, a on several grounds that will be taken up seriatim. I Maritime contends that it was error for this Court to hold that its action in "suspending payments to Myers corporation of the installments for March to May, 1961, was a breach of the contract tainted with fraud or malice ( dolo) as distinguished from mere negligence (culpa) ... and therefore incompatible with good faith." (a) It is argued that Maritime's bad faith was not alleged nor put in issue in the pleadings. This pretense is incorrect: movant Maritime, in its answer to the cross-claim Myers Building Co., Inc., specifically pleaded good faith as an affirmative defense in paragraphs 4, 11, 13 and 14 of its answer to the cross-claim of Myers (Record on Appeal, pages 118, 120, 121, 122), and hence, placed its good or bad faith in issue. Anyway, whether a party acted in good faith or bad faith, in admittedly non-performing its part of a bargain, is a conclusion of law drawn by the Court from the circumstances proved in the case. b) The facts as narrated in the decision and revealed by the proof clearly show that as early as 24 March 1961, Maritime had requested a "suspension" or "moratorium" in its monthly payments until the close of 1961, allegedly because "we are encountering some unusual expenses with the warehouses" (Exhibit "A-Myers"), but this request was turned down on 29 March 1961 by the Myers Corporation advising George Schedler, the son of Edmund Schedler, main stockholder of Maritime, that his request "can not be granted as I have specific instructions from the Board (of Myers Co.) not to agree to any suspension of payments under any condition" (Exhibit "5-Myers"). This refusal is referred to in Edmund Schedler's letter of 7 April 1961 (Exhibit "11-Maritime"). Notwithstanding Myers Corporation's categorical refusal to agree to a suspension or moratorium, and after Myers had called its attention to the violation of the contract (Exhibit "11-A"), Schedler, on behalf of Maritime, insisted on suspending its payments alleging for the first time that the late F. H. Myers had "agreed to indemnify and hold me harmless from the Luzon Labor Union claims which are in litigation" and giving notice that "my wife and I intend to withhold any further payments to the Myers Building Co. or Estate ...". This intention was reiterated in the letter Exhibit 12-Maritime, wherein it was added that "if the Myers people will deposit in trust with Mr. C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr. Parsons in trust 15,000 pesos for March, April and May ...". c) We can not see how it can now be claimed that Maritime's obligation had been substantially performed in good faith. Maritime was obligated to make monthly payments to Myers Building Co. under its contract, until the price of the building was paid in full and yet it repeatedly refused to do so, on the pretext that the late F. H. Myers had obligated himself to indemnify Edmund Schedler from the labor claims against the Luzon Stevedoring Co., that Myers had sold to Schedler in a totally separate contract. As noted in the main decision, F. H. Myers was not the vendor Myers Building corporation; moreover, he had already died and his estate had been closed without Schedler or Maritime having filed any contingent claim before closure of the estate proceedings, as required by Revised Rule 88, The claims of Schedler or Maritime were, therefore, already barred, even assuming that there was any truth to the alleged promise of the late Myers, which is not supported by any reliable evidence. And even then, the claim was at the most payable by the heirs of F. H. Myers, but not by the Myers corporation, which had no duty to assume the guarantee. Plainly, the non-payment for March, April and May, 1961, due to the corporation, was intentional and deliberate non-performance, designed to extrajudicially force Myers corporation to grant the moratorium originally

solicited and rejected, thus constituting, as held in the main decision, dolo (in the performance, in solvendo) and not mere culpa or negligence. x Casta'n Der. Civil, Vol. 3, 7th Ed., page 129, quotes with approval Pairo's Teoria de Obligaciones on this point: Aunque nuestro Codigo civil no de la nocion del dolo como causa de incumplimiento de la obligacion se ajusta en realidad a ese criterio doctrinal, que puede encontrar un apoyo en el texto del art. 1.107. Como observa Diaz Pairo, en dicho precepto se contrapone el deudor de buena fe y el deudor por dolo, a resultando asi que este ultimo es el deudor de mala fe, y para la existencia de esta no hace falta la intencion de perjudicar o de daar, bastando infringir de modo voluntario el deber juridico que pesa sobre el deudor a sabiendas, es decir, conscientemente. Esa voluntariedad y conciencia tornan doloso el incomplimiento, aunque, como es posible, el deudor no haya tenido intencion de perjudicar o de daar al acreedor, contando, lo que no es raro, con que sobrevengan hechos que le permitan satisfacer mas tarde su obligacion. (Teoria, t. 1, pag. 116). (Emphasis supplied ) d) Nor is it admissible, as movant contends, that there had been substantial performance by it or that the offer to deposit in trust the missing amounts were equivalent to payment. When Maritime suspended its payments for MarchMay, 1961, there was a balance of P319,300.65 on the principal of its obligation, plus interest, i.e., nearly 1/3 of the original indebtedness. And as to the offer to deposit the payments due in trust or in escrow, it can not be considered payment since it was a conditional tender, and would have left the creditor (Myers corporation) unable to make use of the money rightfully due to it. This Court, in Philippine National Bank vs. Relativo, et al., 92 Phil. 203, has ruled that a tender to be valid must be unconditional; and even then, a tender alone is not a mode of extinguishing obligations, unless followed by consignation. Furthermore, for Myers to accept the proposed deposit of the monthly payments in trust or escrow would be equivalent to an admission on its part of the validity or truthfullness of Maritime's claim and of Myers Corporation's liability for an obligation of an individual stockholder. Nor is there any justification on record to warrant the disregard of the corporate personality of Myers Building Corporation inthe present case. II Movant Maritime's insistence upon the application to the present case of Art. 1191 of the Civil Code of the Philippines (tacit resolutory condition in reciprocal obligations) studiously ignores the fact that Myers obligation to convey the property was expressly made subject to a suspensive (precedent) condition of the punctual and full payment of the balance of the purchase price. 1 This is apparent from clauses (d) and (i) of the contract of sale (Record on Appeal, pages 64, 67). (d) It is hereby agreed, covenanted and stipulated by the between the parties hereto that the Vendor will execute and deliver to the Vendee a definite or absolute deed of sale upon the full payment by the Vendee of the unpaid balance of the purchase price hereinabove stipulated; that should the Vendeefail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this deed of Condition Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties to any other party. xxx xxx xxx ( i ) Title to the properties subject of this contract remains with the Vendor and shall pass to, and be transferred in the name of the Vendee only upon complete payment of the full price above agreed upon. (Emphasis supplied)

It is well to emphasize here the express stipulations (paragraph d) that ... the Vendor (Myers) will execute and deliver to the Vendee a definite and absolute deed of sale upon full payment by the Vendee of the unpaid balance of the purchase price ... as well as that (paragraph i of the deed of sale) Title to the properties subject to this contract remains with the Vendor and shall pass to and be transferred in the name of the Vendee only upon the complete payment of the full price above agreed upon. make it crystal clear that the full payment of the price (through the punctual performance of the monthly payments) was a condition precedent to the execution of the final sale and to the transfer of the property from Myers to Maritime; so that there was to be no actual sale until and unless full payment was made. 2 It is uncontroverted that none was here made. The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay the price as agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but preciselyenforcing it according to its express terms. In its suit Myers was not seeking restitution to it of the ownership of the thing sold (since it was never disposed of), such restoration being the logical consequence of the fulfillment of aresolutory condition, express or implied (article 1190); neither was it seeking a declaration that its obligation to sell was extinguished. What it sought was a judicial declaration that because the suspensive condition (full and punctual payment) had not been fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore, it (Myers) was entitled to repossess the property object of the contract, possession being a mere incident to its right of ownership. It is elementary that, as stated, by Castan, b) Si la condicion suspensiva Ilega a faltar, la obligacion se tiene por no existente, y el acreedorpierde todo derecho, incluso el de utilizar las medidas conservativas. (3 Castan, Derecho Civil, 7a Ed., p. 107). (Also Puig Pea, Der. Civ., T. IV (1), p. 113) Movant Maritime's failure to take into account the fact that Myers' promise to sell was subject to a suspensive condition (not to a suspensive period) renders all its discussion about bilateral or reciprocal contracts and the application of Articles 1198 and 1592 of the Civil Code of the Philippines (both of which deal with rescission or resolution of contractual obligation), with consequent mutual restitution, 1 a pure academic exercise without applicability to the case at bar. Similarly, there is no point in discussing whether or not Maritime's breach of contract was casual or serious, since the issue here is whether the suspensive condition (of paying P5,000.00 monthly until full price is paid) was or was not fulfilled, and it is not open to dispute that the stipulated suspensive condition was left unaccomplished through the deliberate actions of movant Maritime. The stubborn fact is that there can be no rescission or resolution of an obligation as yet non-existence because the suspensive condition did not happen. Resolving identical arguments, as those of Maritime, this Court ruled in Manuel vs. Rodriguez, 109 Phil. 9-10, as follows: ... Plaintiff-appellant, however, argues (Errors I-IV; VI; VIII) that the Payatas Subdivision had no right to cancel the contract, as there was no demand by suit or notarial act, as provided by Article 1504 of the Old Code (Art. 1592, N. C. C.). This is without merit, because Article 1504 requiring demand by suit or notarial act in case the vendor or realty wants to rescind, does not apply to a contract to sell or promise to sell, where title remains with the vendor until fulfillment to a positive suspensive condition, such as full payment of the price (Caridad Estates vs. Santero, 71 Phil. 114, 121; Albea vs. Inquimboy, 86 Phil. 476; 47 Off. Gaz. Supp. 12, p. 131; Jocson vs. Capitol Subdivision Inc., et al., L-6573, February 28, 1955; Miranda vs. Caridad Estates, L-2077 and Aspuria vs. Caridad Estates, L-2121, October 3, 1950).

The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1177 of the Old Civil Code. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. The foregoing quotation is the best refutation of Maritime's contention that the ruling is obiter when in fact it passed on issues tendered on appeal. The stipulations of the contract being the law between the parties, Courts have no alternative but to enforce them as they were agreed and written, there being no law or public policy against the stipulated forfeiture of payments already made (Manila Racing Club vs. Manila Jockey Club, 69 Phil. 57). III Maritime also pleads that as the stipulated forfeiture of the monthly payments already made is in fact a penalty, and the same should be equitably reduced. We find no justification for such reduction for the following reasons: a) Maritime intentionally risked the penalty by deliberately refusing to make the monthly payments for March to May 1961, and trying to inject into its contract with Myers corporation the totally unconnected personal promise of F. H. Myers to indemnify it for eventual liability to the Luzon Labor Union, allegedly made on the occasion of the sale of the Luzon Brokerage to E. Schedler by F. H. Myers, and trying to extrajudicially force Myers corporation to assume responsibility for such liability; b) Under Article 1234 of the present Civil Code, an obligation must be substantially performed in good faith, for such performance to stand in lieu of payment; Maritime, on the contrary, acted with dolo or bad faith, and is not in a position to invoke the benefits of the article. c) Maritime's loss of the forfeited payments was more than balanced by the rentals it received from the Luzon Brokerage as lessee of the building for the corresponding periods, at a rate double the monthly payments required of Maritime under its contract with Myers. IV Even granting that the contract is a plain sale of real property with deferred payment of the price, as contended by movant Maritime, its position will not be imposed. By Article 1592 of the Civil Code of the Philippines, though it may have been stipulated that upon the failure to pay the price at the time agreed upon, the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the Court may not grant him a new term. It has been pointed out in the main decision that the answer filed by Myers in the court below to the Luzon Brokerage's complaint for interpleader constituted in effect a judicial demand for rescission of the contract of sale, and for repossession of the real estate sold. Hence, Maritime can not demand further time to pay, and must conform to the rescission of the contract and the surrender of the premises, with all the consequences stipulated in the original contract.

Being an article specifically applicable to sales of real property, this Article 1592 controls the general principles expressed by Article 1198 on reciprocal obligations. The lack of merit of Maritime's procedural objections have been demonstrated in the main decision and there is no point in reiterating what was there stated. WHEREFORE, the motion for reconsideration is denied. Concepcion, C.J., Castro, Teehankee and Makasiar, JJ., concur. Makalintal, J., concurs in the result. Fernando and Esguerra, JJ., took no part. Separate Opinions BARREDO, J., dissenting: Having concurred in the original judgment of this Court in this case on January 31, 1972 (43 SCRA 93), I believe it is but proper for me to explain why I am for granting the motion for reconsideration. After carefully going over the wellprepared and scholarly motion for reconsideration filed by distinguished counsel for appellant, I can see that there are some points of fact and of law which I must have overlooked or had not fully comprehended when We first decided this case. lt would be unfair to the parties and to myself and entirely unbecoming of me as a member of this Court, if I did not give them serious consideration. Having done this, I have come to the conclusion that Our judgment should be to reverse the decision of the trial court instead of affirming it as We have originally done. THE FACTS A full restatement of the material facts should be of great help in understanding the fine issues of law that have to be resolved here. Indeed, it is only upon close examination of these facts that one would be able to fully comprehend where justice and equity lie in this case. Both appellant and appellee are private corporations evidently of some substantial financial standing who are actively engaged in business, Maritime Building Co., Inc., (Maritime for short) the appellant, and Myers Building Co., Inc. (Myers for short) the appellee. Luzon Brokerage Co., Inc., another private corporation of no less financial standing was the original plaintiff in interpleader in the Court below, and as such is not active participant in this appeal. On April 30, 1949, Myers, as owner and vendor, and Maritime, as vendee, entered into and executed a formal notarial contract entitled "Deed of Conditional Sale" involving real property referred to by the parties as the Cristobal Property, the pertinent provisions of which read as follows: WHEREAS, the Vendee has agreed to purchase the above-described properties and the Vendor has agreed to sell the same to the Vendee subject to the terms and conditions herein below specified; NOW, THEREFORE, for and in consideration of the sum of One Million Pesos (P1,000,000.00), Philippine Currency, to be paid in the manner hereinbelow specified, the Vendor hereby sells, transfers, and conveys unto and in favor of the Vendee, its successors, executors, administrators or assigns, the above described properties together with all buildings and improvements thereon belonging to the Vendor. The aforesaid sum One Million Pesos (P1,000,000.00) shall be paid at the Office of the Vendor in the City of Manila, Philippines, as follows: (a) Fifty Thousand Pesos (P50,000.00), Philippine Currency upon the signing and execution of this contract;

(b) The balance of Nine Hundred Fifty Thousand Peso (P950,000.00) Philippine Currency, shall be paid at the rate of Ten Thousand Pesos (P10,000.00) monthly, or before the 10th day of each month, with interst at five (5%) per cent per annum, this amount to be first applied on the interest, and the balance paid to the principal thereof; and the failure to pay any installment or interest when due shall ipso facto cause the whole unpaid balance of the principal and interest to be and become immediately due and payable; (c) The BARY BUILDING COMPANY, INC., will in separate instrument, execute a mortgage in favor of Myers Building Company, Inc., to secure the amount of Nine Hundred Fifty Thousand Pesos (P950,000.00), the unpaid balance of the consideration of this conditional sale; (d) It is hereby agreed, covenanted and stipulated by and between parties hereto that the Vendor will execute and deliver to the Vendee a definite or absolute deed of sale upon the full payment by the Vendee of the unpaid balance of the purchase price hereinabove stipulated; that should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this deed of Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties to any other party. (e) It is also hereby agreed, covenanted and stipulated by and between the parties hereto that should the Vendor rescind this Deed of Conditional Sale for any of the reasons stipulated in the preceding paragraph, the Vendee by these presents obligates itself to peacefully deliver the properties subject of this contract to the Vendor, and in the event that the Vendee refuses to peacefully deliver the possession of the properties subject of his contract to the Vendor in case of rescission, and a suit should be brought in court by the Vendor to seek judicial declaration of rescission and take possession of the properties subject of this contract, the Vendee hereby obligates itself to pay all the expenses to be incurred by reason of such suit and in addition obligates itself to pay the sum of P10,000.00, in concept of damages, penalty and attorney's fees. (f) It is also further agreed, covenanted and stipulated by and between the parties hereto that in the event that the Vendee fails to pay any of the monthly installments, when due, or otherwise fails to comply with any of the terms and conditions stipulated in this contract, and the Vendor shall be obliged to cancel this document by reason of such failure and sell the above-described properties to other parties at a price less than the consideration herein stipulated, the Vendee hereby obligates itself to pay the Vendor the difference in price in concept of penalty or damages. (g) It is furthermore agreed, covenanted and stipulated that the Vendee accepts and receives the above-described properties subject to whatever liens or incumbrances existing thereon, such as back, present or future taxes, assessments, imposts, cadastral costs, assurance fund, or any other liability or liabilities which the Government or any other person has or may have on the properties herein sold conditionally and that the fees for the legalization and registration of this document or any other document necessary to be executed in connection herewith, as well as the documentary stamps, shall all be borne by the Vendee. (h) The Vendor has conveyed and delivered, and, by these presents, does hereby convey and deliver unto and in favor of the Vendee, the material and physical

possession of the properties herein sold, provided that the Vendee shall respect the lease rights of any person or persons, on the property, if any, by virtue of any contract had by said third person or persons with the Vendor. (i) Title to the properties subject of this contract remains with the Vendor and shall pass to, and transferred in the name of, the Vendee only upon complete payment of the full price above agreed upon. (j) That is expressly provided and agreed by and between the parties to this contract that any and all fees and expenses incident to the registration and transfer of the title to the aforementioned properties shall be defrayed and born by the Vendor; but at its election, the Vendee may choose to advance said fees and expenses which it may forthwith collect from Vendor upon the presentation of the corresponding receipts and vouchers. (k) The Vendee hereby agrees and binds itself not to alienate, encumber, or in any manner modify its right or title to said premises as granted by this agreement until it has completely paid the full purchase price of the said premises, and the final deed of sale executed in its favor. (l) The Vendee hereby agrees and binds itself to respect any and all easements created against the said premises by virtue of agreements and contracts entered into with third person by the Vendor and its predecessors prior to the date of this contract. (m) The Vendee hereby agrees and binds itself to insure it its expense the buildings or improvements include in the object of this contract against loss by fire, water, and earthquake, in companies to be approve by the Vendor to an amount at least equal to the sum remaining unpaid hereunder, which insurance shall require all payments for loss to be applied on said unpaid indebtedness, the Vendee hereby obligating itself to deliver the said policies of insurance to the Vendor on or before May 15th, 1949. (n) The Vendee hereby agree that, until the complete payment of the full purchase properties subject of this contract, it shall not transfer or assign, nor sublet lease said premises, without the previous written consent of the Vendor being first obtained; and that an such assignment or transfer, without such previous written consent, shall not vest in the assignee transferee any right, title or interest in said premises but shall render this contract null and void, at the election of the Vendor. (o) In case the Vendee fails to make payment or payments, or any part thereof, as herein provided, or fails to perform any of the covenants or agreements hereof, this contract shall, at the option of the Vendor, be annulled and, in such event, all payments made by the Vendee to the Vendor by virtue of this contract shall be forfeited and retained by the Vendor in full hereof, this contract shall, at the option of the Vendor, sustained; and the said Vendor shall have the right to forthwith reenter, and take possession of, the premises subject-matter of this contract. The remedy of forfeiture stated in the next proceeding paragraph shall not be exclusive of any other remedy, but the Vendor shall have every other remedy granted it by virtue of this contract, by law, and by equity. (p) In the event that this contract is annulled for any cause whatsoever, without the fault of the Vendor, all improvements or part improvements found in the premises aforesaid shall belong to and be the properties of the vendor without any liability,

obligation, reimbursement or compensation whatsoever on the part of the said Vendor for said improvements or part improvements. (q) On payment of the full purchase price of the aforementioned properties, the Vendor will execute and deliver a deed conveying to the Vendee the title in fee simple of the said properties free from all liens and encumbrances; and should the Vendee need an other instruments to perfect its title to said properties upon complete compliance of its obligations provided in this contract, the Vendor will execute and deliver the same. (r) The Vendee agrees to pay all taxes and assessments on said premises commencing with those assessed thereon for the current year but not payable until the next last day of payment fixed by law, regularly or by extension, together with assessments and deferred installments thereof, if any, heretofore levied against said properties, the payment of which is not yet enforceable. If default shall be incurred in any of the payments provided in this agreement, or if the Vendee shall fail to comply with any of the stipulations herein mentioned, the Vendor shall have the right to declare the entire balance of the purchase price immediately due and payable, although by the terms of the agreement the payments may not then be due. (s) Each and all deferred payments stipulated in this contract shall bear interest at five (5) per cent per anum payable monthly until paid. (t) It is hereby agreed and understood by and between the parties that payments or part payments on installments even when not due and payable, may be made by the Vendee, and the Vendor shall apply the same to the corresponding part payment of the principal obligation, and forthwith make the proper reduction and adjustment of interest payment. The P10,000 monthly installments above provided was subsequently reduced to P5,000 but the interest was increased to 5-%. Up to February, 1961, all the corresponding installments were paid to the satisfaction of Myers. These payments totalled P973,000, P680,699.35 as installments and P342,300.65 as interests, thus leaving a balance of only P315,300.65 unpaid of the stipulated purchase price of P1M. Not having received the payments of the installments for March, April and May, 1961, on May 16, 1961, Myers officially wrote Maritime a formal letter of demand reading as follows: MYERS BUILDING COMPANY, INC. Port Area, Manila P.O. Box 886 16 May 1961 Maritime Building Company c/o Mr. George D. Schedler Century Geophysical, Inc. Schurdut Building Intramuros, Manila Dear Sirs: This has reference to your installments for the months of March, April and May, 1961, in the total sum of Fifteen Thousand Pesos (P15,000.00) and which until now is still unpaid. In this connection, we wish to call your attention to the provisions of paragraph (d) of our Deed of Conditional Sale, which in part reads as follows:

... that should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties to any other party. In view of the foregoing, you are hereby requested to remit to us within ten (10) days from your receipt of this letter, the sum of Fifteen Thousand Pesos (P15,000.00), otherwise, we shall consider the Deed of Conditional Sale as null and void and take possession of the property or sell the same, in accordance with the provisions quoted hereinabove. Very truly yours, MYERS BUILDING COMPANY, INC. C. R. TIONGSON Secretary CRT/ lc Reg. w/return card For reasons evidently considered irrelevant by Myers, since none is suggested either in its pleadings or in its evidence on record, admittedly, this letter of demand did not reach Maritime. On June 5, 1961, Myers addressed another letter to Maritime worded thus: MYERS BUILDING COMPANY, INCORPORATED P. O. Box 886, Manila REGISTERED AIR MAIL 5 June 1961 Maritime Building Co. c/o Mr. E. W. Schelder Suit 310 Thompson Bldg. Tulsa Oklahoma, U.S.A. Gentlemen:

Furthermore, you have violated the prohibition against leasing the premises, subject of the conditional sale, to a third party without our previous written-consent. In view of the foregoing, and pursuant to the terms and conditions of the Deed of Conditional Sale, we hereby declare the aforesaid conditional sale cancelled effective March, 1961. We demand that you return to us the possession of the properties subject of the Deed of Conditional Sale, within a period of fifteen days from receipt hereof. We hold you liable for the use and occupation of the premises at the rate of P10,000.00, per month, beginning March 1, 1961, until you completely vacate the properties subject of the conditional sale and turn them over to us. Very truly yours, MYERS BUILDING CO., INC. C. R. TIONGSON Secretary BLR/ ve cc: Luzon Brokerage Co. Mary Bachrach Bldg. Port Area, Manila And on June 8, 1961, Myers advised Luzon Brokerage, who had been leasing the property of the above deed from Maritime, 1 of the cancellation referred to in this letter, and without loss of time, on June 18, 1961, Luzon filed the instant interpleader case, depositing in court at the same time the P10,000 rental for June, 1961. Since then all subsequent monthly rentals of P10,000 each were likewise deposited in court, and as of April 1, 1969 2 there were already P1,129,932.67 deposited, P1,016,343.09 as rentals plus P114,350.62 as interests. The total sum is in fixed deposit in a bank earning interest at 7% per annum, but nothing else appears in the record as to whether or not Luzon is still leasing the premises. According to the evidence on record, Maritime's failure to pay the installments beginning March 1961 was due to the following circumstances: 1. On March 24, 1971, George Schedler, the admitted owner of Maritime wrote Mr. C. Parsons as follows: March 24, 1961

This is to advise that from March to May, 1961, inclusive, you have failed to pay your installment of P5,000.00 a month, or the total amount of P15,000.00, exclusive of interest, in violation of the terms and conditions of the "Deed of Conditional Sale", executed on April 30, 1949, particularly paragraph (d) hereof, the pertinent portion of which reads as follows: ... that should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties to any other party.

Mr. C. Parsons 308 Phoenix Bldg. Manila Dear Mr. Parsons: We are encountering some unusual expenses with the warehouses, and it would help us greatly if we could suspend our monthly payments to the Myers Estate, temporarily. Therefore, I am requesting a moratorium on our monthly payments until the close of 1961.

We are considerably aided in the past, in time of stress, by such a courtesy, and a moratorium of payments does not waive the interest, or change the sales contract in any particular. Very truly yours, (Sgd.) GEORGE D. SCHEDLER (t) GEORGE D. SCHEDLER Vice President GDS/ cc 2. On March 29, 1961, Parsons answered Schedler thus: March 29, 1961 Mr. George D. Schedler Vice President Maritime Building Co., Inc. Manila Dear Mr. Schedler: This has reference to your letter of March 24, 1961, requesting a moratorium in the monthly payments to the Myers Estate. In reply, please be advised that monthly payments due to the Myers Building Co., Inc. and not to the Myers Estate as stated in your letter under reply, cannot be granted as I have specific instructions from the Board not to agree to any suspension of payments under any condition. Very truly yours, C.PARSONS CP/ ac 3. On April 7, 1961, Schedler addressed the following letter to Parsons: PERSONAL Suite 310 Thompson Building Tulsa Oklahoma April 7, 1961 Mr. C. Parsons Luzon Stevedoring Company Manila, P. I.

Dear Mr. Parsons: This will acknowledge your letter of March 29, 1961 sent to my son, George D. Schedler, in which you advise that Mrs. Edith Myers has instructed you not to permit any moratorium or suspension of payments from our company, Maritime Building Company, Inc., to the Myers Building Company. As you and the Myers heirs know, my wife and I own the Maritime Building Company and there is due approximately 325,000 pesos to the Myers Building Company or Estate, pertaining to real estate we bought from Mr. F. H. Myers separate from my purchase of the Luzon Brokerage Company from him in about 1947. You likewise know that Mr. Myers, at the time I purchased Luzon and subsequently, agreed to indemnify and hold me harmless from the Luzon Labor Union claims which are in litigation in the Philippines and which expose Luzon Brokerage to a liability of upwards of one-half million pesos, if not more. You likewise know that the Luzon Labor Union claims against Luzon Brokerage were defended by Mr. Myers and when they came out in the open by way of litigation he at all times defended them with him monies (either himself or his representatives), up to the present time, and they are still being defended by the Myers Estate or representatives, in Manila. At all times when the F. H. Myers Estate was open in the Philippine Islands and open in San Francisco, the Myers Estate or heirs assumed the defense of the Labor Union claims and led us to believe that they would indemnify us therefrom. Recently, however, for the first time, and after both the Philippine and San Francisco F. H. Myers Estates were closed, we have been notified that the F. H. Myers indemnity on the Labor Union cases will not be honored, and in fact Mrs. Schedler and I have been sued in the Philippines by my successor in interest, Mr. Wentholt and have been put to considerable expense. You are advised that my wife and I, as the owners of the Maritime Building Company, intend to withhold any further payments to the Myers Building Company or Estate in order that we can preserve those funds and assets to set off against the potential liability to which I am now exposed by the failure of the Myers heirs to honor the indemnity agreement pertaining to the Labor claims. If actions are brought in the Philippines to foreclose the mortgage, I will instruct my attorney there, Senator Padilla, to countersue for all of the damages which I have sustained up to this point and will sustain in the future, and further I have already instructed my attorneys in San Francisco to proceed against the Estate of Myers and to reopen that estate and to reduce to judicial determination not only the damages I have sustained but to confirm the indemnity. Neither one of the Myers Estates were in a position to be closed because of the pendency of the Luzon Labor claims, and those estates should not have been closed, and we intend to cause them to be reopened. It is regrettable that the F. H. Myers indemnity agreement to me has not been performed and fulfilled by the Myers heirs, but I must now take all appropriate legal steps in the United States and in the Philippines to protect my interests as indicated above. Very truly yours, E.W.SCHEDLER 4. The record does not show any answer to this letter. What appears in the record is another letter of Schedler to Parsons reading:

San Francisco, California June 21, 1961 Mr. Charles Parsons Luzon Stevedoring Company Port Area Manila, Philippine Islands Re: Maritime Building Company Installment due Myers Building Co. Dear Chick: I am sure you are abreast of the various steps being taken by the Myers Estate relative to the above matter, so I will not review them. I have sent to Senator Ambrosio Padilla an order on the Bank of America for 5,000 pesos covering the June installment due Myers Building from Maritime, with the suggestion that it, and all future payments of this nature, be held by you personally in an escrow account in a Philippine bank of your choosing, until the responsibility, if any, of the various parties be determined. Senator Padilla will be getting in touch with you, I am sure. It is indeed a shame that this matter has been allowed to progress to this extent due to the non-cooperation of the Myers attorneys who, it seems, are not interested in complying with the actual facts. Very truly yours,

proceedings, so that I can file a Contingent Creditor's Claim and thereafter file suit to force the Myers heirs to indemnify and hold me harmless against damages which may flow from the labor case. Hearing was to be had May 29th but this was continued due to a serious illness of the Probate Judge assigned to my case. Hearings are now scheduled for August 3, 1961. I will continue to keep you informed, and do not hesitate to write Messrs. Barnett and Robertson (2810 Russ Building, San Francisco) if you desire more specific information as to their progress. I have received a letter dated June 5, 1961 from the Myers Building Co., a copy of which is enclosed, and is selfexplanatory. This letter was the first response I have had since I wrote Mr. Parsons on April 7th. I sent you a copy of my April 7th letter, but I am forwarding another out of an abundance of precaution so that I will be certain you will have one. I feel that the following alternative steps should be taken and the order in which I state them is the order of my preference: 1. I will agree to deposit 5,000 pesos per month with Mr. C. Parsons to be held in trust or escrow on account of the installments due to Myers Building Co. effective June 1, 1961 and monthly thereafter until our dispute with the Myers heirs is finally resolved. I do not wish to deposit same in court, except as an absolute last resort. Since Mr. Parsons is a representative of the Myers Estate I do not believe that there could be any conscientious opposition to this plan. I do not wish to deposit pesos representing the months of March, April and May, since the Myers refusal to honor the indemnity concerning the labor claims has caused me to disburse roughly $10,000.00 to date in fees, costs and travel expenses. However, if the Myers people will deposit in trust with Mr. C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr. Parsons, in trust, 15,000 pesos for March, April and May and will also post a monthly deposit of 5,000 pesos until the dispute is settled. The dispute won't be settled in my mind, unless and until: a) The Myers people indemnify me fully on the labor cases; b) The labor cases are terminated favorably to Luzon Brokerage and no liability exist. c) The Myers people pay any judgment entered on the labor Cases thereby releasing me; or

E.W. SCHEDLER 5. Simultaneously, or even date, Schedler wrote his counsel, Senator Ambrosio Padilla, instructing him thus: E. W. Schedler c/o Barnett & Robertson 2810 Russ Building San Francisco 4, California d) It is finally determined either in San Francisco or in the Philippines by a court that the Myers heirs must honor the indemnity which Mr. F. H. Myers promised when I purchased Luzon Brokerage Company. I enclose a draft for 5,000 pesos, covering the deposit for June, 1961 which you may post with Mr. Parsons in trust on account of the installment payments, if you can negotiate the arrangement hereinabove suggested. 2. My second preferred step is to a suit against the Myers Building Co. and the Estate of Myers for declaratory relief based upon the "Deed of Conditional Sale" entered into April 30, 1949, seeking determination by the Court of First Instance in the Philippines that I am entitled to withhold further payments on that installment contract or I am entitled to deposit them in trust to be conserved pending determination by the court of the liability of the Myers Estate to indemnify and hold me harmless from any of the labor claims and that said fund shall be retained in trust until the labor claims are totally resolved and either a determination is made that L.B.C. owes nothing (which will of course dispose of my potential obligation) or the amount of the labor claims shall be determined and paid by the Myers Estate, thereby releasing me from any potential liability. I would think that it would be better for us to proceed against the Myers Building Co. and Estate on this conditional sales contract as the plaintiff, rather than waiting for them to sue. I would suppose that if you were to institute such a suit you could, by preliminary motion, request leave to deposit the funds with Mr. C. Parsons as a trustee of those funds pending the outcome of the suit. I would assume that in that suit you could also join the issue of the Myers indemnity to me under the labor claims. 3. My third and least desired alternative (which I must leave to your legal judgment, knowing the Philippine situation intimately), would be to deposit the installment payments of March, April, May and June in court simultaneously with the filing of a suit by you against Myers Building Co. and Estate and providing thereafter for monthly installment

June 21, 1961 Senator Ambrosio Padilla610 San Luis, Ermita Manila, Philippine Islands My dear Ambrosio: This letter will serve as further response to your letter of April 20th and my reply of May 16th. To supplement the information previously given, I have just completed a conference with my San Francisco attorneys. They have a motion pending in the San Francisco courts to reopen the San Francisco Probate

payments to be deposited in court and conserved pending the outcome of that suit. However, I would want you to insist that the Myers Building Co. or Estate be required also to deposit in court 25,000 pesos to offset the costs which I have incurred in attorney fees, court costs, travel expenses and similar items caused by their refusal to honor the F. H. Myers indemnity. In conclusion, we do not desire to be totally in default by withholding all payments and we are willing to pay the monthly installment into a depositary such as Mr. Parsons, but we do not wish to deposit it in court except as a complete and last resort. We would prefer not to have to deposit the March, April and May installments because we would like that as a set-off against the costs I have already expended because of the breach of the Myers indemnity, but if the Myers people would put up 25,000 with such a depository, I would then be most happy to deposit in trust the installments of March, April and May. As a last resort, and if you believe it is the only method to insure success in the law suit which I have mentioned that I feel you ought to commence, I would deposit the installments in court to bring me current and make continuous deposits thereafter. As stated above, the draft enclosed is to be used by you in the event you can negotiate an arrangement for the alternative listed in Paragraph 1 above, and if you can not make such an arrangement, notify me and I will forward the balance of the installments you feel are going to be required as a deposit. I suggest you communicate with me directly through my attorneys in San Francisco, Phillip Barnett and Rodney Robertson, 2810 Russ Building, 235 Montgomery Street, San Francisco 4, California, since I will be on a motor trip for the next thirty days and will communicate with their office from time to time. My kindest personal regards. Sincerely, E. W. Schedler Enc. 6. Accompanying said letter, was a draft against the Bank of America for P5,000 pesos worded as follows: S.W.SCHEDLER United States Address: Suite 310 Thompson Building Tulsa - Oklahoma June 19, 1961 Bank of America Juan Luna Manila, Philippine Islands Attention : Mr. Everett Dear Sirs: On presentation of this Order, kindly pay to the order of Mr. Charles Parsons, the sum of 5,000 pesos, debiting the same to the account of the Maritime Building Company.

Very truly yours, E.W. SCHEDLER, President, Maritime Building Company 7. On June 29, 1961, Senator Padilla wrote Parsons the following letter: REGISTERED MAIL June 29, 1961 Mr. Charles Parsons Luzon Stevedoring Co. Port Area, Manila Dear Mr. Parsons: We received from Mr. E. W. Schedler, President of the Maritime Building Co., an "order" addressed to the Bank of America, Manila, to pay to you the sum of P5,000.00 as installment payment for June, 1961, "to be held in trust or escrow on account of the installments due to Myers Building Co." The installment payments from March to May, 1961, were withheld temporarily by Mr. Schedler, which can also be released to you in trust, provided that the Myers people released to you in trust, provided that the Myers people honor the indemnity agreement concerning the labor claims involved in the LBC labor case now pending in the Supreme Court. We believe that on June 21, 1961, Mr. Schedler sent you a letter proposing this arrangement whereby installments due from the Maritime Building Co. will be deposited in trust or escrow with you. Mr. Schedler apparently thought of making this arrangement with you without knowledge of the filing of an interpleader case by the LBC in the Court of First Instance of Manila, where rentals due from the LBC to the Maritime Building Co. are now to be deposited because of the said case. This would show the good faith of Mr. Schedler, and the circumstance that he did not intend to withhold installment payments in violation of the terms of the "Deed of Conditional Sale." Mr. Schedler merely intends to have these installments held in trust or escrow. Considering the fairness of the proposal of Mr. Schedler, which can be the basis for the settlement of the problem between Maritime and Myers, we would highly appreciate it if you can communicate to us your reaction thereto as soon as possible. Very truly yours, AMBROSIO PADILLA FCT : quilang 8. On the same day, June 29, 1961, Parsons answered Schedler's above letter of June 21, 1961, stating: June 29, 1961 Mr. E. W. Schedler c/o Barnett & Robertson 2810 Russ Building San Francisco, California

Re: Maritime Building Company Installment due Myers Building Company. Dear Shagg: This has reference to your letter of the 21st instant, concerning the above subject. In reply, please be advised that I am not in a position to accept the payment of P5,000.00, in an escrow account and in a Philippine bank of my choosing, in view of the complaint in interpleader which was filed by the Luzon Brokerage Company against the Maritime Building Company and the Myers Building Company in the Court of First Instance of Manila on June 17, 1961. Very truly yours, C. PARSONS CP/ac 9. And on July 6, 1961, Parsons informed Senator Padilla of his answer direct to Schedler in the following manner: C. PARSONS Manila, Philippines July 6, 1961 Senator Ambrosio Padilla 302-303 Gochangco Bldg. 610 San Luis, Ermita Manila Dear Senator Padilla:

Wentholt and Norton sold all their shares to Columbia Rope Company. The labor claims referred to in the above letters, which were for wages and salaries of laborers and employees of Luzon Brokerage for services rendered by them when the transportation units of said company were commandeered by the United States government in the course of the defense of Bataan in 1941-1942, and which presumably must have been paid by said government to Luzon, were originally filed against Luzon Brokerage in the Court of Industrial Relations in 1959, the said court sentenced Luzon Brokerage to pay P1,362,570.64 but this was reduced by the Supreme Court to P396,250.65 on October 31, 1963. It is the thrust of the above communication that when F. H. Myers sold his shares in Luzon to Schedler, he bound himself to hold Schedler harmless from liability for these labor claims, but after Myers died, notwithstanding that his heirs had "let us (Schedler and Maritime) to believe that they would indemnify us (same) therefrom" (Exh. 11-Maritime), the proceedings for the settlement of his estates both in the Philippines and in the United States were closed, and thereafter Schedler was "notified that the F. H. Myers indemnity on the Labor Union cases will not be honored." (Id.) In consequence, when the judgment of the Supreme Court was being executed against Columbia, this company held Wentholt liable for it and in turn Wentholt sued Schedler in court for Columbia's claim. In the face of these developments, Schedler took the position that he could make arrangements, on behalf of Maritime, such that the remaining installments due Myers may be paid in a manner that would secure reimbursement to Schedler of what he might ultimately be held liable to pay Wentholt on account of the labor claims. In fact, it is this posture that caused non-payment of the installments for March, April and May, 1961 and the drawing of the draft for that of June, 1961. In the meantime, as already stated above, while Schedler was trying to make said arrangements, Myers cancelled the deed of conditional sale and immediately notified Luzon thereof, on account of which Luzon, claiming it was uncertain in good faith whether it should continue paying Maritime its rentals or should pay them to Myers, instituted the present interpleader case. In its answer to said interpleader, Myers did not oppose the interpleader and alleged a cross-claim against Maritime praying that judgment be rendered declaring that answering defendant Myers Building Company, Inc. validly and lawfully exercised its right under the Deed of Conditional Sale (Annex I-Myers) to exercise, as it did exercise, its option to declare said Deed of Conditional Sale null and void (and) that it is entitled to collect the rentals deposited by the plaintiff with the Clerk of Court; and, on the cross-claim, sentencing the cross-defendant to pay the cross-claimant: 1) On the First Cause of Action P10,000; 2) On the Second Cause of Action P30,000 Plus legal rate of interest from date of filing of cross-claim; 3) Costs of suit, and, of course, for general relief.

This has reference to your letter of June 29, last, concerning the "order" of E. W. Schedler to pay the sum of P5,000.00 as installment payment for June 1961, "to be held in trust or escrow on account on the installment due to Myers Building Co." In reply, enclosed herewith is a copy of my letter to E. W. Schedler dated June 29, 1961, which you will find selfexplanatory. Very truly yours, C.PARSONS . Encl. a/s CRT/Ic To fully understand the foregoing communications, it must be considered that the record also reveals that Luzon Brokerage was formerly owned by F. H. Myers, (also former owner of Myers Building Co.) to the extent of 4,000 shares, until March 21, 1947 when he sold the same to Schedler who in turn sold them on February 23, 1952 to L. Wentholt who, on his part, sold some of them to T. K. Norton in 1955, and later, or on August 31, 1958, both

At the outset, Maritime filed a motion to dismiss questioning Luzon's right to force an interpleader, considering, according to said motion, that Luzon had not even required Maritime, prior to the filing of the interpleader, to maintain it, as lessee, in peaceful possession of the leased premises, and was merely enabling Myers to litigate with Maritime in the same action the cancellation or rescission of the conditional sale, "which is not legally proper", but after this motion was denied, Maritime answered the cross-claim alleging that it had not violated the deed in question insofar as leasing the premises covered by it without Myers' consent was concerned, because there was such consent, and further, that it had "never refused to make installment payments to cross-claimant but the former merely suspended the said installment payments because of pending negotiations between" the parties and still further, that: 17. The cross-claimant cannot cancel the said contract of lease unilaterally and arbitrarily; 18. That assuming without conceding that there is breach, cross-claimant cannot unilaterally, arbitrarily and extrajudicially cancel the Deed of Conditional Sale, as under Article 1191 of the New Civil Code, rescission has to be judicially invoked in the event of breach; 19. That assuming without conceding that the terms of the said Deed of Conditional Sale have been violated, cross-defendant under the circumstances would be entitled at the very least to a reasonable period within which to comply with its obligations;

To Maritime's counter-claim to the cross-claim, Myers filed an answer alleging, inter alia, that: ANSWERING cross-claimant further states by way of SPECIAL AND AFFIRMATIVE DEFENSES I That like any corporation duly registered with the Securities and Exchange Commission, the cross-claimant has a personality independent and distinct from the individual personality of its incorporators and/or stockholders; That cross-claimant had nothing to do and never did have anything to do with the alleged sale of plaintiff Luzon Brokerage Co., by F. H. Myers; and that as a matter of fact cross-claimant could not have sold Luzon Brokerage Company for the simple reason that it did not have any interest whatosever in the said corporation; That, for the reasons stated in the next preceding paragraph, cross-claimant could not be under any obligation to make a guaranty in favor of cross-defendant to answer for any contingent liability, rising out of an adverse decision to Luzon Brokerage Company in the LBC/Bataan labor case which is docketed in the Supreme Court as G.R. No. L-17086; II That the alleged contingent liability which might arise out of an adverse decision to Luzon Brokerage Company in the LBC/ Bataan labor case has nothing to do with the determination of the rights of the parties in this case and therefore, is immaterial, irrelevant, impertinent and incompetent; That the sale by F. H. Myers of his shares of stocks of Luzon Brokerage Company (not Luzon Brokerage Company) to E. W. Schedler did not carry with it any guaranty against any contingent liability if and when the LBC/Bataan labor case is decided against Luzon Brokerage Company: That E. W. Schedler is fully aware of the aforesaid absence of a guaranty so much so that neither F. H. Myers, nor his heirs, was impleaded in the suit filed against him by L. R. Wentholt in Civil Case No. 43483 of the Court of First Instance of Manila which should have been the proper course of action for E. W. Schedler to take; That neither did E. W. Schedler file any claim or demand to preserve the alleged guaranty in the estate proceedings of the estate of F. H. Myers in Special Proceedings No. 23063, entitled "In Re Testate Estate of Forest H. Myers, also known as F. H. Myers," of the Court of First Instance of Manila; That, in the light of the failure of E. W. Schedler to take positive and timely step to protect and preserve his alleged guaranty against contingent liability in case of an adverse decision to Luzon Brokerage Co. in the LBC/Bataan labor case, it is now very obvious that the guaranty being sought in its counter-claim is a belated and surreptitious attempt to revive a lost right, assuming but without conceding that F. H. Myers did guarantee E. W. Schedler against the oft-mentioned contingent liability; III

That, assuming further for the sake of argument, that F. H. Myers made a guaranty in favor of E. W. Schedler, the right thereby created is available not to cross-defendant Maritime Building Co., Inc., but only to E. W. Schedler, the purchaser of P. H. Myers' Luzon Brokerage Company shares of stock, and enforceable only against F. H. Myers, the seller, or in case of death, against his estate, but not against the herein cross-claimant; That the testate proceedings of the estate of F. H. Myers had been closed on December 12, 1958, without E. W. Schedler having filed a claim or demand against the said estate to preserve and/or enforce the alleged guaranty. Since it will appear somehow relevant later, it may be added here that after the above pleadings were filed, no further steps were taken by Maritime to directly provide any security for the payment of the remaining installments, since March, 1961, which could indicate that it is relying on the consignations being made by Luzon of its rentals. In other words, Maritime has not made any consignation or deposit of the installments from March, 1961 independently of the consignations made by Luzon. SECONDARY ISSUES There are two secondary issues, from the point of view of importance, which the parties have submitted to the Court. The first is the question of whether or not the interpleader was properly instituted by Luzon. To be sure, there seems to be some plausibility in Maritime's posture that what Luzon should have done upon receipt of Myers' advice of June 8, 1961 that it had cancelled its deed with Maritime was to refer the matter to the latter and invoke its right to be protected and defended in its possession as its lessee, but in as much as the motion to dismiss the interpleader was denied without any special remedy being secured from a higher court to enjoin the same and the parties have already gone into a full-drawn trial on the merits of their respective contentions as regards the cancellation of the Deed of Conditional Sale, practical considerations alone, without taking into account the legal ones which point towards the same conclusion, dictate that this issue be made subordinate to the result of the more fundamental issue of whether or not said deed was properly and legally cancelled by Myers. To overrule the interpleader and order at this stage the institution of a separate suit between Myers and Maritime would be sacrificing the substantive for the purely procedural observance of the rules. The second secondary issue refers to the allegation of Myers that Maritime had leased the premises in question without its consent in violation of the terms of the deed. It appears, however, that Myers has not pressed the issue and need not be passed upon. In any event, there being nothing in the record to indicate otherwise, it may be said that the authority granted to Maritime in Myers' letter of May 14, 1949 (Exhibit 7, Maritime) 3 is broad enough to cover all leases not expressly disauthorized by any subsequent action of Myers. THE HOLDINGS OF THE COURT ON THE FUNDAMENTAL ISSUE Upon the facts and circumstances above related, Our decision holds that: 1. In failing to pay the installments for March, April and May, 1961, and in the light of the circumstances surrounding such non-payment, Maritime committed a breach in faith of the term of the Deed of Conditional Sale aforequoted providing that "the balance of the purchase price (P950,000) 'shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before the 10th day of each month with interest at 5% per annum, this amount to be first applied on the interest, and the balance paid to the principal thereof; and the failure to pay any installment of interest when due shall ipso facto cause the whole unpaid balance of the principal and interest to be and become immediately due and payable.' (Contract, paragraph b; Record on Appeal, page 63)." 3a According to Our decision, "Contrary to Maritime's averments, the default was not made in good faith. The text of the letter to Myers (Exhibit "11", Maritime), heretofore quoted, leaves no doubt that the non-payment of the installments was the result of a deliberate course of action on the part of appellant, designed to coerce the appellee Myers Corporation into answering for an alleged promise of the late F. H. Myers to indemnify E. W. Schedler, the controlling

stockholder of appellant, for any payments to be made to the members of the Luzon Labor Union. This is apparent also from appellant's letter to his counsel (Exhibit "12", Maritime): " ... I do not wish to deposit pesos representing the months of March, April and May, since the Myers refusal to honor the indemnity concerning the labor claims has caused me to disburse (sic) roughly $10,000.00 to date in fees, costs and travel expenses. However, if the Myers people will deposit in trust with Mr. C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr. Parsons, in trust, 15,000 pesos for March, April and May and will also post a monthly deposit of 5,000 pesos until the dispute is settled. The dispute won't be settled in my mind, unless and until: a) The Myers people indemnify me fully the labor cases; b) The labor cases are terminated favorably to Luzon Brokerage and no liability exists; c) The Myers people pay any judgment entered on the labor cases thereby releasing me; or d) It is finally determined either in San Francisco or in the Philippines by a court that the Myers heirs must honor the indemnity which Mr. F. H. Myers promised when I purchased Luzon Brokerage Company. Yet appellant Maritime (assuming that it had validly acquired the claims of its president and controlling stockholder, E. M. Schedler) could not ignore the fact that whatever obligation F. H. Myers or his estate had assumed in favor of Schedler with respect to the Luzon Brokerage labor case was not, and could not have been, an obligation of appellee corporation (Myers Building Company). No proof exists that the board of directors of the Myers Corporation had agreed to assume responsibility for the debts (if any) that the late Myers or his heirs had incurred in favor of Schedler. Not only this, but it is apparent from the letters quoted heretofore that Schedler had allowed the estate proceedings of the late F. H. Myers to close without providing for any contingent liability in Schedler's favor; so that by offsetting the alleged debt of Myers to him, against the balance of the price due under the "Deed of Conditional Sale", appellant Maritime was in fact attempting to burden the Myers Building Company with an uncollectible debt, since enforcement thereof against the estate of F. H. Myers was already barred. Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of contract tainted with fraud or malice (dolo), as distinguished from mere negligence (culpa), "dolo" being succinctly defined as a "conscious and intentional design to evade normal fulfillment of existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116). 2. We also held that: From another point of view, it is irrelevant whether appellant Maritime's infringement of its contract was casual or serious, for as pointed out by this Court in Manuel Rodriguez, 109 Phil. 1, at page 10 The contention of plaintiff-appellant that Payatas Subdivision, Inc. had no right to cancel the contract as this was only a "casual breach" is likewise untenable. In contracts to sell, where ownership in retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, failure of which is not a breach, casual or serious, but in an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that this

was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. 3. We likewise overruled Maritime's contention that even on the assumption that there was breach on its part, Myers had no right to resolve the deed unilaterally with first resorting to the courts. This We did upon the authority of University of the Philippines vs. Walfrido de los Angeles, 35 SCRA 107. 4. Further, We held: Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as entitling it to pay despite its defaults: ART 1592. In the sale of immovable property, though it may have been stipulated that upon failure to the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. Assuming arguendo that Article 1592 is applicable, the cross claim filed by Myers against Maritime in the court below constituted a judicial demand for rescission that satisfies the requirements of said article. But even if it were not so, appellant overlooks that its contract with appellee Myers is not the ordinary sale envisaged by Article 1592, transferring ownership simultaneously with the delivery of the real property sold, but one in which the vendor retained ownership of the immovable object of the sale merely undertaking to convey it provided the buyer strictly complied with the terms of the contract (see paragraph [d], ante, page 5). In suing to recover possession of the building from Maritime, appellee Myers is not after the resolution or setting aside of the contract and the restoration of the parties to the status quo ante, as contemplated by Article 1592, but precisely enforcing the provisions of the agreement that it is no longer obligated to part with the ownership or possession of the property because Maritime failed to comply with the specified condition precedent, which is to pay the installments as they fell due. The distinction between contracts of sale and contracts to sell with reserved title has been recognized by this Court in repeated decisions (Manila Racing Club vs. Manila Jockey Club, 69 Phil. 55; Caridad Estates vs. Santero, 71 Phil. 114; Miranda vs. Caridad Estates, L-2077, 3 October 1950; Jocson v. Capitol Subdivision, L-6573, 28 February 1955; Manuel vs. Rodriguez, 109 Phil. 1. See also Sing Yee Cuan, Inc. vs. Santos (C. App.) 47 OG 6372.) upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided for, as the case at bar. 5. Finally, on the equity aspect, We expressed the view that: Maritime's appeal that it would be iniquitous that should be compelled to forfeit the P973,000 already paid Myers, as a result of its failure to make good a balance only P319,300.65, payable at P5,000 monthly, plus interests, Maritime, on the other hand, had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid P13,000 a month rent, from September, 1951 to August 1956, and thereafter until 1961, at P10,000 a month, thus paying a total of around one and a half million pesos in rentals to Maritime. Even adding to Maritime's losses of P973,000 P10,000 damages and P3,000 attorneys' fees awarded the trial court, it is undeniable that appellant Maritime come out of the entire transaction still at a profit to itself.

In the denial resolution, it is being held that Maritime acted in bad faith thus: The facts as narrated in the decision and revealed by proof clearly show that as early as 24 March 1961, Maritime had requested a "Suspension" or "moratorium" in its monthly payments until the close of 1961, allegedly because "we are encountering some unusual expenses with the warehouses" (Exhibit "A-Myers"), but this request was turned down on 29 May 1961 by the Myers Corporation advising George Schedler, son of Edmund Schedler, main stockholder of Maritime, that his request "can not be granted as I have specific instruction from the Board (of Myers Co.) not to agree to any suspension of payments under any condition" (Exhibit "5-Myers"). This refusal is referred to in Edmund Schedler's letter of 7 April 1961 (Exhibit "11-Maritime"). Notwithstanding Myers Corporation's categorical refusal to agree to a suspension or moratorium and after Myers had called its attention to the violation of the contract (Exhibit "11-A"), Schedler, on behalf of Maritime, insisted on suspending its payments, alleging for the first time that the late F. H. Myers had "agreed to indemnify and hold me harmless from the Luzon Labor Union claims which are in litigation" and giving notice that "my wife and I intend to withhold any further payments to the Myers Building Co. Estate ...". This intention was reiterated in the letter Exhibit 12-Maritime, wherein it was added that "if the Myers people will deposit in trust with Mr. C. Parsons 25,000 pesos to cover costs to date, I will then deposit with Mr. Parsons in trust 15,000 pesos for March, April and May ...". xxx xxx xxx a) Maritime intentionally risked the penalty by deliberately refusing to make the monthly payments for March to May 1961, and trying to inject into its contract with Myers corporation the totally unconnected personal promise of F. H. Myers to identify it for eventual liability to the Luzon Labor Union allegedly made on the occasion of the sale of the Luzon Brokerage to E. Schedler by F. H. Myers and trying to extrajudicially force Myers corporation to assume responsibility for such liability; b) Under Article 1234 of the present Civil Code, an obligation must be substantially performed in good faith, for such performance to stand in lieu of payment; Maritime, on the contrary acted with dolo or bad faith, and is not in a position to invoke the benefits of the article; c) Maritime's loss of the forfeited payments was more than balanced by the rentals it received from the Luzon Brokerage as lessee of the building for the corresponding periods, at a rate double the monthly payments required of Maritime under its contract with Myers. And in holding that there has been no substantial compliance of the Deed, as if to exclude the application of the ruling in J. M. Tuazon Co. Inc. vs. Javier, 31 SCRA 829, invoked by Maritime, the denial resolution says: c) 'We can not see how it can now be claimed that Maritime's obligation had been substantially performed in good faith. Maritime was obligated to make monthly payments to Myers Building Co. under its contract, until the price of the building was paid in full and yet it repeatedly refused to do so, on the pretext that the late F. H. Myers had obligated himself to indemnify Edmund Schedler from the labor claims against the Luzon Stevedoring Co., that Myers had sold to Schedler in a totally separate contract. As noted in the main decision, F. H. Myers was not the vendor Myers Building corporation; moreover, he had already died and his estate had been closed without Schedler or maritime having filed any contingent claim before closure of the estate proceedings, as required by Revised Rule 88. The claims of Schedler or Maritime were, therefore, already barred, even assuming that there was any truth to the alleged promise of the late Myers, which is not supported by any reliable evidence. And even then, the claim was at the most payable by the heirs of F. H. Myers, but not by the Myers corporation which had no duty to assume the guarantee. Plainly, the non-payment for March, April and May, 1961, due to the corporation, was intentional and deliberate non-performance, designed to extrajudicially force Myers corporation to grant the moratorium originally solicited and rejected, thus constituting, as

held in the main decision, dolo (in the performance, in solvendo) and not mere culpaor negligence. Castan Der. Civil, Vol. 3, 7th Ed., page 129, quotes with approval Pairos Teoria de Obligaciones on this point: Aunque nuestro Codigo civil no de la nocion del dolo como causa de incumplimiento de la obligacion, se ajusta en realidad a ese criterio doctrinal, que puede encontrar un apoyo en el texto del art. 1. 107. Como observa Diaz Pairo, "en dicho precepto se contrapone el deudor de buena fe y el deudor por dolo, resultando asi que este ultimo es el deudor de mala fe, y para la exitencia de esta no hace falta la intencion de prejudicar o de daar, bastando infringir de modo voluntario el deber juridico que pesa sobre el deudor a sabiendas, es decir conscientemente. Esa voluntariedad y consciencia tornan doloso el incomplimiento, aunque, como es posible, el deudor no haya tenido intencion de perjudicar o de daar al acreedor, contando, lo que no es raro con que sobrevengan hechos que le permitan satisfacer mas tarde su obligacion. (Teoria, t. 1. pag. 116). (Emphasis supplied) d) Nor is it admissible, as movant contends, that had been substantial performance by it or that the offer to deposit in trust the missing amounts were equivalent to payment. When Maritime suspended its payments for March-May, 1961, there was a balance of P319,300.65 on the principal of its obligation, plus interest, i.e., nearly 1/3 of the original indebtedness. And as the offer to deposit the payments due in trust or in escrow, it can not be considered payment since it was a conditional tender, and would have left the creditor (Myers corporation) unable to make use of the money rightfully due to it. This Court, in Philippine National Bank vs. Relativo, et al., 92 Phil. 203, has ruled that a tender to be valid must be unconditional; and even then, a tender alone is not a mode of extinguishing obligations, unless followed by consignation. Furthermore, for Myers to accept the proposed deposit of the monthly payments in trust or escrow, would be equivalent to an admission on its part of the validity or truthfulness of Maritime's claim and of Myers Corporation's liability for an obligation of an individual stockholder. Nor is there any justification on record to warrant the disregard of the corporate personality of Myers Building Corporation in the present case. Finally, regarding Maritime's invocation of Article 1191 of the New Civil Code (more appropriately Article 1124 of the Spanish Civil Code), the denial resolution holds as follows: Movant Maritime's insistence upon the application to the present case of Art. 1191 of the Civil Code of the Philippines (tacit resolutary condition in reciprocal obligations) studiously ignores the fact that Myers' obligation to convey the property was expressly made subject to a suspensive (precedent) condition of the punctual and full payment of the balance of the purchase price. This is apparent from clauses (d) and (i) of the contract of sale (Record on Appeal, pages 64, 67): d) It is hereby agreed, covenanted and stipulated by and between parties hereto that the Vendor will execute and deliver to the Vendee a definite or absolute deed of sale upon the full payment by the Vendee of the unpaid balance of the purchase price hereinabove stipulated; that should the Vendeefail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this deed of Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties or to any other party. xxx xxx xxx

(i) Title to the properties subject of this contract remains with the Vendor and shall pass to, and be transferred in the name of the Vendee only upon complete payment of the price above agreed upon, (Emphasis supplied). It is well to emphasize here the express stipulations (paragraph d) that ... the Vendor (Myers will execute and deliver to the Vendee a definite and absolute deed of sale upon full payment by the Vendee of the unpaid balance of the purchase price ... as well as that (paragraph i of the deed of sale) Title to the properties subject to this contract remains with the Vendor and shall pass to and be transferred in the name of the Vendee only upon the complete payment of full price above agreed upon. make it crystal clear that the full payment of the price (through the punctual performance of the monthly payments) was a condition precedent to the execution of the final sale and to the transfer of the property from Myers to Maritime; so that there was to be no actual sale until and unless full payment was made. It is uncontroverted that none was here made. The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay the price as agreed upon, Myers was not rescinding (or more properly resolving) contract, but precisely enforcing it according to its express terms. In its suit Myers was not seeking restitution to it of the ownership of thing sold (since it was never disposed of), such restoration being the logical consequence of the fulfillment of aresolutory condition, express or implied (article 1190) ; neither was it seeking a declaration that its obligation to sell was extinguished. What it sought was a judicial declaration that because thesuspensive condition (full and punctual payment) had not been fulfilled, its obligation to sell to Maritime never arose or never became festive and, therefore, it (Myers) was entitled to repossess property object of the contract, possession being a mere incident to its right of ownership. It is elementary that, as stated by Castan, b) Si la condicion suspensiva Ilega a faltar, la obligacion se tiene por no existente, y el acreedorpierde todo derecho, incluso el de utilizar las medidas conservativas. (3 Castan, Derecho Civil, 7a Ed. 107). (Also Puig Pea, Der. Civ., T. IV (1), p. 113) Movant Maritime's failure to take into account the fact that Myers' promise to sell was subject to a suspensive condition (not to a suspensive period) renders all its discussion about bilateral or reciprocal contracts and the application of Articles 1198 and 1592 of the Civil Code of the Philippines (both of which deal with rescission or resolution of contractual obligation), with consequent mutual restitution 4 , a pure academic exercise without applicability to the case at bar. Similarly, there is no point in discussing whether or not Maritime's breach of contract was casual or serious, since the issue here is whether the suspensive condition (of paying P5,000.00 monthly until full price is paid) was not fulfilled, and is not open to dispute that the stipulated suspensive condition was left unaccomplished through the deliberate actions of movant Maritime. The stubborn fact is that there can be no rescission or resolution of an obligation as yet non-existent, because the suspensive condition did not happen. Resolving identical arguments, as those of Maritime, this Court ruled in Manuel vs. Rodriguez, 910, as follows:

... Plaintiff-appellant, however, argues (Errors I-IV; VI; VIII) that the Payatas Subdivision had no right to cancel the contract, as there was no demand by suit or notarial act, as provided by Article 1504 of the Old Code (Art. 1592, N.C.C.). This is without merit, because Article 1504 requiring demand by suit or notarial act in case the vendor or realty wants to rescind, does not apply to a contract to sell or promise to sell, where title remains with the vendor until fulfillment to a positive suspensive condition, such as full payment of the full price (Caridad Estates vs. Santero, 71 Phil. 114, 121; Albea vs. Inquimboy, 86 Phil. 476; 47 Off. Gaz. Supp. 12, p. 131; Jocson vs. Capitol Subdivision Inc. et al., L-6573, February 28, 1955; Miranda vs. Caridad Estates, L-2077 and Aspurta vs. Caridad Estates, L-2121, October 3, 1950). The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to proceed from assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. The foregoing quotation is the best refutation of Maritime's contention that the ruling is obiter when in fact it passed on issues tendered on appeal. The stipulations of the contract being the law between the parties, Courts have no alternative but to enforce them as they were agreed and written, there being no law or public policy against the stipulated forfeiture of payments already made (Manila Racing Club vs. Manila Jockey Club, 69 Phil. 57). Reviewing these propositions in or premises of Our judgment and denial resolution, in the light of the arguments advanced in the motion for reconsideration and of my own careful and detailed study of their validity and implications, I am constrained to hold that they are not unassailable and, in fact, there are sufficient grounds, in my considered view, for modifying the position of the Court in regard thereto. A. Maritime's failure to pay the March, April and May, 1961 installments did not constitute default in the absence of a demand in accordance with Article 1100 of the Old Civil Code. (found in modified form in Art. 1169 of the New Civil Code) At the outset, it must be clarified that inasmuch as the Deed of Conditional Sale in dispute was executed on April 30, 1949 before the New Civil Code took effect, it is obvious that this case must be resolved on the basis of the provisions of the Old Civil Code or the Spanish Civil Code, not all the provisions of which pertinent to this case are identical to the corresponding provisions of the New Civil Code. According to Article 1100 of the Old Code: Art. 1100. Persons obliged to deliver or to do something are in default from the time the creditor demands of them judicially or extrajudicially the fulfillment of their obligation.

Nevertheless, the demand of the creditor shall not be necessary in order that default may arise 1. When the obligation or the law expressly so provides; 2. When by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which the thing was to be delivered or the service rendered was the determining motive for the creation of the obligation. In reciprocal obligations neither of the obligors shall be in default if the other does not fulfill or does not submit to the fulfillment of that which is incumbent upon him. From the time one of the obligees performs his obligation the default begins for the other. In Bayla v. Silang Traffic, 73 Phil. 557, Justice Ozaeta ruled for the Court as follows: The next question to determine is whether in the contract between the parties the failure of the purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and the reversion of the shares to the corporation. The contract provides for interest at the rate of six per centum per annum on deferred payments. It also provides that if the purchaser fails to pay any of said installments when due, the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller. The respondent corporation contends that when the petitioners failed to pay the installment which fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without the necessity of any demand from the corporation, and that therefore the resolution of August 1, 1937, authorizing the refund of the installments already paid was inapplicable to the petitioners, who had already lost any and all rights under said contract. That contention is, we think, untenable. The provision regarding interest on deferred payments would not have been inserted if it had been the intention of the parties to provide for automatic forfeiture and cancellation of the contract. Moreover, the contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to forfeiture and cancellation without the necessity of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or to do something are not in default until the moment the creditor demands of them judicially or extrajudicially the fulfillment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise, or (2) by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which the thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation. In the case at bar, there is also an automatic forfeiture clause as also an interest on deferred payment clause similar to those in the Bayla case. Accordingly, the question may be raised, was there any demand in this case? As may be noted in the above relation of facts, the sole and only demand made upon Maritime by Myers for the payment of the March, April and May, 1961 installments was contained in the latter's letter of May 16, 1961, Exhibit 2-A, Myers, and importantly, for reasons which Myers evidently considered irrelevant because it has not shown in the record any that may adversely affect Maritime's position, this communication was not received by Maritime or returned unclaimed. The subsequent letter of Myers to Maritime of June 5, 1961, Exhibit 2, Myers, was no longer a demand; it was already a notification that Myers had unilaterally cancelled the Deed in controversy. To the possible contention that the agreement in this case provides in its paragraph (d) "that should the Vendee fail to pay any of the monthly installments, when due... then this Deed of Conditional Sale shall automatically and without any further formality, become null and void," which provision, incidentally, is not the one quoted and refered to in Our decision as the basis of default, this case therefore falls within the first exception in Article 1100 regarding instances when the obligation itself provides that demand is not necessary, the ready answer is that such phrase "without any further formality" is not explicit enough to meet the requirements of an express reference to the waiver of demand

contemplated in said article and the decision in Bayla. The best proof that the parties themselves, particularly Myers, did not understand said phrase in that sense, is the very letter of demand, Exhibit 2-A; Myers, which Myers wrote to Maritime on May 16, 1961 but which unfortunately was not received by Maritime.

B. Assuming there was no need for demand, Maritime's failure to actually pay the installments in question cannot be considered as a breach in bad faith (dolo). A cursory reading of Our decision and denial resolution will readily reveal that in holding that Maritime's payment of the installments for March, April and May, 1961 constituted a violation in bad faith of the Deed of Conditional Sale, reliance is made exclusively on the communications which Maritime itself had presented in evidence. In connection, it is to be noted Myers never alleged in any of its pleadings nor did it try to prove by any evidence any particular act of bad faith of Maritime. The sole and only cause of action alleged in Myers' cross-claim against Maritime was the non-payment of the March, April and May installments notwithstanding its demand letter of May 16, 1961 and its cancellation letter of June 5, 1961, and it is not alleged that such non-payment was in bad faith. No reference at all is made to any of the communications on which Our decision is based. Indeed, it is quite ironic that We drew Our conclusion of bad faith from the very documents which Maritime precisely offered to show its good faith. And reading said communications again, I feel that Our conclusion is not only harsh but, what is worse, it can hardly be justified. In both the decision and the denial resolution, We declare that the non-payment of the installments for March, April and May, 1961 was intentional and deliberate and designed or calculated extrajudicially to either force Myers to grant the moratorium requested by Maritime or coerce it "into answering for an alleged promise of the late F. H. Myers to indemnify E. N. Schedler, the controlling stockholder of appellant, for any payments to be made to the members of the Luzon Labor Union." I am afraid that in arriving at such conclusion We have unnecessarily viewed the evidence of Maritime in the light most unfavorable to it, which is not fair, considering that even if it can be assumed that Maritime was really trying its best to get concessions from Myers, it cannot be said that in exerting efforts along that direction Maritime had in mind or it intended to completely disregard and ignore its obligations under the Deed of Conditional Sale. On the contrary, it is very evident from Schedler's letters that he was mindful all the time of said obligations and, while he was concerned with the possibility that he might be left holding the bag in regard to the labor judgment being pinned on him by Wentholt, he was trying to make sure that legally Maritime would not be in default insofar as the payment of the installments to Myers was concerned. Thus, in the letter of April 7, 1961, Exhibit 11, Maritime, there is in fact an acknowledgement rather than a denial of what is due to Myers under the Deed of Conditional Sale. It is true said letter does say that Schedler and his wife "intend to withhold further payments to the Myers Building Company or Estate, in order that we can preserve funds and assets to set off against the potential to liability which I am now exposed by the failure of the Myers heirs to honor the indemnity agreement pertaining to labor claims", but it is equally true that in his letter of April 21, 1961 to Senator Padilla, Exhibit 12, Maritime, Schedler made it clear that "we do not desire to be total in default by withholding all payments and we are willing to pay the monthly installment into a depositary as Mr. Parsons ..." and then added, "As a last resort and if you believe it is the only method to insure successs in the law suit which I have mentioned that I feel you ought to commence (declaratory relief based upon the Deed ... seeking determination by the court that I am entitled to withhold further payments on that installment contract or I am entitled to deposit them in trust to be conserved pending determination by the court of the liability of the Myers Estate to indemnify and hold me harmless from any of the labor claims ...) I would deposit the installment in court to bring me current and make continuous deposits thereafter." Frankly, I cannot see how these unequivocal acknowledgement of liability and apprehension about being in default, albeit coupled with the desire to seek the ways and means by which to reconcile the obligation of Maritime to Myers with the possible liability of the Estate of Myers to Schedler, can be regarded as bad faith. Of course, Myers had the privilege and right to reject Schedler's proposal but until such rejection was made clear and definite, I do not believe it would be fair to hold Maritime to be in default, much less in bad faith, considering that Myers had not made any demand known to Maritime because its letter of May 16, 1961 did not reach the latter. It must be borne in mind, further, that at the time these developments took place, Maritime had already paid P973,000, which it stood to lose if it violated its contract with Myers by failing to pay any of the stipulated monthly installments. No man in his right senses would deliberately risk such a loss when very little,

comparatively speaking, is expected of him to prevent it. For this reason, I am inclined to view Maritime's position, brought about by Schedler's attitude, in the same plane as the ordinary practice of an obligor who would rather deposit in court or in escrow with a disinterested and trusted third person than pay money that would be due to another pending final determination of some questions he would like to raise in connection therewith and which make it impractical if not risky for him to make the payment directly to the obligee, without prejudice, of course, to his liability for damages in the event he is found ultimately liable. I am not aware that such a procedure has been ever condemned either as mala fide or as dolo. At this juncture, it is pertinent to make clear that Myers' position in regard to the communications between Schedler and Parsons, and consequently, those between Schedler and Senator Padilla, as well as those between the latter and Parsons have no legal bearing. In fact, as already stated, Myers' pleadings and evidence are confined to the Deed of Conditional Sale, the contract of lease between Maritime and Luzon and its letters of May 16, 1961 and June 5, 1961, Exhibits 2-A, Myers and 2, Myers, respectively. In other words, insofar as Myers is concerned, Maritime's non-payment was unexplained, or, Maritime just failed to pay, and inasmuch as the contract provides that upon non-payment of any installment, Myers would have the right to cancel the agreement, the letter of June 5, 1961, Exhibit 2, Myers was nothing more than an exercise of its rights under the contract. In this connection, it is to be noted that the said Exhibit 2, Myers makes no mention of or reference to the communications between Schedler and Padilla, on the one hand, and Parsons, on the other, evidently because it is the position of Myers that Schedler is not Maritime as Parsons is not Myers, and applying the principle of res inter alios acta, neither Maritime and Myers could be held responsible for whatever is contained in said communications. With this posture of Myers in mind, it becomes a problem what relevance We are to attach to said communications. To reiterate, from the point of view of Myers, Schedler's and Senator Padilla's letters to Parsons were not addressed to Myers, since it does not appear that Parsons was not authorized to act for and on its behalf. Worse, they referred to matters with which Myers professed not to have anything to do. Consequently, on the other hand, whatever Parsons said in them for Myers should also not have any color of authority. In this sense, it would appear that Myers had no knowledge whatsoever why Maritime did not pay. How could it charge Maritime with bad faith? Upon the other hand, if We consider the letters addressed to Parsons as offers of Maritime to Myers, in legal contemplation, the consequence would be that until such offers were definitely turned down, Maritime can be hardly held to have acted in bad faith. In this connection, it must be borne in mind that it was not until Parsons wrote the letter of July 6, 1961, Exhibit 14, Maritime, to Senator Padilla or, at the earliest, when he wrote his letter of June 1961, Exhibit 14-A, Maritime, to Schedler, as mentioned in Exhibit 14, Maritime, that Maritime may be deemed to have been advised of the rejection by Myers of its proposed arrangements. To my mind, if the communications between Schedler and Senator Padilla and Parsons are to be considered as relevant, it must be only from this point and earlier, that Maritime's bad faith, if at all, should be considered as having started, if it still refused to pay as per contract. Perhaps, it will be asked, why then did not Maritime the July, 1961 and subsequent installments? To begin with it must be remembered that when Schedler wrote Parsons, on June 21, 1961, Maritime had not yet been summoned in regard to Luzon's interpleader, for the order requiring defendants to answer is dated only on that day, hence, it is not far-fetched to say that Schedler was not aware of the interpleader. It will be recalled that the interpleader was filed on June 18, 1961 and Luzon simultaneously deposited with the court the rental for June, 1961 of P10,000, and henceforth all subsequent rentals were likewise deposited monthly in court. Under these circumstances, I feel that to have required Maritime to separately deposit P5,000 each month for the installments would be more than the law and equity demand. In such a situation, the P10,000 monthly deposit of Luzon should be considered as rentals due either to Myers or Maritime depending on who will win in the case, and on the assumption that Maritime will win, P5,000 thereof monthly should be considered as corresponding to the installment due from Maritime, which undoubtedly Maritime could have done had it filed its case separately from and ahead of Luzon. The difference would thus be a matter of form and should not be placed above substantive considerations. The denial resolution quotes from Castan to the effect that for bad faith to exist "no hace falta la intencion, de perjudicar orde daar, bastando infringir de modo voluntario el deber juridico que pesa sobre el deudor a sabiendas, es decir, conscientemente. Esa voluntariedad y consciencia tornan doloso el incomplimiento, aunque, como es posible, el deudor no haya tenido intencion de perjudicar o de daar al acreedor, contando, lo que no es raro, con que sobrevengan hechos que le permitan satisfacer mas tarde su obligacion." Granting for the sake of argument that

such observation is juridically tenable, albeit I feel it sounds more strict than Shylock's demand for his pound of flesh pursuant to the letter of the bond, I believe it is but fair to temper its effect in instances where, as in this case, the non-payment is accompanied by efforts to reconcile the obligee's liability with a claim likely to arise in his favor against the obligor, for which reason the obligor offers to deposit his payment or have them held in escrow by a third party until the possibility or impossibility of a set-off is cleared. What difference is there between this case and one wherein a debtor believes he is no longer obliged to pay, but just the same deposits his payment in court? Can such a debtor be considered as guilty of bad faith even if it should turn out that his position is not legally tenable? If I remember my law and equity correctly, such an act is precisely the evidence of good faith which at the most would entitle the creditor only to the payment of additional interest or damages.

There has been substantial compliance and Article 1234 may be applied. Viewed from another angle, considering that out of the stipulated price of Pl million, already P973,000 had been actually paid by Maritime, P680,699.35 for the installments for practically twelve years and P342,300.65 as interest, all of which it stands to lose together with the subject property, and only P319,300.65 remained to be paid, may it not be said that the contract as a whole has already been substantially complied with and a delay of three or four months in the payment of the P5,000 monthly installments still due should not be considered as sufficient cause in equity for the cancellation of the whole contract? It is pointed out that no inequity can be claimed by Maritime because after all, it had leased the same property to Luzon for P10,000 or more a month and the rentals it must have collected could be more than what it has paid Myers. To start with, the evidence is not very clear as to the periods of the lease to Luzon. The only contracts of lease I can see in the records are those of September 1, 1951 to August 1, 1956 for P13,047.00 a month or March 1, 1964 (Exhibits 8 and 9, Maritime) and of March 1, 1959 or April 1, 1959 to February 28, 1964 for P10,000 a month, and this second one was precisely overtaken by the interpleader in this case, so much so that subject to the results hereof, another five year similar contract was executed on April 24, 1963. (Exhibit 18, Maritime) There is, therefore, no clear basis in the evidence for comparing how much Maritime had paid as rentals with how much it had paid as installments as of June, 1961. In any event, for purposes of equity, I do not believe We should disregard the property itself in this comparison, hence We should not overlook that Maritime stands to lose not only the P973,000 it had paid, but the property itself and the future rentals it is supposed to earn therefrom, which after all, constituted part of its consideration in entering into the contract and acquiring the property in question. Indeed, under similar circumstances as in this case, in J.M. Tuazon v. Javier, 31 SCRA 829, this Court held over the pen of Chief Justice Concepcion, that under the authority of Article 1234 of the New Civil Code, which provides thus: If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. that there had been substantial compliance with the contract and "in the interest of justice and equity," the buyer of a lot in installments who had failed to pay eighteen installments after having paid religiously all previous installments for more than eight years should be allowed to complete the payment, with damages, which she had offered to do at the pre-trial. I see a compelling parity between that case and the one at bar, and to the observation during the deliberations that the present case involves financial giants who could employ the best legal counsel and might just be trying to outsmart each other, I will simply say that I cannot compartmentalize justice and equity, much less on the basis suggested which has no relevance to the juridical implications of the acts of the parties in this case. Indeed, my deeper interest in this case springs from the concern I feel for the thousands of subdivision lot buyers who have suffered or stand to suffer loss of all their life savings as a result of the heartless treatment they get from subdivision owners who would invoke the fine prints of their contracts in order to terminate the same just because of two or three months default on the part of the buyer, but I certainly would not deny the justice I would render to said subdivision buyers to a party similarly situated only because he happens to be rich. I realize, of course, that Article 1234 which the Court applied in the Javier case is a new provision of American origin not found in the Old Civil Code, which I have said is the one applicable to the case at bar. I must say, however, that

the philosophy and equitable foundation of Article 1234 is not new and may, therefore, be applied as general principles of equity which this Court is not without authority to do.

PROMESA DE VENTA Notorio sea a todos: Que el Banco Nacional Filipino, una corporation bancaria creada, organizada y existente por y en virtud de la Ley No. 2612, tal como fue reformada, cuya oficina central se halla en la Ciudad de Manila y con una sucursal establecida en el municipio de Davao, Provincia de Davao, I. F., que mas adelante se designara como Primera Parte; y A. Sing, mayor de edad, comerciante y domiciliado en el referido municipio de Davao, Provincia de Davao, I. F., que mas adelante se designara como Segunda Parte, por la presente convienen, estipulan y hacen constar: Primero. Que en consideracion de la suma de veinticinco mil pesos (P25,000), que la Segunda Parte se obliga a satisfacer en la forma que mas abajo se expresa, la Primera Parte por la presente se compromete a vender, ceder, y traspasar en absoluto a la Segunda Parte todo su derecho, titulo, interes y participacion, en dos parcelas de terreno situadas en el distrito municipal de Samal, Provincia de Davao, que se describen como sigue: 1. A parcel of land (lot No. 3, plan II-10758) with all buildings and improvements, except those herein expressly noted as belonging to other persons, situated in the barrio of Quinawitnon, barrio of Babac, municipal district of Samal; bounded on the N. by property of Placida Quiones; on the NE. by public lands; on the SE by public lands; on the SW. by property of Basilides Bustamante; and on the NW. by the Gulf of Davao, property of Bocboc, a road and properties of Mayond-gon, the municipal Government of Samal, Lelango, Bancao, Angel Mamay-ya and Libudan et al.; containing an area of 3,223,867 square meters more or less; 2. A parcel of land (lot No. 4, plan-10758) with all buildings and improvements, except those herein expressly noted and belonging to other persons, situated in the sitio of Quinawitnon, barrio of Babac, municipal district of Samal; bounded on the SE. by a road; on the S. by properties of Logan and Gutom; on SW. by the Gulf of Davao, and on the NW. by property of Libudon et al.; containing an area of 16,481 square meters, more or less; cuyas propiedades se hallan mas particularmente descriptas en el certificado de transferencia de titulo No. 1099 expedido por el registrador de titulos de Davao a nombre del Banco Nacional Filipino. Segundo. Que la Segunda Parte pagara el precio arriba estipulado en la forma siguiente:

Assuming otherwise than as above discussed, Article 1504 of the Old Civil Code is applicable to this case. I just cannot get over the feeling that the breach here in question is so slight considering the undisputed compliance by Maritime with over two-thirds of its Pl million obligation for over twelve years strictly in accordance the terms of the contract, and furthermore, what to me were bona-fide efforts on the part of said appellant to reconcile the reasonable safeguarding of its interests with its admitted liability to the appellee, that I would not hesitate to hold in the spirit of Our decision in the Javier case that "in the interest of justice and equity," the judgment of the lower court should be reversed and Maritime should be allowed to pay the balance of the purchase price in the deed plus interest. But even assuming We can hold that Maritime became in default by failing to pay the installments for March, April and May, 1961, I am of the considered view that inasmuch as at the time Myers cancelled the "Deed" in question on June 5, 1961, it had not yet made either a notarial or a judicial demand for such cancellation and, in fact, it was only after Luzon filed its interpleader on June 8, 1961, or, more specifically on July 25, 1961, when Myers filed its cross-claim againstMaritime in its answer to Luzon's interpleader complaint, that in a sense Myers made a judicial demand, Maritime's offers of payment thru Schedler made to Parsons should be considered as a substantial compliance with its obligation to pay the installments for March, April and May, under Article 1504 of the Old Civil Code; hence it cannot be held to have lost its right to pay subsequent installments which reason, the cancellation of the contract by Myers on June 8, 1961 was uncalled for, unjustified and without legal basis.

The "Deed" in question is not a promise to sell it is a sale. Our decision and the denial resolution are both premised on the holding that the Deed of Conditional Sale herein involved as merely a promise to sell and not a contract of purchase and sale, hence Article 1504 is not applicable. I am afraid that Our finding that the said "Deed" is a mere promise to sell stands reexamination. I have quoted above the pertinent portions of the "Deed". From said portions, I find it difficult to view the contract as otherwise than a perfected contract of purchase and sale of immovables. To start with, it is beyond my comprehension why, with all the legal assistance it had at its command, Myers, as the seller who presumably must have taken charge of the preparation of the contract in question or, at least, had the last say as to how it should be avoided, deliberately refrained from using any word in the said contract connoting a mere promise to sell, not to speak of plain and explicit terms to such effect, and instead signed it in the form it now appears. Pertinently, it says, "the Vendee has agreed to purchase the above-described properties and the Vendor has agreed to sell ... " (Whereas clause), "the Vendor hereby sells, transfers and conveys unto and in favor of the Vendee, its successors, etc." (Therefore clause), "on the properties herein sold conditionally" (Par. g) and "the material and physical possession of the properties herein sold" (Par.h). To my mind, this language is out of place in a promise to sell. Moreover, with reference to the theory, more extensively to be discussed anon, that the parties did not have rescission but mere cancellation in contemplation, I find that whereas Par. (d) does provide that "this Deed of Conditional Sale shall automatically and without any further formality became null and void" and the same idea is repeated in Paragraphs (f) and (o), on the other hand, Paragraph (e) very clearly states that "should the Vendor rescind this Deed of Conditional Sale for any of the reasons stipulated in the preceding paragraph, the Vendee etc. ... in case of rescission and a suit should be brought in court by the Vendor in case of rescission etc. ... " More importantly, at the time of the execution of this "Deed" in April, 1949, the applicable existing jurisprudence was that of El Banco Nacional Filipino contra Ah Sing, 69 Phil. 611, in which the contract involved was worded in its pertinent parts as follows:

Dos mil pesos (P2,000) al contado en el acto del otorgamiento de este contrato; y El saldo de veintitres mil pesos (P23,000), con sus interes al 8 por ciento al ao, en veinte amortizaciones anuales iguales de P2,342.55 cada una, debiendo pagarse la primera amortizacion el dia 3 de abril de 1936. Tercero. Que la Segunda Parte pagara igualmente las contribuciones e impuestos, tanto vencidos como por vencer, que afectan a las referidas propiedades, asi como cualquier otro gravamen que pese sobre los mismos, y los gastos de otorgamiento de este contrato y de la escritura de venta definitiva en su caso, los sellos documentarios y los derechos de registro en relacion con esta transaccion. Cuarto. Que la posession de las susodichas propiedades queda cedida a la Segunda Parte en la fecha del otorgamiento de este contrato. Quinto. Que la Primera Parte no respondera a la Segunda Parte del saneamiento en caso de eviccion ni por los defectos o gravamenes ocultos de las citadas propiedades.

Sexto. Que una vez pagada por completo por la Segunda Parte el precio arriba estipulado, la Primera Parte otorgara la correspondiente escritura de venta definitive de todo su derecho, titulo, interes y participacion sobre las repetidas propiedades a favor de la Segunda Parte. Septimo. Que si la Segunda Parte faltare al pago, a su vencimiento, de cualquiera amortizacion tal como se estipula en el segundo parrafo de la presente, o dejare cumplir cualquiera de las condiciones arriba especificadas, este contrato quedara automaticamente rescindido y cancelado y, en tal caso, todas las cantidades pagodas por la Segunda Parte seran consideradas como alquileres pagados por el uso y ocupacion de las mencionadas propiedades durante el tiempo transcurrido desde el otorgamiento de este contrato hasta dicha rescision y cancelacion, pudiendo entonces la Primera Parte posesionarse inmediatamente de las mismas y venderlas a otra persona. En fe de lo cual, firman las partes la presente en Davao, Davao, I. F. hoy 4 de abril de 1934. It will be noted that the above-quoted contract was entitled precisely as a "Promesa de Venta" and the stipulation expressly says merely that "la Primera Parte por al presente se compromete a vender, ceder, y traspasar etc." Otherwise, all its provisions are substantially if not literally identical to the "Deed" here in question. Besides, the buyer there was a Chinese and for this reason, the issue raised was of utmost importance in the application of the constitutional provision prohibiting the transfer of private agricultural lands to persons other than Filipinos, and still this Court held in favor of the Chinese by considering the contract as one of sale and not a mere promise to sell thus: El demandante arguye que los terminos del contrato demuestran claramente que el mismo es de promesa de venta porque se estipulo expresamente que despues del pago del ultimo plazo es cuando se otorgaria la escritura de venta definitiva, y cita en su apoyo el articulo 1451 del Codigo Civil que dispone, en parte, que la promesa de vender o comprar, habiendo conformidad en la cosa y en el precio, dara derecho a los contratantes para reclamar reciprocamente el cumplimiento del contrato. En nuestra opinion el contrato celebrado por las partes es el de venta de real de los inmuebles que fueron objeto de la contratacion. Segun sus torminos las partes convinieron tanto en los terrenos que eran el objeto del contrato como en el precio y en la forma en qu este ultimo se debia pagar. No solo esto, sino que las partes convinieron en que los terrenos se entregarian al demandado y este, en realidad, tomo posesion de los terrenos, introdujo mejoras en los mismos y se beneficio de sus frutos, pagando, ademas, los plazos convenidos a medida que vencian. Es de estricta aplicacion al caso el articulo 1450 del Codigo Civil que provee que la venta se perfeciona entre comprador y vendedor y es obligatoria para ambos desde que hayan convenido en la cosa objeto del contrato y en el precio, aunque ni la una ni el otro se hayan entregado. Mas aun, la venta quedo tambio cousumada desde el momento en que los terrenos fueron entregados al demandado y este entro posesion y disfrute de los mismos (articulo 1462 del Codigo Civil ). Se insinua que el contrato no paso de ser mera promesa unilateral aceptada que en derecho no confiere accion alguna al que trata de comprar. Opinamos que el contrato era una promesa bilateral aceptada que en derecho viene a ser el mismo contrato de compra y venta que define el articulo 1445 del Codigo Civil. Sobre este punto es digno de mencion el comentario del tratadista Manresa que dice: (b) Promesa bilateral. Esta promesa es la reciproca, es de compra y venta. Cuando por ambas partes es aceptada, tiene el mismo valor que lo que hemos venido llamando contrato de compra y venta. Para convencernos de ello basta con tener presente que todos los requisitos esenciales de dicho contrato se dan en esta situacion juridica. El Codigo asi lo reconoce en el articulo que comentaremos, al afirmar que, habiendo conformidad en la cosa y en el precio, dara derecho a los

contratantes para reclamar reciprocamente el cumplimiento del contrato. (10 Manresa, 2. edicion, pag. 70.) In my humble opinion, Myers cannot seek shelter in the ruling laid by this Court in Manuel v. Rodriguez, 109 Phil 9 to the effect that: xxx xxx xxx Plaintiff-appellant, however, argues (Errors I-IV; VI; VIII) that the Payatas Subdivision had no right to cancel the contract, as there was no demand by suit or notarial act, as provided by Article 1504 of the Old Code (Art. 1592, N. C. C.). This is without merit, because Article 1504 requiring demand by suit or notarial act in case the vendor of realty wants to rescind, does not apply to a contract to sell or promise to sell, where title remains with the vendor until fulfillment to a positive suspensive condition, such as full payment of the price (Caridad Estates vs. Santero, 71 Phil., 114, 121; Albea vs. Inquimboy, 86 Phil., 476; 47 Off. Gaz. Supp. 12, p. 131; Jocson vs. Capitol Subdivision Inc. et al, L-6573, February 28, 1955; Miranda vs. Caridad Estates, L-2077 and Aspuria vs. Caridad Estates, L-2121, October 3, 1950). The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. To start with, in the same manner that in said case, We held that there being actually no formal deed of conveyance to speak of as involved but mere letters and for said reason, the ruling in the case of Ah Sing above discussed was not applicable, We should now hold that the Rodriguez case cannot be cited in the present case for the same reason the other way around. Caridad Estates v. Santero, 71 Phil. 114 and the cases following the same made no reference to a promise to sell; what is worse, the ruling made therein runs counter to the correct construction of Article 1504. The above quoted portion of the Manuel decision holds that " Article 1504 requiring demand by suit or notarial act in case the vendor of realty wants to rescind, does not apply to a contract to sell or promise to sell, where the remains with the vendor until fulfillment to a positive suspensive condition, such as full payment of the price," the cases of Caridad Estate v. Santero, 71 Phil., 114, Albea v. Inquimboy, 86 Phil. 476 and others of like import are cited in support of the ruling. I have carefully read the decisions cited, and, frankly, I regret to say that I cannot consider them as imparting such a ruling. In the case of Caridad Estates v. Santero, decided by Justice Laurel, no mention at all appears of promise to sell. The pertinent portion of the decision reads thus: The first question to be decided is raised in the first and second assignments of errors. The attack of nullity is centered around paragraphs 3 and 4 of the contract of sale which, as appellant contends, ordain a procedure or mode of action basic and fundamentally pactum commissorium.

The pertinent portion of paragraph 4 provides as follows: ... But if the said party of the second part should fail to make the payments above specified within sixty days of the date or dates stipulated in this agreement or neglect to repair a damage caused to the above described property within sixty days of formal notification of such damages by the party of the part, then the total remaining purchase price shall become due and payable and recoverable by action at law, or the party of the first part, may, at its option, recover possession of the above described property in which case any and all sums paid by party of the second part under the provisions of this contract shall be considered as rental for the use and occupancy of property. Paragraph 3 recites: The party of the second part acknowledges that he has received the above described property and all the improvement thereon in good condition and engages during the period of contract to repair at his own expense any damage that may be caused to the said property or improvements through storm, or deterioration and in the event of failure to fulfill the terms of payment as above stated to faithfully comply with the penal clause here appended and in the event that the party of the first part should demand the return of the property on account of non-compliance with the terms of payment, to deliver possession of the said property and improvements thereon in good condition and repair. As may be seen, paragragh 4 gives the vendor, if the vendee fails to make the specified payments, the option of (1) considering the total remaining purchase price due and payable and recoverable by an action at law or (2) recovering the possession of the property in which case any and all sums paid by the vendee shall be regarded as rental for the use and occupancy of the property. On the other hand, paragraph 3 obligates the vendee to deliver the possession of the property and the improvements thereon in good condition and repair in the event that the vendor should demand the return of the same on account of non-compliance with the terms and conditions of payment. It is quite plain, therefore, that the course followed by the vendor in cancelling the contract and demanding the repossession of the property was well supported by, and employed in consonance with, the covenants embodied in their agreement. As the stipulations in question do not violate the prohibitive provisions of the land or defeat morals and public order, they constitute the law between the parties, binding and effectual upon them. (Arts. 1255 and 1278, Civil Code; Jimeno vs. Gacilago, 12 Phil., 16.) Appellant, however, gives full reliance on article 1504 of the Civil Code, and vigorously argues that whatever be the provision of the contract, resolution may not be declared in the absence of a demand upon the vendee "either judicially or by a notarial act." A cursory reading of the provision would be the best refutation of the appellant's argument, as it leaves no doubt as to its inapplicability in the present instance. The contract (Exhibit A) is a sale in installment, in which the parties have laid down the procedure to be followed in the event the vendee failed to fulfill his obligation. There is, consequently, no occasion for the application of the requirements of article 1504. Taking up the argument that the stipulations outlined in paragraphs 3 and 4 of the contract have resulted in a pactum commissorium, we are of the opinion that the objection is without legal basis. Historically and in point of strict law, pactum commissorium, referred to in Law 41, title 5, and Law 12, title 12 of the Fifth Partida, and included in articles 1859 and 1884 of the Civil Code, presupposes the existence of mortgage or pledge or that of antichresis. (Alcantara vs. Alinea, et al., 8 Phil., 111.) Upon this account, it becomes hardly conceivable, although the argument has been employed here rather extravagantly, that the idea of pactum commissorium should occur in the present contract of sale, considering that, it is admitted, the person to whom the property is forfeited is the real and equitable owner of the same because title would not pass until the payment of the last installment. At most, the provisions in point, as the parties themselves have

indicated in the contract is a penal clause which carries the express waiver of the vendee to any and all sums he had paid when the vendor, upon his inability to comply with his duty, seeks to recover possession of the property, a conclusive recognition of the right of the vendor to said sums, and avoids unnecessary litigation designed to enforce fulfillment of the terms and conditions agreed upon. Said provisions are not unjust or inequitable and does not, as appellant contends, make the vendor unduly rich at his cost and expense. The charge that the amount forfeited greatly exceeded that which should be paid had the contract been one of lease loses its weight when we consider that during the years 1935 and 1936, when the agreement was in full force and effect, price of salt rose high to bring big profits and returns. The factual background of this case is not lacking in point of authority. In The Manila Racing Club, Inc. vs. The Manila Jockey Club, et al., G.R. No. 46533, promulgated October 28, 1939, the condition of the contract was that "si el comprador no paga en su debido tiempo la cantidad correspondiente a cualquiera de los plazos, la vendedora podria declarar resuelto el contrato y confiscadas en su favor las cantidades pagadas." In deciding the main question raised on appeal, similar in all respects to the one which now confronts us, the court said: "Esta clausula de confiscacion de lo pagado parcialmente es valida. Tiene el caracter de clausula penal, que puede ser establicida legalmente por las partes (arts. 1152 y 1255 del Codigo Civil). En su doble objeto de asegurar el cumplimiento, no es contraria a la ley, ni a la moral, ni al orden publico, habiendo sido pactada voluntaria y conscientemente por las partes. For all the foregoing reasons, we find no merit in the first, second, and third assignment of errors. Anyone can see that in referring to the nature of the agreement or contract, the Court said it "is a sale in installments, in which the parties have laid down the procedure to be followed in the event the vendee failed to fulfill his obligation" and ruled, "There is, consequently, no occasion for the application of the requirements of Article 1504." In other words, according to Justice Laurel, in as much as the parties in such sale on installment of real proper or immovable had provided in their agreement for an option in favor of the vendor that in case the vendee should fail to pay any installment, the former may either recover in action at law the whole balance unpaid which shall be considered immediately due and demandable or recover possession of the subject property and considering all installments already paid as rentals, these stipulations may legally be enforced according to their terms, considering that such stipulations are not contrary to law, morals or public policy. Stated differently the Court held that such stipulations are comprehended within the freedom of contract. At the same time, it will also be noted that Justice Laurel considered it as rather extravagant for the stipulations regarding automatic cancellation of the agreement, recovery of possession of the subject property and conversion of all installments paid into rentals as a pactum commissorium, and following the lead in Manila Racing Club v. Manila Jockey Club, 69 Phil. 55, opined that "at most, the provisions in point, ..., is a penal clause which carries the express waiver of the vendee to any and all sums he had paid when the vendor, upon his inability to comply with his duty, seeks to recover possession of the property ... and avoids unnecessary litigation designed to enforce fulfillment of the terms and conditions agreed upon." 5 Justice Laurel's opinion is at variance with Spanish authorities who appear to be more logical. Thus, it can be seen that in at least two important points Justice Laurel's views in Santero deviate from what I believe to be well accepted opinions of Spanish authorities regarding the same matters. Anent Justice Laurel's reluctance to characterize the provisions referred to as being in the nature of a pactum commissorium, it can be admitted that "Historically and in point of strict law, pactum commissorium, referred to in Law 1, title 3, and Law 12, title 12 of the Fifth Partida, and included in articles 1589 and 1884 of the Civil Code, presupposes the existence of mortgage or pledge or that of antichresis" but, on the other hand, it cannot be denied that the Spanish authorities have always

considered stipulations in a contract of sale of property wherein part of the price is to be paid subsequently to the effect that upon failure to pay such balance or any part of it on due date, the sale shall be considered cancelled or resolved as having the character of a pactum commissorium. Even this Court had occasion to hold the provisions of Article 1504 of the Spanish Civil Code refered to a pactum commissorium, for in fact said provision in effect tries to temper the rigor of such pactum by law. Justice Romualdez said in the case ofVillareal v. Tan King, 43 Phil. 251: The fundamental point here presented is whether the purchase and sale in question is subject to the condition known as pacto comisorio. At the outset it must be said that since the subject-matter of the sale in question is real property, it does not come strictly within the provisions of article 1124 of the Civil Code, but is rather subjected to the stipulations agreed upon by the contracting parties and to the provisions of article 1504 of the Civil Code. The "pacto comisorio" or "ley comisoria" is nothing more than a condition subsequent of the contract of purchase and sale. Considered carefully, it is the very condition subsequent that is always attached to all bilateral obligations according to article 1124; except that when applied to real property it is not within the scope of said article 1124, and it is subordinate to the stipulations made by the contracting parties and to the provisions of the article on which we are now commenting (article 1504). (Manresa, Civil Code, volume 10, page 286, second edition.) Now, in the contract of purchase and sale before us, the parties stipulated that the payment of the balance of one thousand pesos (P1,000) was guaranteed by the mortgage of the house that was sold. This agreement has the two-fold effect ofacknowledging indisputably that the sale had been consummated, so much so that the vendee was disposing of it by mortgaging it to the vendor, and of waiving the pacto comisorio, that is, the resolution of the sale in the event of failure to pay the one thousand pesos (P1,000) such waiver being proved by the execution of the mortgage to guarantee the payment, and in accord therewith the vendor's adequate remedy, in case of non-payment, is the foreclosure of such mortgage. However, even supposing that the mortgage does not imply a waiver of the pacto comisorio, the fact is that in the instant case the plaintiff, before commencing this action in view of defendant's failure to pay, did not serve judicial or notarial notice upon the defendant that he (the vendor) was willing to resolve the contract. Indeed, it does not appear that any such step had been taken by him. On the other hand, it appears that the defendant, before the complaint in the aboveentitled case was filed, deposited with the court the sum of one thousand pesos P1,000 (less the amount of a certain account), which the plaintiff refused to accept. In view of these facts the resolution of the sale is improper, even if the pacto comisorio had been expressly stipulated in the contract. In the same of real property, even though it may have been stipulated that in default of the payment of the price within the time agreed upon, the resolution of the contract shall take place ipso facto, the vendee may pay even after the expiration of the period at any time before demand for payment has been made either by suit or by notarial act. After such demand has been made the judge cannot grant him further time. (emphasis ours.) (Art. 1504, Civil Code.) (At pages 255-256) Commenting on the same Article 1504, Manresa very definitely says, "Es el pacto de la ley Comisoria en las rentas de inmuebles el que se reglamenta en el articulo 1504." (10 Manresa 260, 1931 ed.) What is more important, however, is Justice Laurel's ruling that a stipulation like the one in the Santero case providing for automatic cancellation or resolution upon default as to any payment of the balance of the purchase is a licit one embraced within the freedom of contract. I am not prepared to accept this view. I believe that as Manresa states, Article 1504 precisely regulates the pactum commissorium by requiring either a notarial or judicial demand

before it can be operative. This is a matter of public policy that cannot be altered, much less waived by agreement of the parties. Manresa's commentary on this point is as follows: Se ha discutido si el comprador puede renunciar al requerimiento, esto es, si seria licito el pacto que estableciese la resolucion de la venta de pleno derecho una vez vencido el plazo en que el precio deba ser entregado y sin necesidad de acto alguno por parte del vendedor. En otros terminos, la cuestion planteada implica esta otra: el precepto del art. 1.504, es de derecho necesario o de derecho voluntario? Su material pertenece a la esfera propia de la actividad juridica de los contratantes? Puede ser derogado por estos? Si consultamos el espiritu del art. 1.504, a poco veremos que su finalidad no es otra que procurar la firmeza y seguridad de los contratos y suministrar medios para que Ileguen a efectuarse en los torminos convenidos, para lo cual el Codigo, sin duda, se funda en poderosas razones de orden publico; si atendemos a su letra, y muy especialmente a la frase "aun cuando se hubiera estipulado, etc.", Ilegaremos a la misma conclusion. Es por lo tanto para nosotros indudable que el requerimiento de que tratamos no puede renunciarse ni en el momento de perfeccionarse el contrato ni por acto posterior. (10 Manresa 263, id.) I maintain that this is the better rule, Santero and Manila Racing Club notwithstanding. We all know that automatic cancellation of a contract of sale resulting in the forfeiture of all moneys already paid just because of one default in the payment of the balance is a harsh and oppressive condition, precisely because it is tantamount to the obnoxious pactum commissorium. For this reason, the law explicitly gives the buyer in Article 1504 an opportunity to pay even after default so long as the seller has not made a formal demand for cancellation thru a notary public or in court. The very wording of the provision negates the freedom of the parties to stipulate otherwise, since it already clearly says, "even though it may have been stipulated that default of the payment of the price within the time agreed upon etc." It is to me absurd to contend that not withstanding this express mandate of the law, the partes are still free to stipulate otherwise. Indeed, from this point of view, and independent of my discussion above of the applicability to the case of the Bayla ruling by Justice Ozaeta, it is my position that the intended waiver of formal demand, if any such intention can be inferred, in the provision of Paragraph (d) of the "Deed" in question that "this deed ... shall automatically and without any further formality, become null and void," is contrary to the letter and intent of Article 1504 as well as public policy. It being obvious as already shown above that no demand of whatever kind for resolution had been made upon Maritime before the letter of cancellation of June 5, 1961, Exhibit 2, Myers, it follows necessarily that said cancellation was unwarranted and contrary to rather than an implementation of the terms of the "Deed" in controversy. The stipulation providing for transfer of title only after full payment did not stamp the transaction with the character of a mere promise to sell full payment was a suspensive condition for the execution of the final deed as the form of tradition of title it while non-payment was a resolutory condition with confiscation as to penalty clause. I must state at this juncture that what makes the case at bar difficult and seemingly complicated is the long line of decisions We have to reexamine if We must straighten out once and for all the jurisdiction conceptualization We have attached to the nature of the agreement embodied in the "Deed" in question. At least inferentially, if not directly, We refer to it as "a promise to sell immovable property, where title remains with the vendor until fulfillment to a positive suspensive condition, such as the full payment of the price," citing apparently in support of such conceptualization the cases of Santero and Inquimboy, supra, and Jocson v. Capital, G.R. No. L-6573, February 28, 1955; Miranda v. Caridad G.R. No. L-2077 and Aspuria v. Caridad, G.R. No. L-2721, both of October 3, 1950. As I have said, I have read and studied all these decisions, for no other reason than that I have always been intrigued by what is meant by a promise to sell an immovable with reservation of title and I naturally checked if the

cited decisions have indeed formulated such a rather vague juridical concept which to my mind implies a juridically inconceivable notion. What I mean is simply that when one talks of a promise to sell with reservation of title, it is as if it were possible to have a promise to sell with delivery of title. Unless I am gravely mistaken, I am afraid that juridically it is quite absurd to think of a promise to sell with the title of the property promised to be sold being delivered immediately. It is very common to come across promises to sell where possession is transferred simultaneously upon the perfection or execution of the agreement, but I have yet to know of a case where title itself is so transferred. What renders the idea of a promise to sell with reservation more perplexing to me is that in the Spanish law on sales, as contradistinguished from the concept of sales American law, a contract of sale is purely consensual and does not necessarily involve the transfer of title except when it is so stipulated or when the sale is made in a public instrument, since the latter is in itself a form of delivery or tradition of title over immovable property. Very axplicit in this respect are the provisions of Article 1450 of the Old Civil Code which says: "The sale shall be perfect between vendor and vendee and shall be binding on both of them if they have agreed upon the thing which is the subject matter of the contract and upon the price, even if neither has been delivered." Perhaps, the Spanish text is even more emphatic as to non-delivery of the thing and the non-payment of the price, as it provides: "La venta se perfeccionara entre comprador y vendedor, y sera obligatoria para ambos, si hubieren convenido en la cosa objeto del contrato, y en el precio, aungue ni una ni el otro se hayan entregado." And to bring out the point in bolder relief I would add the pertinent comment of Manresa the following effect: Expresamente dice el articulo que comentamos, que no menester que se hayan entregado ni la cosa ni el precio para que el contrato de compra y venta se tenga por perfecto. Si alguno de esos requisitos fuese preciso, la compra y venta seria un contrato real en vez de consensual. Desde que se consiente, y sin necesidad de ninguna otra circunstancia, el contrato, repetimos esta perfecto y nacen las obligaciones; pero la transmision de la propiedad no existe hasta que la cosa no ha sido entregada. La entrega de la cosa se refiere al periodo de consumacion en el articulo que estudiamos se trata tan solo de fijar el momento de la perfeccion. (10 Manresa 56, id.) And with particular reference to whether or not the parties can validly stipulate reservation of title, Manresa adds pointedly for the present case: Se opone este art. 1.450 a que los contratantes establezcan el pacto de reserva de dominio, o lo que es igual, de que la propiedad de la cosa no se transmita al comprador mientras este no satisfaga la totalidad del precio? Entendemos que no, pues dicho pacto esta protegido por el principio de libertad en la contratacion proclamado por el art. 1.255 del Codigo. Luego veremos lo que sobre este punto ha declarado la jurisprudencia, y ya hemos anticipado algo acerca de ella en el comentario a los articulos 1.445 y 1.446. (10 Manresa 57, id.) More extendedly, Manresa discusses the point thus: Para que nazcan las obligaciones en el contrato de compra y venta, basta que haya mediado el consentimiento, o es menester la previa entrega, de alguno de los objetos sobre que recaen las prestaciones? El mismo art 1.445 que comentamos nos da contestacion a esta pregunda. Dice que por el contrato de compra y venta, uno de los contratantes, se obliga a entregar una cosa determinada, y el otro a pagar, etc. Pues bien; desde el momento en que por el contrato se obliga a entregar y pagar, respectivamente, y no pagan ni entregan nada de momento las partes contratantes, es evidente que el Codigo, siguiendo en esto una no interrumpida tradicion judirica, ha considerado la compra y venta como contrato consensual.

No desvirtua esti afirmacion el que el art. 1.466 diga que el vendedor no estara obligado a entegar la cosa vendida si el comprador no le ha pagado el precio o no se ha sealado en el contrato un plazo para el pago, porque este precepto, lo mas que podria indicar es el orden de succession (por mas que, segun veramos mas adelante, ni aun ese alcance tiene) en que las obligaciones deben ser cumplidas; pero no puede Ilevar su trascendencia hasta el punto de negar el caracter consensual de la compra y venta. Notese, ademas, que la obligacion del comprador de pagar el precio nace desde que existe el consentimiento, y desde entonces es exigible, salvo el caso del plazo pactado, aplazamiento que no se concibe en los contratos verdaderamente reales. De que las palabras se obliga a entregar han sido puesta deliberada y reflexivamente en el art. 1.445, convence, desde luego la comparacion de este articulo con otros, en los que el mismo Codigo consigna la definicion legal de contratos que son evidentimente de naturaleza real, tales como el prestamo y el deposito. El art. 1.740 define el prestamo diciendo: "Por el contrato de prestamo una de las partes entrega a lo otra, o alguna cosa no fungible para que use de esta por cierto tempo y se la devuelva, en cuyo caso se Ilama comodato, o dinero u otra cosa fungible, con condicion de volver otro tanto de la misma especie y cadidad, en cuyo caso conserva simplemente el nombre de prestamo." El art. 1.758 define el deposito diciendo: "Se constituye el deposito desde que uno recibela cosa ajena con obligacion guardarla y restituirla. De manera que, segun el Codigo, para que queden constituidos los contratos de prestamo y deposito, es menester que medie la entrega de presente, porque, si no existe tal entrega, no hay contrato; habran nacido, si, vinculos juridicos, relaciones obligatorias entre las partes, pero esos vinculos y esas relaciones no seran las que constituyen el contenido propio de los contratos de prestamo y deposito, porque en la tecnologia admitida se ha convenido en afirmar que tales contratos no tienen realidad juridica sino cuando se da el supuesto de hecho de la entrega la cosa; por esto se han Ilamada reales, y por esto se puede decir que continuan siendo de naturaleza real despues del Codigo. Comparando las definiciones legales que acabamos de citar, y observando las diferencias de expresion que el Codigo emplea, no es licito, en buenos principios de interpretacion, establecer sinominias que no existen, sino, por el contrario, pensar que cuando el Codigo, en la compra y venta, ha dicho se obliga a entregar, y en el prestamo y en el deposito entrega y recibe, ha consignado de un modo indudable la naturaleza consensual del primer contrato y la naturaleza real de los dos ultimos. La jurisprudencia, por lo demas, ha confirmado reiteradamente el caracter consensual de la compraventa. La sentencia de 8 de Marzo de 1901 dice que este contrato, como consensual que es, se perfecciona por el consentimiento en el precio y en la cosa y consuma por la entrega reciproca de uno y otra, transfiriendose al comprador el pleno dominio de la cosa vendida, desde cuyo momento cabe ejercitar las acciones que de este derecho se derivan; y la de 22 de Diciembre de 1908 afirma que basta para que exista el contrato de compraventa que reciprocamente se obliguen el vendedor a entregar una cosa determinada y el comprador a pagar por ella un precio cierto, que dando con esto perfecto el contrato, aun no habiendose hecho entrega de la cosa y el precio; sin que el acuerdo posterior subordinando la entrega del precio a la inscripcion de la finca en el Registro a nombre del comprador, pueda interpretarse en el sentido de que no se perfeccione el contrato, pues no es mas que una circunstancia accesoria que integra su consumacion. (10 Manresa 11-13, id.) To fully comprehend the point under discussion, a point of view which is not Manresa's, We only have to read the pertinent portion of the Report of the Code Commission on the Proposed Civil Code of the Philippines: The name of Title VI has been simplified by calling it "sales" and the name of the contract has been changed, for the same reason, to "contract of sale."

It is required in the proposed Code that the seller transfer the ownership of the thing sold (arts. 1478, 1479, 1515, 1567). In the present Code (art. 1445), his obligation is merely to deliver the thing, so that even if the seller is not the owner, he may validly sell, subject to the warranty (art. 1474) to maintain the buyer in the legal and peaceful possession of the thing sold. The Commission considers the theory of the present law unsatisfactory from the moral point of view. (At p. 141) and consider that Article 1478, a new provision of the New Civil Code, specifically authorizes the parties to stipulate "that the ownership in the thing shall not pass to the purchaser until he has fully paid the price", which makes the sale what Laurent calls a "venta a la romana", and which precisely is the nature of the contract We have before us in this case. Thus, it is my humble view that, contrary to what seems to be implied from the portion of Manuel quoted in Our decision and resolution of denial in this case, the reservation of the title does not strip or divest the agreement of its character as a sale and much less does it make it a promise to sell. I reiterate, the reservation of title is irrelevant in a promise to sell for the simple reason that it is in its very nature that transfer of title is not involved and cannot even be contemplated. The opinions in Jocson v. Capitol, Miranda v. Caridad and Aspuria v. Caridad, supra, are of no assistance in this discussion of juridical concepts because in all of these three cases, the decisions themselves state that what were involved were an agreement "promising to convey" (in Jocson) and contracts "whereby (Caridad Estates) undertook to sell to the plaintiffs" real estate, or undisputedly contracts to sell. I have no quarrel with the proposition that Article 1504 does not apply to contracts to sell as held by the Supreme Court of Spain in its decision of October 7, 1896, which is the only one cited by Manresa in his comments under Article 1451 and which refers to a contract which is expressly a mere promise to sell. It is the opinion of Justice Ozaeta in Albea vs. Inquimboy, supra, that calls for a little elucidation. After stating the facts of the Santero case in the following manner: In the Caridad Estates case the plaintiff sold certain lots to the defendant for P30,000 payable as follows: P1,500 on the execution of the agreement; P4,000 in or before December, 1935; P4,500 in or before March 1936, and the remaining balance of P20,000 in ten years, each annual installment to be paid on or before the end of August of each year beginning 1937, with the stipulation that should the vendee fail to make the payment agreed upon within 60 days of the date they fell due, the total balance shall become due and payable and recoverable by an action at law, or the vendor may, at its option, recover possession of the property sold, in which case any and all sums paid by the vendee under the provisions of the contract shall be considered as rental for the use and occupancy of the property. After paying various sums aggregating P7,590, the vendee defaulted in the payment of the subsequent installments, and the vendor rescinded the contract of sale by so notifying the vendee and by selling the property to another party, thereafter instituting an action of unlawful detainer against the vendee to eject him from the property. This Court sustained the action of the vendor. Notwithstanding that the vendee tendered payment to the vendor of the installment in arrears and deposited it in court before the vendor made a demand either judicially or by a notarial act, this Court refused to apply article 1504 of the Civil Code, on the ground that it was not applicable because the contract involved was "a sale in installment in which the parties have laid down the procedure to be followed in the event the vendee failed to fulfill his obligation. There is, consequently, no occasion for the application of the requirements of article 1504." (at pp. 480-481) the opinion goes on to say that: The contract Exhibit A involved in the present case, was one of absolute sale whereby the vendor Inquimboy transferred and conveyed his title to the land in question to the vendee Albea to enable the latter to mortgage it together with his other properties to the Agricultural and Industrial Bank and thereby secure the necessary amount with which to pay the purchase price to the vendor. In a separate document (Exhibit B) he agreed to pay that price as follows: P2,500 on or about November 15, 1941, and P500 in May, 1942, with the proviso that should he fail to

pay the said sum of P2,500 on or before November 15, 1941, the deed of absolute sale Exhibit A "shall ipso facto be deemed cancelled and rescinded and that I shall execute and give the corresponding deed of cancellation and rescission." In other words, the vendee agreed to retransfer or reconvey the property to the vendor should the former fail to pay the first sum of P2,500 on the date stipulated. That contract is different from the one involved in the Caridad Estates case, in that the latter was not an absolute deed of sale but a mere contract to sell whereby the vendee agreed to pay the purchase price in various installments with the stipulation that, upon failure to pay any installment within 60 days after due date, the vendor may, at his option, recover possession of the property and consider any and all amounts already paid as rental for the use and occupancy of the property. In that case there was no need for the vendee to execute any deed of reconveyance to the vendor because by the said contract to sell the title had not passed to him. (At pp. 482-483) I cannot find any warrant for the observation that in the Santero case what was involved was "mere contract to sell," hence there was "no need for the vendee to execute any deed of reconveyance to the vendor because by the said contract to sell the title had not passed to him." Plainly, Justice Laurel referred to the transaction in Santero thus: "About three months prior to the expiration of the contract of lease, or on August 24, 1935, the lessor sold the same lots to the lessee" (At pp. 115-116) and with particular reference to the contract itself, he said that "The contract (Exhibit A) is a sale in installments in which the parties laid down the procedure to be followed in the event the vendee failed to fulfill his obligation" (at pp. 120-121). I reiterate that as I see it, the Santero case was not decided on the basis of the contract therein involved being a promise to sell; rather, what Justice Laurel, held was that there was no pactum commissorium in said contract, that under the law, it was within the freedom of the parties to stipulate that upon failure of the vendee to pay any installment of the purchase price, the vendor may declare the contract cancelled, forfeit all payments already made and recover possession of the property sold. I reiterate also that Justice Laurel could not have referred to a promise to sell with reservation of title, for the simple reason that as I have already explained, juridically speaking, it is not proper at least, it is not usual to conceptualize any transaction as such, it being obvious that title is always reserved in any promise to sell. It was only in Manuel v Rodriguez, 109 Phil. 1, that this Court "created" the concept of a "a contract to sell or promise to sell", where title remains with the vendor until fulfillment to a positive suspensive condition, such as full payment of the price. I have taken pains to analyze all the decisions cited in Manuel, to verify whether or not there is really in the earlier jurisprudence such a concept of a promise to sell wherein title is reserved by the vendor. The result of the foregoing discussion, as can be seen, is that it was only in Manuel that this Court spoke first of such a concept, which it is suggested We should apply in the case at bar. I regret I cannot accede to the suggestion. The concept proposed does not conform with my studies of the juridical nature of a promise to sell as distinguished from a contract of sale. I insist that the so-called suspensive condition affecting the transfer of title only after full payment of the price, an admittedly licit one, does not detract from the character of the contract here in question as a perfected contract of sale indeed, partially consummated by the delivery of possession of "the thing" (per Manresa), if We may borrow the characterization made by Justice Imperial of the contract in the Ah Sing case,supra. For that matter, neither does the condition that upon failure of Maritime to pay any installment, the contract would be cancelled, all past payments forfeited and Myers would be entitled to recover possession vary a bit the real nature of the contract. In fact, it is my considered view that it is this condition as to breach that is determinative of the rights of the parties in this case, since what is in issue here, as I see it, is not the right of Maritime to compel delivery of title, but only whether or not the whole contract should be held to have been properly and legally cancelled by Myers, thus depriving Maritime of further opportunity to continue paying the balance of the stipulated purchase price. My understanding of the contract of sale, knowm before the New Civil Code as "Purchase and Sale", is that it is a bilateral contract which is a composite of various obligations, depending on the terms agreed upon by the parties

regarding the payment of the price, on the one hand, and the delivery of the thing sold and the title thereto, all of which are reciprocal, as distinguished from correlative ones. Thus, once the parties have agreed upon the thing and the price, the contract of sale comes juridically into being as fully as any other perfected contract, without prejudice to the parties laying down as they may agree the terms of payment, on the one hand, and the delivery of the thing and the title thereof, on the other. Of course, these conditions are reciprocally obligatory or binding; the sale is consummated upon fulfillment by both parties of their respective obligations; but, pending such consummation, in the event of breach by anyone of them, the corresponding rules established by law come into play, among them, Article 1234 (new), as applied in Javier, supra, and Article 1124, as applied to sales of movables, and, of course, Article 1504 which is the variant of Article 1124 applicable to sales of immovables (per Justice J.B.L. Reyes in Gabuya v. Cui, 38 SCRA 85, at p. 97). I believe Manresa's opinion on the matter which is expressed thus: Afirmanos entonces que, en la manera en que laley podia hacerlo, el Codigo admitia de un modo expresso o tacito la distincion de los contratos en unilaterales y bilaterales, conmutativos y aleatorios, onerosos y a titulo gratuito, nominados e innominados, consensuales y reales, con forma especial y sin forma determinada, principales y accesorios. Veamos ahora en que extremos de estas classificaciones esta comprendido el contrato de compra y venta, lo cual contribuira a fijar su naturaleza con precision mayor que la que puede exigirse a una definicion legal. Si nos fijamos, en primer lugar, en la indole de las obligaciones que del contrato de compra y venta se derivan y en la especial conexion que entre ellas existe, observaremos la nota de reciprocidad (que no es lo mismo que correlatividad) que es la caracteristica de las obligaciones; pues como no hemos de entender, coro muchos han entendido, que contratos bilaterales son aquellos que desde el momento de su perfeccion producen obligaciones para las dos partes contratantes, cualquiera que sea la relacion que entre ellas exista, sino que damos el nombre de contratos bilaterales a los que son generadores de obligaciones de esta clase, es decir, de obligaciones de tal naturaleza que entre ellas se da la mas perfecta reciprocidad, siendo la una condicion de la otra, hasta el punto de que no se conciben aisladamante; a poco que nos fijemos en el vinculo juridico que la compra y venta crea y en los fines utiles que con ella se logran, veremos que entre las obligaciones principales de comprador y vendedor (entregar el precio y la cosa respectivamente), se da esa relacion de reciprocidad, tan intima y sustancial, que no se comprende la entrega del precio sin la de la cosa, ni viceversa. Se debe pagar el precio porque nos deben dar la cosa comprada, y nos debe ser entregada esta porque hemos de satisfacer el precio. Este caracter de reciprocidad, o, lo que es lo mismo, la naturaleza bilateral del contrato de compra y venta, ha sido afirmada por el Codigo, de modo que no deja lugar a duda, desde el momento en que el articulo 1.503 alude a possible aplicacion del articulo 1.124, que es el que trata de las obligaciones reciprocas. Es por lo tanto, el de compra y venta un contrato bilateral. (10 Manresa 9-10, id.) I would, therefore, separate the so-called suspensive condition regarding the delivery of title as affecting solely the obligation to deliver title which is not of immediate juridical essence in a perfected contract of sale from the breach, allegedly committed by Maritime, of the terms of payment which is the one that would justify the cancellation made by Myers, if such breach did occur in legal contemplation. In a sense all this discussion is my answer to the portion of the denial resolution which says: ... The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay the price as agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but precisely enforcing it according to its express items. In its suit Myers was not seeking restitution to it of the ownership of the thing sold (since it was never disposed of), such restoration being the logical consequence of the fulfillment of a resolutory condition, express or implied (article 1190); neither was it seeking a declaration that its obligation to sell was

extinguished. What it sought was a judicial declaration that because the suspensive condition (full and punctual payment) had not been fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore, it (Myers) was entitled to repossess the property object of the contract, possession being a mere incident to its right of ownership. It is elementary that, as stated by Castan, b) Si la condition suspensiva Ilega a faltar, la obligacion se tiene por no existente, y el acreedorpierde todo derecho, incluso el de utilizar las medidas conservativas. (3 Castan, Derecho Civil, 7a Ed., p. 107). Movant Maritime's failure to take into account the fact that Myers promise to sell was subject to a suspensive condition (not to a suspensive period) renders all its discussion about bilateral or reciprocal contracts and the application of Articles 1198 and 1592 of the Civil Code of the Philippines (both of which deal with rescission or resolution of contractual obligation) with consequent mutual restitution, a pure academic exercise without applicability to the case at bar. The promise to sell has a distinct connotation in Spanish, law which I feel cannot square with the contract here in controversy. At the risk of stating the obvious, the concept of a sale or purchase and sale in Spanish law is defined in Article 1445 and the moment of the perfection of such a contract is fixed in Article 1450. On the other hand, precisely to avoid confusion of concepts, since commercial usages resort to varied forms of transactions revolving around the juridical idea of exchanging things for money, and it is not unusual for merchants to enter into preparatory agreements for business and other reasons before finalizing their deals, Article 1451 lays down specific rules regarding promises in regard to sales. Thus it provides: ART. 1445. By the contract of purchase and sale one of the contracting parties binds himself to deliver a determinate thing and the other to pay a certain price therefor in money or in something representing the same. (Old Civil Code) It is plain to see that this provision contemplates three kinds of promises, namely, (1) the promise to sell, (2) the promise to buy, and (3) the promise to buy or purchase and sell, the last being naturally mutual or bilateral. 6 For a fuller comprehension of the three types of promises as the same are understood in Spanish law, I quote from Manresa again: El primer parrafo del art. 1.451 emplea la frase de "promesa de vender comprar"; el parrafo segundo del mismo articulo dice "promesa de compra y venta". Son estos modos de decir equivalentes? Para hacernos cargo del sentido del articulo veamos las deferentes formas que puede revestir la promesa relacionada con la compra y venta, para examinar en seguida los efectos que de cada una de ellas se derivan. Desde luego se observa que la promesa puede ser unilateral o bilateral. La unilateral a su vez se distingue en dos: promesa de venta y promesa de compra. La bilateral, es claro que es reciproca, esto es, de compra y de venta. a) Promesa unilateral. Esta promesa puede ser aceptada o no aceptada.

La promesa unilateral no aceptada, ya sea de compra, ya de venta, no produce efectos juridicos apreciables de ninguna especie: este es el caso de la Ilamada policitacion. No es a el, ciertamante, al que se refiere el art. 1.451 del Codigo. En la promesa unilateral aceptada, sea de compra o sea de venta, es donde nacen ya efectos juridicos. Un individuo A. promete vender a otro B. una finca por tal precio; B. aceptada la promesa. Este es el caso de la promesa de venta aceptada. Quienes quedan, obligados y a que, desde el momento en que la promesa se acepta? No ha faltado quien diga que por el mero hecho de la aceptacion congruente con la promesa quedan obligadas las dos partes, la una a vender y la otra a omprar, Pero si atentamante examinamos el caracter de la relacion juridica creada, veremos que esa opinion no puede mantenerse en absoluto. Que es, en efecto, lo que ha aceptado B. en el ejemplo propuesto? La contestacion es clara: B. ha aceptado la promesa, no el hecho de la venta con todas sus consecuencias. A. se ha constituido voluntariamente en la obligacion de vender a B., si este compra: B. ha aceptado esta obligacion; A. era dueo de prometer o de no prometer, pero prometio y su promesa transcendio a otra persona determinada, la cual accepto. La relacion juridica obligatoria queda establecida, siendo B. el sujeto pretensor y A. el sujeto obligado. B. no queda obligado a nada; le incumbe, por el contrario la eleccion de llevar a cabo la compra o de dejar sin efecto la promesa de A.; si, haciendo uso de su eleccion, se decidiera por comprar, entonces nacerian sus obligaciones, que no serian otras que las de todo comprador. Este y no otro es, a nuestro juico, el verdadero contenido de la promesa unilateral de venta simplemente aceptada. A primera vista puede tal vez parecer anomalo el que la efectividad de la compra y venta, a que se refiere la promesa, quede al arbitrio de una sola de las partes; pero, observando el proceso generador de esta situacion juridica, nada hay en el que contradiga los principios fundamentales de la contratacion, por haberse desenvuelto dentro del ambiente de la mas amplia libertad individual. Cuando el acto pase de la categoria de promesa a la de verdadera compra y venta por haberse decidido por comprar aquel a quien la promesa se hizo, entonces en modo alguno podra decirse que la efectividad del contrato queda al arbitrio de una de las partes, y claro esta que a ese momento es al que hay que referirse para ver si existe o no el vicio que algunos pretenden encontrar en el criterio que mantenemos. Por otra parte, si a los hechos de la vida real volvemos la vista, veremos que las cosas occuren tal y como las hemos presentado, teniendo esta interpretacion un firme apoyo en la conciencia de las gentes. El ejemploy que a diario se nos ofrece de la contratacion sobre minas viene a las mientes desre luego. Cuando se trata de minas que aun no han sido objeto de explotacion y en las que, por consiquiente, no se puede precisar si la cantidad de mineral existente respondera o no a los calculos que se hayan podido hacer, Ilevan a cabo los mineros un contrato que entre si denominan de opcion, y que en el fondo no es mas que una promesa de venta aceptada por la otra parte. La forma suele ser en sustancia la siquiente: X. se compromete a vender a Z. sus minas en tal precio, si este las compra on un plazo de cuatro meses. Es claro que X. no puede entrar en negociaciones con nadie mientras no transcurra los cuatro meses, pasados los cuales recobra su libertad. Z. no queda obligado a nada; unicamente tendra que manifestar su voluntad de comprar o de no comprar dentro de los expresados cuatro meses; si deja pasar el plazo sin manifestar nada, pierde su derecho a la compra. Esos cuatro meses se emplean en investigaciones y reconocimientos que verifica el que acepto la promesa y que le permitiran formar su juico definitivo sobre el negocio. Si los trabajos hechos no dan resultado, claro que no comprara; el promitente se habra abstenido de negociar durante el plazo marcado, y el que acepto la promesa habra perdido el dinero que empleo en las investigaciones. Esta forma

contratar se emplea lo mismo para la compra y venta de minas que para su arrendamiento, y es relativamente frecuente el que la opcion se refiera a las dos cosas. Que califiacion juridica merece el acto relacionado sino el de promesa unilateral de venta aceptada? (1) Pues bien; en ese acto se ve bien claro que el que acepta la promesa no queda obligado a nada, porque, notese bien, ha aceptado la promesa y no la compra y venta. No es posible descubrir mas obligacion que aquella en que voluntariamente sa ha constutuido el que prometio. Para ver la duracion de esta obligacion hay que tener en cuenta si al prometer sealo el promitente plazo a la otra patre, o no, para que manifestase su decision, o si la misma promesa estaba afectada por alguna condicion. Si medio sealamiento de plazo (ya lo hemos indicado antes incidentalmente), la obligacion del promitente, cuya promesa fue aceptada, dura todo el plazo marcado. Si no hubotal sealamiento, entendemos que los Tribunales deben sealarlo, pues no parece licito que el aceptante de la promesa se pueda tomar toda la vida del promitente para manifestar si compra o no, ni que este pueda rechazar la accion del aceptante que se decidio por comprar y que exige la efectividad de la compra y venta, alegando que no se fijo el momento oportuno para celebrar el contrato. Se la promesa estaba afecta por alguna condicion, como, por ejemplo, si se dijese "prometo venderte esta casa por tal precio si ocurre tal hecho", y esta promesa fuese aceptada, la obligacion del promitente durara hasta que ocurra ese heco o hasta que sea evidente que ya no puede ocurrir por haber transcurido el plazo dentro del cual tenta que suceder, en el caso de que se hubiese este marcada, o por otras causas; criterio conforme con el que el Codigo mantiene en la seccion primera, capitula 3 , tit. l. del libro 4. al hablar de las obligaciones condicionales. No hay para que decir que el promitente, antes de que su promesa sea aceptada, puede retirarla en todo momento, puesto que, siendo la aceptacion lo que produce el vinculo juridico, es claro que, no existiendo este, no hay perjuicio posible para nadie. A este efecto, conviene tener en cuenta el criterio que el parrafo segundo del art. 1.262 sostiene hablando del consentimiento en los contratos. La aceptacion hecha por carta, dice, no obliga al que hizo la oferta sino desde que llego a su conocimiento. De suerte que, segun este criterio, el promitente puede retirar su promesa, por excepcion, aun despues de ser esta aceptada, siempre que en el momento de retirarla no haya llegado aun a su conocimiento dicha aceptacion. Esto, en la practica, implica una serie de problemas de mera prueba de hechos, que habra de resolver con arreglo a los pricipios generales. En todo lo que llevamos dicho venimos refiriendonos a la promesa de compra o de venta en que media precio, es decir, en la que el promitente consigna de un modo expreso un precio cierto o de certeza determinable, a tenor de los articulos 1.447 y 1.448 del Codigo; pues si se dijese solamente: prometo vender a Juan tal cosa, o prometo comprar a Pedro tal otra, no habria lugar al nacimiento de la relacion juridica, cuyo contenido acabamos de exponer. La razon es muy clara: una manifestacion de voluntad hecha en esa forma tiene tales caracteres de vaguedad, que carece de aptitud para engendrar relaciones juridicas eficaces dentro del derecho del Estado, cualquiera que sea la opinion que sobre ella se forme en la esfera del derecho puramente individual, cuya sancion radica en la conciencia. Al Estado importa, para la mayor firmeza de su derecho y por la naturaleza de sus funciones, que las posiciones de la voluntad individual que dan origen a los actos juridicos, sean suficientemente apreciables, mediante las formas de expresion, a fin de evitar posibles alegaciones de propositos o de motivos que la falta de concrecion en la forma pueda mantener encubiertos, con perjuicio de la buena fe que debe

imperar en los contratos. Por otra parte, como se fijaria el precio si el que acepto la promesa quisiese llevar a efecto la compra y venta? No habria, en realidad, terminos habiles para fijarlo, puesto que no se puede imponer una estimacion pericial que no ha sido pactada. Es decir, en esa compra y venta no habria legalmente precio. Se ha discutido si el derecho que se deriva de una promesa unilateral aceptada puede ser cedido Realmente, el punto nos parece de dificil solucion. El art 1.112 del Codigo dice que todos los derechos adquiridos en virtud de una obligacion son transmisibles con sujecion a las leyes, si no se hubiese pactado lo contrario; pero, a pesar de este principio general, parecenos que habra no pocos casos en que la promesa se lleve a efecto en atencion a las circunstancias personables de aquel a quien se hace, por cuyo motivo muestrase, en nuestra opinion, como justa la applicacion en dichos casos del criterio que inspira la excepcion consignada en el art. 1.257, que el afirmar que los contratos solo producen efecto entre las partes y sus herederos, salva, en cuanto a estos, el caso de que los derechos y obligaciones que procedan del contrato no sean transmisibles por su naturaleza, por pacto o por disposicion de la ley. No se trata ciertamente en la cuestion propuesta de herederos, sine de terceros, por cuyo motivo aparece mas clara la aplicacion del indicado criterio. Creemos que los Tribunales, para resolver en cada caso concreto si puede ser o no objeto de cesion el derecho adquirido por una promesa unilateral aceptada, deben examiner cuidadosamente si las circunstancias personales de aquel a quien se hizo fueron motivo determinante en el animo del promitente para llevarla a cabo. Es claro que dentro del Codigo la prueba de la existencia de esa causa correspondera al que la alegue, y que no demonstransdose, habra que estar por la posibilidad legal de la cesion, lo cual tal vez de lugar en la practica a soluciones poco equitativas; pero esa es la consecuencia indeclinable del articulo 1.112. La doctrina que hasta aqui hemos expuesto, es igualmente aplicable a la promesa unilateral aceptada de venta que a la de compra. b) Promesa bilateral. Esta promesa es la reciproca, es de compra y venta. Cuando por ambas parties es aceptada, tiene el mismo valor que lo que hemos venido llamando contrato de compra y venta. Para convencernos de ello basta con tener presente que todos los requisitos esenciales de dicho contrato se dan en esta situacion juridica. El Codigo asi lo reconoce en el articulo que comentamos al afirmar que, habiendo conformidad en la cosa y en el preco, dara derecho a los contratantes para reclamar reciprocamente el cumplimiento del contrato. (10 Manresa 61-66, id.) In the light of the foregoing comments of Manresa, I find it impossible to attach to the contract before Us the concept of a unilateral promise to sell. I emphasize again, if Myers did intend it to be so, why did it use language suggestive of bilaterality; why must it hold tenaciously now, as an afterthought, I must say, to no more than the clause on reservation of title and the pactum commissiorum as indicative of such an intent? What is worse, as I have already shown, the reservation of title is immaterial, and the pactum commissorium, far from being proof of a mere promise to sell, is more suggestive of a conditional sale and I add, very importantly, it cannot be said that Article 1504 is applicable only to an absolute sale because the fact that breach in payment is conceded therein to be valid ground for cancellation implies that the sale is conditional, except that the law grants automatically to the vendor the right to continue paying even after breach or default as long as the vendor has not made any notarial or judicial demand for cancellation or resolution. A promise to sell is generally conditional or with a term, but a conditional sale is not a promise to sell only because it is not absolute.

Incidentally, I need not discuss the issue discussed by appellant in its motion for reconsideration, with profuse citation of authorities, that a contract to sell is tantamount to a contract of sale, for as I have discussed above, I cannot find any room for agreeing to the far-fetched view that the contract here in question is a mere promise to sell. For the purposes of Article 1504, and under the circumstances of this case, may the cross-claim interposed by Myers in its answer to the interpleader complaint of Luzon be deemed as the judicial demand that should foreclose any right on the part of Maritime to continue paying under the "Deed in question?" My answer is no. Upon the foregoing premises, the question that arises is in respect to the following holding in Our decision in this case: Assuming arguendo that Article 1592 (1504) of the Civil Code is applicable, the cross-claim filed by Myers against Maritime in a courtbelow constituted a judicial demand for rescission that satisfies the requirements of said Article (At p. 104) I cannot help suspecting that somehow there is in this statement in the opinion of the ponente a grudging concession if not a subconscious admission, that, after all, the characterization of the contract in question as a mere promise to sell is at least open to opposing views, not altogether to be disregarded or ignored. In any event, I beg to disagree with the view that under the circumstances portrayed in the earlier portion of these observations, the cross-claim filed by Myers against Maritime under date of July 25, 1961 in its answer to Luzon's complaint in interpleader satisfies the requirement of Article 1504 and precludes Maritime's right to insist on the enforcement in its favor of the Deed in question. It bears noting, in this connection, that after its undelivered letter to Maritime of May 16, 1961, Myers actually made its demand for rescission pursuant to the contract its letter of June 5, 1961. Why this demand was not made in a notarial form has not been explained. Instead, without further ado, Myers notified Luzon of its cancellation letter on the same day by furnishing Luzon copy thereof. (See Exhibit 2, Myers and also Exhibit 3, Myers). This notification was followed three days later,or, on June 1961, with a demand upon Luzon to pay all due rentals to Myers instead of to Maritime, in view of which Luzon instituted the present interpleader case on June 17, 1961. Maritime was unaware of these developments except the letter of June 5, 1961. The order of interpleading issued only on June 21, 1961 (pp. 15-16, Rec. on Appeal) and judging from the fact that Maritime's motion to dismiss was filed only on July 18, 1961 (p. 16, id.), it is reasonable to presume that Maritime must have been served with summons not earlier than July 3, 1961. At that time, Myers considered the contract as already cancelled and any payment by Maritime would have been refused. But even putting that point aside, it is noteworthy that soon after Myers filed its cross-claim on July 25, 1961, on July 28, 1961, Maritime already asked for its dismissal as it asked for dismissal of Luzon's interpleader complaint, but Myers sort of abided by the interpleader and made no objection to the deposit of P10,000 for July and, of course, the deposit for July of another P10,000 made before July 10, 1961. (See p. 15, Rec. on Appeal). Consequently, when Myers filed its cross-claim on July 25, 1961, there were already P20,000 deposited with the court for the benefit of either Myers or Maritime, as the final outcome of the case may dictate. I submit that in law and in equity, these P20,000 should be considered as a substantial compliance by Maritime to the requirement of payment under Article 1504, because the principle in equity is that when there is substantial compliance with an obligation, as I feel a deposit in court should be such substantial compliance, what ought to be done is deemed done. (Cf. Art. 1234, New Civil Code, J.M. Tuason v. Javier, supra). So that together with the P5,000 draft drawn by Schedler against the National City Bank of New York, the five installments for March, April, May, June and July, 1961 must be deemed to have been paid by July 10, 1961 before the cross-claim of Myers was filed. In any event, the deposit of August, 1961 made before August 10, 1961 (there being no showing to the

contrary) was more than enough to cover even the undelivered draft of P5,000. My conclusion, therefore, is that Maritime paid before the judicial demand made by Myers on July 25, 1961 or, at least, that there was substantial compliance with the obligation on the part of Maritime from the point of view of Article 1504 of the Old Civil Code. Having gone thru considerable length in trying to separate the chaff from the grain found in this case and to point out reasons for a second hard look at the doctrinal dicta contained in the majority resolution, it is already a source of genuine satisfaction for me and it is with gratitude that I acknowledge that one or two of my colleagues in the majority have expressed in the deliberations and after reading the draft of this opinion, agreement with my view that the contract herein is not a promise to sell and, according to them, if they feel that Article 1504 is not applicable to the facts hereof, it is only because they are not convinced that the deposits made by Luzon in connection with its interpleader can be considered as the payment that should be made before the judicial demand referred to in said article, on the assumption, of course, that the cross-claim of Myers of July 25, 1961 as the judicial demand therein contemplated. In connection with this view my colleagues, I find the same to be premised more on a literal interpretation than on a substantial constitutional consonant with the spirit and underlying principle of the provision under discussion. I reiterate that the proviso of Article 1504 (1592) allowing payment by the vendee even after he has undisputably defaulted in his obligation stipulated in the terms of the agreement is a legislative remedy intended to temper a la Portia the harshness of the enforcement of the condition of the parties amount to a pactum commissorium which is generally frowned upon. Accordingly, it is my understanding that in the application of this proviso, We should not be restricted to a literal interpretation thereof. I feel very strongly that in applying the same, We need not close our eyes to the environmental circumstances of each particular case and refuse to see whether or not, on the one hand, the contract as a whole would be in grave danger of being disregarded by the faulting party, and, on the other, whether or not substantial injury would be caused to the other party if the default were to be virtually condoned. To my mind, this is attitude that the law enjoins We should take when confronted with cases of the nature of the one at bar. In same sense, I would add that in the event of doubt, We should lean towards liberality in favor of the vendee who, after all, has already parted with money which the vendor has already made use of in the way or ways he must have had in mind when he decided to sell, rather than in favor of the vendor who, if he had wished it, could, under the law, have peremptorily cut-off any further opportunity of vendee by simply making a notarial demand. Moreover, I submit that may colleagues are overlooking that under the law on payments, the concept of payment is not limited exclusively to the actual delivery of peso and centavos at the appointed time. The law cannot ignore that circumstances can and are bound to arise in which to confine the meaning of payment to that sense would be violative of substantial justice and equity and even revolving to the conscience. It is this spirit that animates Article 1234 found in the New Civil Code and makes it the articulation of a sound principle of fairness in the legal field of obligations. Article 1234, to reiterate, reads thus: Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there have been a strict and complete fulfillment, less damages suffered by the obligee. As I have already mentioned earlier, none could have expounded more accurately and eloquently by actual application the meaning and intent of this article as Our Chief Justice did in J. M. Tuason v. Javier, supra. That he now sees the situation in this case differently because the parties herein are commercial giants having the best lawyers at their beck and call to take care of the protection of their respective interests and therefore, do not deserve the exercise of the equity jurisdiction of our courts and the benign spirit of the said provision may not be altogether groundless, but I dare say that one would feel better the evenness of justice and its disdain for any instance of possible unequal protection of the laws if no distinction were drawn. Furthermore, I maintain that it is not difficult to conceive of situations wherein despite the debtor's willingness and readiness to pay, the compulsion of circumstances arising from causes either natural or legal would justify failure to make payments strictly according to the terms of a contract. It is part of the inherent mutuality of contracts that the fulfillment by the obligor of the obligations arising therefrom be completely unimpeded by any act of the obligee. In the same spirit that Article 1119 (now 1186) considers a condition fulfilled in instances when the obligor prevents its

occurrence, Article 1100 (now 1169) in its last paragraph enjoins: "In reciprocal obligations (such as those in a sale), neither of the obligors shall be in default if the other does not fulfill or does not submit to the fulfillment of that which is incumbent upon him." In essence, this provision requires, in my opinion, that in reciprocal obligations a party who is himself in default or is guilty of breach of the contract, particularly when such infringement materially affects the capability of the other party to comply with his corresponding obligation, cannot in law, in equity and in justice charge the latter with default. Stated in terms of the facts before Us, since, as I have demonstrated, Myers prematurely cancelled the deed in question before Maritime was in default, and in consequence of such cancellation, Luzon, at the instance of Myers, stopped paying to Maritime the rentals which was the latter's wherewithal for the payment of the installments to Myers, and instead the rentals were deposited in court, it stands to reason that in law, in equity and in justice, such deposits must be deemed as the payment of the rent required by Article 1504 before the judicial demand allegedly made by Myers in its cross-claim of July 25, 1961. To the contention that the deposit of Luzon in court cannot be considered as payment to Myers because Myers has not been free to use the money so deposited or that the said deposit deprived Myers of the use of the money due it, my simple answer is that the same situation obtains as to the rentals that would have been due Maritime had Myers not prematurely compelled Luzon to file this present interpleader and make said deposits. In the last analysis, the question should boil down to who committed a legal wrong or injury first, and in this respect, I have already shown that on the basis of the provisions of Article 1100 as applied in Bayla, supra, and as correlated with Manresa's view that demand cannot be waived under Article 1504, there can be no doubt that it was Myers who violated the deed in question first by cancelling the same without any prior demand upon Maritime. This pose is further reinforced by the consideration that the long and short of the purpose of the letters of Schedler to Parsons, if they be of any legal relevance, is that Shedler did not wish Maritime to be in default, even as he hoped he could make some kind of arrangement regarding hi claim against F. H. Alyers and/or his estate and/or his heirs, which he assumed Myers could be liable for or would somehow assume. Frankly, I cannot see how the majority has been able to infer from the evidence that there was deliberate intent on the part of Maritime to compel or coerce Myers to set-off Schedler's claim against F. H. Myer with the rentals due from Maritime to Myers. Admittedly Maritime did make such a proposal, but its attitude was not as intransigent as the majority portrays it, for apart from the expressions of good faith and concern about possible default manifest in the letters of Schedler to Parsons, in its answer to Myers' cross-claim, Maritime very pointedly alleged: 4. That cross-claim did not and never refused to make installment payments to cross-claimant, but the former merely suspended the said installment payments because of pending negotiations between cross-claimant, cross-defendant, plaintiff in this interpleader case, and L.R. Wentholt concerning contingent liability for any adverse decision against the Luzon Brokerage Company in the so-called LBC/Bataan labor case pending in the Supreme Court and docketed as G.R. No. L-17086; 10. That pending the negotiations earlier mentioned, and in order to preserve money being paid to cross-claimant by cross-defendant under the Deed of Conditional Sale, E. W. Schedler as president of the latter suspended payment of the monthly installment of P5,000.00 in the meanwhile, with no intention, however, of violating the terms of the Deed of Conditional Sale; 11. That to show the good faith of cross-defendant and that it did not intend to violate its obligation to pay the monthly installments of P5,000.00, its president, E. W. Schedler, sent a letter on June 21, 1961, apparently before any knowledge of the filing of this interpleader case by plaintiff, to the representative of cross-claimant, Charles Parsons, proposing to deliver installment payments to Charles Parsons to be held in escrow 'until the responsibility if any, of the various parties be determined,' and pursuant to the request of E. W. Schedler the undersigned counsel on June 29, 1961 also sent a letter to the Charles Parsons informing the latter that the president of Maritime Building Co., Inc. had instructed the undersigned counsel to pay installments due Myers Building Co., Inc., to Charles Parsons to held in trust or escrow; 12. That on July 6, 1961, Charles Parson replied and informed the undersigned counsel that he was not in a position to accept installment payments by Maritime Building Co., Inc., in view of this interpleader case filed by plaintiff;

13. That to further show the good faith of cross-defendant and that it has no intention whatsoever to violate the terms of the Deed of Conditional Sale E. W. Schedler on July 18, 1961 delivered to the undersigned counsel a Manager's Check drawn against the First-National City Bank of New York dated July 25, 1961, in the amount of P5,000.00, with instructions to pay over this check together with the P20,000.00 already deposited in court by plaintiff and installment payments then due cross-claimant, but in view of the pendency of the Motion to Dismiss the Complaint and the Motion to Dismiss the Cross-Claim, the undersigned counsel held compliance with this instruction of E. W. Schedler in abeyance; 14. That to show the good faith of cross-defendant also, and that it never had the intention of violating the terms of the Deed of Conditional Sale, the undersigned counsel has been directed by E. W. Schedler to manifest in this Answer the willingness of cross-defendant to pay installments due cross-claimant from the amounts already deposited by plaintiff with this Honorable Courts. (Rec. on Appeal, pp. 138-141). All in all, it is my considered conviction that the equities in the case at bar preponderate abundantly in favor of appellee Maritime. The Court's decision and the denial resolution partake more of a legal solution which I have tried to show may not even be beyond dispute. To belittle Maritime's plea along the equity angle, the decision cites the rentals Maritime had earned from the subject property since 1949. I must say the evidence on this point is inconclusive, but even if it were assumed as a fact that Maritime had leased the property since May, 1949 and continously thereafter for a rental more than P5,000 a month, it is my feeling that the equity due Maritime is not to be limited to the recovery of the installments it has paid, for if juridically there are grounds to believe that the integrity of the contract in question has not been substantially impaired and that in the premises, Maritime has at worst acted in good faith, it stands to reason that what Maritime is bound to lose by Our sanctioning the cancellation of the said contract includes the very property itself and the future rentals to be derived therefrom by Maritime, all of which formed part of its consideration for the P973,000 it ha already paid Myers and the balance of the P1 M it was ready and willing to pay under terms which could not have materially deprived Myers of its own consideration in entering into the agreement. Contracts are solemn covenant not to be lightly overthrown at the slightest deviation from its terms by any of the parties thereto, for law and equity look more to the implementation and consummation of the agreement as a whole whenever any such departure is alleged and almost invariably favor the preservation of its integrity when substantial rights have not been considerably impaired. This to me is the wise, fair and just teaching of the jurisprudence all over the world in cases involving the construction and enforcement of contractual obligations. No less is embodied in the provisions of the Philippine Civil Code and the decisions of this Court I have made reference to in the lengthy discussion I have made above. Considering that Our decision in this case is a unanimous one penned by no less than Justice J.B.L. Reyes whose views on the legal issues We have resolved are admittedly authoritative, ordinarily, my concurrence in a denial resolution should be practically a matter of course. After going over the motion for reconsideration, however, my curiosity was aroused by it principally on two points, namely, (1) the unhappy and helpless plight of thousands upon thousands of subdivision buyers who under the ruling We laid down are bound to suffer the loss of their life earnings only because of an oversight or difficulty in paying one or two installments, unless We firmed up the doctrine laid down by the Chief Justice in Javier or We made clearer their right to avail of Article 1592 of the New Civil Code under so-called contracts or promises to sell which are in vogue in subdivision sales; and (2) the clarification once and for all of the juridical concepts We have been adopting in Our decisions concerning promises or contracts to sell with reservation of title, lest We perpetuate a posture in doctrinal law which may be questioned later. IN VIEW OF ALL THE FOREGOING, I vote to grant the motion for reconsideration and to reverse the judgment of the lower court in accordance with the tenor of the above opinion. Zaldivar and Antonio, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. L-59266 February 29, 1988 SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners, vs. HON. COURT OF APPEALS and ATILANO G. JABIL, respondents. BIDIN, J.: This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for lack of merit. The undisputed facts as found by the Court of Appeals are as follows: The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be paid on or before September 15, 1965. On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register of Deeds pursuant to the provisions of Act No. 3344. As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the land, and as plaintiff- appellant discovered the second sale made by defendantsappellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28) After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal portion of which reads: WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United States of America, null and void ab initio, and the deed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the decision of this case becomes final and executory.

The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding to the expenses or costs of the hollow block fence, so far constructed. It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall enrich himself at the expense of another. The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this decision. With costs against the defendants.

EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL. II THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT. III

From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein) appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al." On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the land in question. The disposive portion of said decision of the Court of Appeals reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment as pertains to plaintiff-appellant above indicated, the judgment appealed from is hereby AFFIRMED in all other respects. With costs against defendants-appellants. SO ORDERED. Judgment MODIFIED.

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS. IV PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS. V BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO. The foregoing assignment of errors may be synthesized into two main issues, to wit:

A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the Court of Appeals denying the motion for lack of merit. Hence, this petition. In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In the resolution dated April 26,1982, respondents were required to comment thereon, which comment was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On August 9,1982, acting on the motion for reconsideration and on all subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10, 1982 and to give due course to the instant petition. On September 6, 1982, respondents filed a rejoinder to reply of petitioners which was noted on the resolution of September 20, 1982. Petitioners raised the following assignment of errors:

I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell. II. Whether or not there was a valid rescission thereof. There is no merit in this petition. It is significant to note that this petition was denied by the Second Division of this Court in its Resolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on the basis of all subsequent pleadings filed, the petition was given due course. I. The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:

I THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, 1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil. Philippine Currency as advance payment;

2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00) Loan from the First Insular Bank of Cebu; 3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos (P4,000.00) on or before September 15,1965; 4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the said property; 5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over the above-mentioned property upon the payment of the balance of Four Thousand Pesos. (Original Record, pp. 10-11) In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two (2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or before September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further contended that in said contract, title or ownership over the property was expressly reserved in the vendor, the Dignos spouses until the suspensive condition of full and punctual payment of the balance of the purchase price shall have been met. So that there is no actual sale until full payment is made (Rollo, pp. 51-52). In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and the absence of a formal deed of conveyance is a very strong indication that the parties did not intend "transfer of ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms and conditions of the contract, more particularly paragraph four which reads, "that said spouses has agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number five which reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned property upon the payment of the balance of four thousand pesos." Such contention is untenable. By and large, the issues in this case have already been settled by this Court in analogous cases. Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305). A careful examination of the contract shows that there is no such stipulation reserving the title of the property on the vendors nor does it give them the right to unilaterally rescind the contract upon non-payment of the balance thereof within a fixed period. On the contrary, 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." As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.

While it may be conceded that there was no constructive delivery of the land sold in the case at bar, as subject Deed of Sale is a private instrument, it is beyond question that there was actual delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the land in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108). Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale was intended by the parties and not a contract to sell. Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. II. Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was already rescinded. Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with the case at bar, the contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. It is undisputed that petitioners never notified private respondents Jabil by notarial act that they were rescinding the contract, and neither did they file a suit in court to rescind the sale. The most that they were able to show is a letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the latter had no money and further advised petitioners to sell the land in litigation to another party (Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is no showing that Amistad was properly authorized by Jabil to make such extra-judicial rescission for the latter who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he was already waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is required that acts and contracts which have for their object the extinguishment of real rights over immovable property must appear in a public document. Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money on the stipulated date of payment on September 15,1965 and was able to raise the necessary amount only by mid-October 1965. It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part of one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that private respondent has only a balance of P4,000.00 and was delayed in payment only for one month, equity and justice mandate as in the aforecited case that Jabil be given an additional period within which to complete payment of the purchase price. WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of the Court of Appeals is Affirmed in toto. SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

Footnotes

* Penned by Justice Elias B. Asuncion and concurred by Justices Porfirio V. Sison and Vicente V. Mendoza. ** Penned by Judge Ramon E. Nazareno.

And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents. xxx[5] (Italics supplied) However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it. [6] On November 26, 1990, respondent sent a letter[7] to petitioner demanding payment of his obligation, but petitioner refused to pay claiming that his obligation had been extinguished when they executed the Deed of Assignment. Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money against the petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074.[8] During the trial, petitioner argued that his obligation was extinguished with the execution of the Deed of Assignment of credit. Respondent, for its part, presented the testimony of its employee, Almeda Baaga, who testified that Jomero Realty refused to honor the assignment of credit because it claimed that petitioner had an outstanding indebtedness to it. On August 25, 1994, the trial court rendered a decision[9] dismissing the complaint on the ground that the assignment of credit extinguished the obligation. The decretal portion thereof provides: WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the defendant and against the plaintiff, dismissing the complaint and ordering the plaintiff to pay the defendant attorneys fees in the amount of P25,000.00. Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court rendered a decision,[10] the dispositive portion of which reads: WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing of the Complaint) until fully paid and attorneys fees equivalent to 10% of the amount due and costs of the suit. SO ORDERED.[11] In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under the Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment when he failed to execute and do all acts and deeds as shall be necessary to effectually enable the respondent to recover the collectibles.[12] Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of Appeals. [13] In this petition for review, petitioner assigns the following errors: I THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING THE DEED OF ASSIGNMENT (EXH. 4) AS NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY CLAIM. II

FIRST DIVISION [G.R. No. 149420. October 8, 2003] SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent. DECISION YNARES-SANTIAGO, J.: Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style Sans Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80.[1] He paid a downpayment in the amount of P150,000.00. The balance was made payable in ten monthly installments. Respondent delivered the scaffoldings to petitioner.[2] Petitioner was able to pay the first two monthly installments. His business, however, encountered financial difficulties and he was unable to settle his obligation to respondent despite oral and written demands made against him.[3] On October 11, 1990, petitioner and respondent executed a Deed of Assignment,[4] whereby petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation. Pertinent portions of the Deed provide: WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located at Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation; WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased on account scaffolding equipments from the ASSIGNEE payable to the latter; WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of the aforementioned scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14); NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which represents part of the ASSIGNORs collectible from Jomero Realty Corp., said ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles amounting to the said amount of P335, 462.14; And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power and authority to demand, collect, receive, compound, compromise and give acquittance for the same or any part thereof, and in the name and stead of the said ASSIGNOR; And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and that said ASSIGNOR has not done and will not cause anything to be done to diminish or discharge said debt, or delay or to prevent the ASSIGNEE, its successors or assigns, from collecting the same;

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT (EXH. 4) DID NOT EXTINGUISH PETITIONERS OBLIGATION ON THE WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS WARRANTY THEREUNDER. III THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEYS FEES.[14] The petition is without merit. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.[15] Corollary thereto, 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.[16] In order that there be a valid dation in payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.[17] 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 debtors debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances.[18] Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property,[19] produced the effects of a dation in payment which may extinguish the obligation.[20]However, as in any other contract of sale, the vendor or assignor is bound by certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code provides: The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by compensation.[21] In other words, respondent alleged the non-existence of the credit and asserted its claim to petitioners warranty under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid the obligation. Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to wit: And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents.[22] (underscoring ours) Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the performance thereof in case the same is later found to be inexistent. He should be held liable to pay to respondent the amount of his indebtedness. Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the sum of P335,462.14 with legal interest thereon. However, we find that the award by the Court of Appeals of attorneys fees

is without factual basis. No evidence or testimony was presented to substantiate this claim. Attorneys fees, being in the nature of actual damages, must be duly substantiated by competent proof. WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19, 2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum of P335,462.14 with legal interest of 6% per annum from January 10, 1991 until fully paid is AFFIRMED with MODIFICATION. Upon finality of this Decision, the rate of legal interest shall be 12% per annum, inasmuch as the obligation shall thereafter become equivalent to a forbearance of credit.[23] The award of attorneys fees is DELETED for lack of evidentiary basis. SO ORDERED. Davide, Jr., C.J., (Chairman), Vitug, Carpio and Azcuna, JJ., concur.

[1] [2] [3] [4] [5] [6] [7] [8] [9]

Exhibit A, Records, p. 128. Exhibits B-B-8, Records, pp. 130-138. Exhibit C, Records, p. 139. Records, pp. 142-143. Records, p. 142. TSN, April 28, 1993, p. 25. Exhibit C, Records, p. 139. Records, pp. 1-6. Penned by Judge Teofilo L. Guadiz, Jr. Penned by Justice Hilarion L. Aquino with Justices Ma. Alicia Austria-Martinez (now a member of this Court) and Jose L. Sabio, Jr., concurring. Decision, CA-G.R. CV No. 47713, p. 6; Rollo, p. 14. Rollo, pp. 9-14. Rollo, p. 50. Petition, pp. 6-7, Rollo, pp. 24-25. South City Homes, Inc., et al. v. BA Finance Corporation, G.R. No. 135462, 7 December 2001. Filinvest Credit Corporation v. Philippine Acetylene, Co., Inc., G.R. No. L-50449, January 30, 1982. 3 Castan, Vol. I, 8th Ed., page 283 cited in IV Caguioa 'Comments and Cases in Civil Law, page 325. Civil Code, Article 1628. The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the solvency was prior to the sale and of common knowledge. xxx Civil Code, Art. 417. The following are also considered as personal property:

[10]

[11] [12] [13] [14] [15] [16] [17] [18]

[19]

(1) Obligations and actions which have for their object movables or demandable sums, and xxx.
[20]

Civil Code, Art. 1231. Obligations are extinguished:

(1) By payment or performance; xxx.

[21]

Civil Code, Art. 1278. Compensation shall take place when two persons, in their own rights, are creditors and debtors of each other. Records, p. 143. Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78.

The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for the total consideration of P60,000.00. Domingos children (Dominic, Rodolfo, Nanette and Cyric, all surnamed Balacano;) filed on October 22, 1996 a complaint for annulment of sale and partition against Catalino and the Spouses Paragas. They essentially alleged in asking for the nullification of the deed of sale that: (1) their grandfather Gregorio could not have appeared before the notary public on July 22, 1996 at Santiago City because he was then confined at the Veterans Memorial Hospital in Quezon City; (2) at the time of the alleged execution of the deed of sale, Gregorio was seriously ill, in fact dying at that time, which vitiated his consent to the disposal of the property; and (3) Catalino manipulated the execution of the deed and prevailed upon the dying Gregorio to sign his name on a paper the contents of which he never understood because of his serious condition. Alternatively, they alleged that assuming Gregorio was of sound and disposing mind, he could only transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to their grandmother Lorenza who predeceased Gregorio they claimed that Lots 1175-E and 1175-F form part of the conjugal partnership properties of Gregorio and Lorenza. Finally, they alleged that the sale to the Spouses Paragas covers only a 5-hectare portion of Lots 1175-E and 1175-F leaving a portion of 6,416 square meters that Catalino is threatening to dispose. They asked for the nullification of the deed of sale executed by Gregorio and the partition of Lots 1175-E and 1175-F. They likewise asked for damages. Instead of filing their Answer, the defendants Catalino and the Spouses Paragas moved to dismiss the complaint on the following grounds: (1) the plaintiffs have no legal capacity - the Domingos children cannot file the case because Domingo is still alive, although he has been absent for a long time; (2) an indispensable party is not impleaded that Gregorios other son, Alfredo was not made a party to the suit; and (3) the complaint states no cause of action that Domingos children failed to allege a ground for the annulment of the deed of sale; they did not cite any mistake, violence, intimidation, undue influence or fraud, but merely alleged that Gregorio was seriously ill. Domingos children opposed this motion. The lower court denied the motion to dismiss, but directed the plaintiffs-appellees to amend the complaint to include Alfredo as a party. Alfredo was subsequently declared as in default for his failure to file his Answer to the Complaint. The defendants-appellees filed their Answer with Counterclaim on May 7, 1997, denying the material allegations of the complaint. Additionally, they claimed that: (1) the deed of sale was actually executed by Gregorio on July 19 (or 18), 1996 and not July 22, 1996; (2) the Notary Public personally went to the Hospital in Bayombong, Nueva Vizcaya on July 18, 1996 to notarize the deed of sale already subject of a previously concluded covenant between Gregorio and the Spouses Paragas; (3) at the time Gregorio signed the deed, he was strong and of sound and disposing mind; (4) Lots 1175-E and 1175-F were Gregorios separate capital and the inscription of Lorenzas name in the titles was just a description of Gregorios marital status; (5) the entire area of Lots 1175 -E and 1175-F were sold to the Spouses Paragas. They interposed a counterclaim for damages. At the trial, the parties proceeded to prove their respective contentions. Plaintiff-appellant Nanette Balacano testified to prove the material allegations of their complaint. On Gregorios medical condition, she declared that: (1) Gregorio, who was then 81 years old, weak and sick, was brought to the hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until the afternoon on July 19, 1996; (2) thereafter, Gregorio, who by then was weak and could no longer talk and whose condition had worsened, was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where Gregorio died. She claimed that Gregorio could not have signed a deed of sale on July 19, 1996 because she stayed at the hospital the whole of that day and saw no visitors. She likewise testified on their agreement for attorneys fees with their counsel and the litigation expenses they incurred. Additionally, the plaintiffs-appellees presented in evidence Gregorios medical records and his death certificate. Defendants-appellees, on the other hand, presented as witnesses Notary Public de Guzman and instrumental witness Antonio to prove Gregorios execution of the sale and the circumstances under the deed was executed. They uniformly declared that: (1) on July 18, 1996, they went to the hospital in Bayombong, Nueva Vizcaya where

[22] [23]

SECOND DIVISION

[G.R. No. 168220. August 31, 2005]

SPS. RUDY PARAGAS and CORAZON B. PARAGAS, petitioners, vs. HRS. OF DOMINADOR BALACANO, namely: DOMINIC, RODOLFO, NANETTEand CYRIC, all surnamed BALACANO, represented by NANETTE BALACANO and ALFREDO BALACANO, respondents. RESOLUTION CHICO-NAZARIO, J.: This petition for review seeks to annul the Decision[1] dated 15 February 2005 of the Court of Appeals in CAG.R. CV No. 64048, affirming with modification the 8 March 1999 Decision[2] of the Regional Trial Court (RTC), Branch 21, of Santiago City, Isabela, in Civil Case No. 21-2313. The petition likewise seeks to annul the Resolution[3] dated 17 May 2005 denying petitioners motion for reconsideration. The factual antecedents were synthesized by the Court of Appeals in its decision. Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot 1175-E and Lot 1175-F of the Subd. Plan Psd-38042 [located at Baluarte, Santiago City, Isabela] covered by TCT No. T-103297 and TCT No. T103298 of the Registry of Deeds of the Province of Isabela. Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo, all surnamed Balacano. Lorenza died on December 11, 1991. Gregorio, on the other hand, died on July 28, 1996. Prior to his death, Gregorio was admitted at the Veterans General Hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until July 19, 1996. He was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where he was confined until his death. Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot 1175-E (specifically consisting of 15,925 square meters from its total area of 22,341 square meters) and the whole Lot 1175-F to the Spouses Rudy (Rudy) and Corazon Paragas (collectively, the Spouses Paragas) for the total consideration of P500,000.00. This sale appeared in a deed of absolute sale notarized by Atty. Alexander V. de Guzman, Notary Public for Santiago City, on the same date July 22, 1996 and witnessed by Antonio Agcaoili (Antonio) and Julia Garabiles (Julia). Gregorios certificates of title over Lots 1175-E and 1175-F were consequently cancelled and new certificates of title were issued in favor of the Spouses Paragas.

Gregorio was confined with Rudy; (2) Atty. De Guzman read and explained the contents of the deed to Gregorio; (3) Gregorio signed the deed after receiving the money from Rudy; (4) Julia and Antonio signed the deed as witnesses. Additionally, Atty. De Guzman explained that the execution of the deed was merely a confirmation of a previous agreement between the Spouses Paragas and Gregorio that was concluded at least a month prior to Gregorios death; that, in fact, Gregorio had previously asked him to prepare a deed that Gregorio eventually signed on July 18, 1996. He also explained that the deed, which appeared to have been executed on July 22, 1996, was actually executed on July 18, 1996; he notarized the deed and entered it in his register only on July 22, 1996. He claimed that he did not find it necessary to state the precise date and place of execution (Bayombong, Nueva Vizcaya, instead of Santiago City) of the deed of sale because the deed is merely a confirmation of a previously agreed contract between Gregorio and the Spouses Paragas. He likewise stated that of the stated P500,000.00 consideration in the deed, Rudy paid Gregorio P450,000.00 in the hospital because Rudy had previously paid Gregorio P50,000.00. For his part, Antonio added that he was asked by Rudy to take pictures of Gregorio signing the deed. He also claimed that there was no entry on the date when he signed; nor did he remember reading Santiago City as the place of execution of the deed. He described Gregorio as still strong but sickly, who got up from the bed with Julias help. Witness for defendants-appellants Luisa Agsalda testified to prove that Lot 1175-E was Gregorios separate property. She claimed that Gregorios father (Leon) purchased a two-hectare lot from them in 1972 while the other lot was purchased from her neighbor. She also declared that Gregorio inherited these lands from his father Leon; she does not know, however, Gregorios brothers share in the inheritance. Defendant-appellant Catalino also testified to corroborate the testimony of witness Luisa Agsalda; he said that Gregorio told him that he (Gregorio) inherited Lots 1175-E and 1175-F from his father Leon. He also stated that a portion of Lot 1175-E consisting of 6,416 square meters was sold to him by the Spouses Paragas and that he will pay the Spouses Paragas P50,000.00, not as consideration for the return of the land but for the transfer of the title to his name. Additionally, the defendants-appellants presented in evidence the pictures taken by Antonio when Gregorio allegedly signed the deed.[4] The lower court, after trial, rendered the decision declaring null and void the deed of sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon Paragas. In nullifying the deed of sale executed by Gregorio, the lower court initially noted that at the time Gregorio executed the deed, Gregorio was ill. The lower courts reasoning in declaring the deed of sale null and void and this reasonings premises may be summarized as follows: (1) the deed of sale was improperly notarized; thus it cannot be considered a public document that is usually accorded the presumption of regularity; (2) as a private document, the deed of sales due execution must be proved in accordance with Section 20, Rule 132 of the Revised Rules on Evidence either: (a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of the signature or handwriting of the maker; and (3) it was incumbent upon the Spouses Paragas to prove the deed of sales due execution but failed to do so the lower court said that witness Antonio Agcaoili is not credible while Atty. Alexander De Guzman is not reliable.[5] The lower court found the explanations of Atty. De Guzman regarding the erroneous entries on the actual place and date of execution of the deed of sale as justifications for a lie. The lower court said The Court cannot imagine an attorney to undertake to travel to another province to notarize a document when he must certainly know, being a lawyer and by all means, not stupid, that he has no authority to notarize a document in that province. The only logical thing that happened was that Rudy Paragas brought the deed of sale to him on July 22, 1996 already signed and requested him to notarize the same which he did, not knowing that at that time the vendor was already in a hospital and [sic] Quezon City. Of course had he known, Atty. De Guzman would not have notarized the document. But he trusted Rudy Paragas and moreover, Gregorio Balacano already informed him previously in June that he will sell his lands to Paragas. In addition [sic, (,) was omitted] Rudy Paragas also told him that Balacano received an advance of P50,000.00. The intention to sell is not actual selling. From the first week of June when, according to Atty. De Guzman, Gregorio Balacano informed him that he will sell his land to Rudy Paragas, enough time elapsed to the time he was brought to the hospital on June 28, 1996. Had there been a meeting of the minds between Gregorio Balacano and Rudy Paragas regarding the sale, surely Gregorio Balacano would have immediately returned to the office of Atty. De

Guzman to execute the deed of sale. He did not until he was brought to the hospital and diagnosed to have liver cirrhosis. Because of the seriousness of his illness, it is not expected that Gregorio Balacano would be negotiating a contract of sale. Thus, Rudy Paragas negotiated with Catalino Balacano, the son of Gregorio Balacano with whom the latter was staying.[6] The lower court also did not consider Antonio Agcaoili, petitioner Rudy Paragass driver, a convincing witness, concluding that he was telling a rehearsed story. The lower court said The only portion of his testimony that is true is that he signed the document. How could the Court believe that he brought a camera with him just to take pictures of the signing? If the purpose was to record the proceeding for posterity, why did he not take the picture of Atty. De Guzman when the latter was reading and explaining the document to Gregorio Balacano? Why did he not take the picture of both Gregorio Balacano and Atty. de Guzman while the old man was signing the document instead of taking a picture of Gregorio Balacano alone holding a ball pen without even showing the document being signed? Verily there is a picture of a document but only a hand with a ball pen is shown with it. Why? Clearly the driver Antonio Agcaoili must have only been asked by Rudy Paragas to tell a concocted story which he himself would not dare tell in Court under oath. [7] The lower court likewise noted that petitioner Rudy Paragas did not testify about the signing of the deed of sale. To the lower court, Rudys refusal or failure to testify raises a lot of questions, such as: (1) was he (Rudy) afraid to divulge the circumstances of how he obtained the signature of Gregorio Balacano, and (2) was he (Rudy) afraid to admit that he did not actually pay theP500,000.00 indicated in the deed of sale as the price of the land?[8] The lower court also ruled that Lots 1175-E and 1175-F were Gregorios and Lorenzas conjugal partnership properties. The lower court found that these lots were acquired during the marriage because the certificates of title of these lots clearly stated that the lots are registered in the name Gregorio, married to Lorenza Sumigcay. Thus, the lower court concluded that the presumption of law (under Article 160 of the Civil Code of the Philippines) that property acquired during the marriage is presumed to belong to the conjugal partnership fully applies to Lots 1175-E and 1175-F.[9] Thus, on 8 March 1999, the RTC, Branch 21, of Santiago City, Isabela, rendered a Decision[10] in Civil Case No. 21-2313, the dispositive portion of which reads as follows: WHEREFORE in the light of the foregoing considerations judgment is hereby rendered: 1. DECLARING as NULL and VOID the deed of sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon Paragas over lots 1175-E and 1175-F covered by TCT Nos. T-103297 and T-103298, respectively; 2. ORDERING the cancellation of TCT Nos. T-258042 and T-258041 issued in the name of the spouses Rudy and Corazon Paragas by virtue of the deed of sale; and DECLARING the parcel of lands, lots 1175-E and 1175-F as part of the estate of the deceased spouses Gregorio Balacano and Lorenza Balacano.[11] In the assailed Decision dated 15 February 2005, the Court of Appeals affirmed the Decision of the trial court, with the modification that Lots 1175-E and 1175-F were adjudged as belonging to the estate of Gregorio Balacano. The appellate court disposed as follows: WHEREFORE, premises considered, the appeal is hereby DISMISSED. We AFFIRM the appealed Decision for the reasons discussed above, with the MODIFICATION that Lots 1175-E and 1175-F belong to the estate of Gregorio Balacano.

Let a copy of this Decision be furnished the Office of the Bar Confidant for whatever action her Office may take against Atty. De Guzman.[12] (Emphasis in the original.) Herein petitioners motion for reconsideration was met with similar lack of success when it was denied for lack of merit by the Court of Appeals in its Resolution[13] dated 17 May 2005. Hence, this appeal via a petition for review where petitioners assign the following errors to the Court of Appeals, viz: A. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN FINDING THAT THERE WAS NO PERFECTED AND PARTIALLY EXECUTED CONTRACT OF SALE OVER LOTS 1175-E AND 1175-F PRIOR TO THE SIGNING OF THE DEED OF SALE. B. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY FAILED TO APPRECIATE THE SIGNIFICANCE OF THE JUDICIAL ADMISSION ON THE AUTHENTICITY AND DUE EXECUTION OF THE DEED OF SALE MADE BY THE RESPONDENTS DURING THE PRE-TRIAL CONFERENCE. C. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, BASED ITS CONCLUSION THAT GREGORIOS CONSENT TO THE SALE OF THE LOTS WAS ABSENT MERELY ON SPECULATIONS AND SURMISES. D. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN NOT RULING ON THE ISSUE OF RESPONDENTS LACK OF LEGAL CAPACITY TO SUE FOR NOT BEING THE PROPER PARTIES IN INTEREST. E. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN DISMISSING ATTY. ALEXANDER DE GUZMAN AND ANTONIO AGCAOILI AS NOT CREDIBLE WITNESSES.[14] At bottom is the issue of whether or not the Court of Appeals committed reversible error in upholding the findings and conclusions of the trial court on the nullity of the Deed of Sale purportedly executed between petitioners and the late Gregorio Balacano. To start, we held in Blanco v. Quasha[15] that this Court is not a trier of facts. As such, it is not its function to examine and determine the weight of the evidence supporting the assailed decision. Factual findings of the Court of Appeals, which are supported by substantial evidence, are binding, final and conclusive upon the Supreme Court,[16] and carry even more weight when the said court affirms the factual findings of the trial court. Moreover, well- entrenched is the prevailing jurisprudence that only errors of law and not of facts are reviewable by this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court. The foregoing tenets in the case at bar apply with greater force to the petition under consideration because the factual findings by the Court of Appeals are in full agreement with that of the trial court. Specifically, the Court of Appeals, in affirming the trial court, found that there was no prior and perfected contract of sale that remained to be fully consummated. The appellate court explained In support of their position, the defendants-appellants argue that at least a month prior to Gregorios signing of the deed, Gregorio and the Spouses Paragas already agreed on the sale of Lots 1175-E and 1175-F; and that, in fact, this agreement was partially executed by Rudys payment to Gregorio of P50,000.00 before Gregorio signed the deed at the hospital. In line with this position, defendants-appellants posit that Gregorios consent to the sale should be determined, not at the time Gregorio signed the deed of sale on July 18, 1996, but at the time when he agreed to sell the property in June 1996 or a month prior to the deeds signing; and in June 1996, Gregorio was of sound and disposing mind and his consent to the sale was in no wise vitiated at that time. The defendants-appellants further argue that the execution or signing of the deed of sale, however, irregular it might have been, does not affect the validity of the previously agreed sale of the lots, as the execution or signing of the deed is merely a formalization of a previously agreed oral contract.

... In the absence of any note, memorandum or any other written instrument evidencing the alleged perfected contract of sale, we have to rely on oral testimonies, which in this case is that of Atty. de Guzman whose testimony on the alleged oral agreement may be summarized as follows: (1) that sometime in the first week of June 1996, Gregorio requested him (Atty. de Guzman) to prepare a deed of sale of two lots; (2) Gregorio came to his firms office in the morning with a certain Doming Balacano, then returned in the afternoon with Rudy; (3) he (Atty. de Guzman) asked Gregorio whether he really intends to sell the lots; Gregorio confirmed his intention; (4) Gregorio and Rudy left the law office at 5:00 p.m., leaving the certificates of title; (5) he prepared the deed a day after Rudy and Gregorio came. With regard to the alleged partial execution of this agreement, Atty. de Guzman said that he was told by Rudy that there was already a partial payment of P50,000.00. We do not consider Atty. de Guzmans testimony sufficient evidence to establish the fact that there was a prior agreement between Gregorio and the Spouses Paragas on the sale of Lots 1175-E and 1175-F. This testimony does not conclusively establish the meeting of the minds between Gregorio and the Spouses Paragas on the price or consideration for the sale of Lots 1175-E and 1175-F Atty. de Guzman merely declared that he was asked by Gregorio to prepare a deed; he did not clearly narrate the details of this agreement. We cannot assume that Gregorio and the Spouses Paragas agreed to a P500,000.00 consideration based on Atty. de Guzmans bare assertion that Gregorio asked him to prepare a deed, as Atty. de Guzman was not personally aware of the agreed consideration in the sale of the lots, not being privy to the parties agreement. To us, Rudy could have been a competent witness to testify on the perfection of this prior contract; unfortunately, the defendants-appellants did not present Rudy as their witness. We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely on his testimony because of his tendency to commit falsity. He admitted in open court that while Gregorio signed the deed on July 18, 1996 at Bayombong, Nueva Vizcaya, he nevertheless did not reflect these matters when he notarized the deed; instead he entered Santiago City and July 22, 1996, as place and date of execution, respectively. To us, Atty. de Guzmans propensity to distort facts in the performance of his public functions as a notary public, in utter disregard of the significance of the act of notarization, seriously affects his credibility as a witness in the present case. In fact, Atty. de Guzmans act in falsifying the entries in his acknowledgment of the deed of sale could be the subject of administrative and disciplinary action, a matter that we however do not here decide. Similarly, there is no conclusive proof of the partial execution of the contract because the only evidence the plaintiffsappellants presented to prove this claim was Atty. de Guzmans testimony, which is hearsay and thus, has no probative value. Atty. de Guzman merely stated that Rudy told him that Rudy already gave P50,000.00 to Gregorio as partial payment of the purchase price; Atty. de Guzman did not personally see the payment being made.[17] But, did Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-F when he signed the deed of sale? The trial court as well as the appellate court found in the negative. In the Court of Appeals rationaleIt is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously ill, as he in fact died a week after the deeds signing. Gregorio died of complications caused by cirrhosis of the liver. Gregorios death was neither sudden nor immediate; he fought at least a month-long battle against the disease until he succumbed to death on July 22, 1996. Given that Gregorio purportedly executed a deed during the last stages of his battle against his disease, we seriously doubt whether Gregorio could have read, or fully understood, the contents of the documents he signed or of the consequences of his act. We note in this regard that Gregorio was brought to the Veterans Hospital at Quezon City because his condition had worsened on or about the time the deed was allegedly signed. This transfer and fact of death not long after speak volumes about Gregorios condition at that time. We likewise see no conclusive evidence that the contents of the deed were sufficiently explained to Gregorio before he affixed his signature. The evidence the defendants-appellants offered to prove Gregorios consent to the sale consists of the testimonies of Atty. de Guzman and Antonio. As discussed above, we do not find Atty. de Guzman a credible witness. Thus, we fully concur with the heretofore-quoted lower courts evaluation of the testimonies given by Atty. de Guzman and Antonio because this is an evaluation that the lower court was in a better position to make.

Additionally, the irregular and invalid notarization of the deed is a falsity that raises doubts on the regularity of the transaction itself. While the deed was indeed signed on July 18, 1996 at Bayombong, Nueva Vizcaya, the deed states otherwise, as it shows that the deed was executed on July 22, 1996 at Santiago City. Why such falsity was committed, and the circumstances under which this falsity was committed, speaks volume about the regularity and the validity of the sale. We cannot but consider the commission of this falsity, with the indispensable aid of Atty. de Guzman, an orchestrated attempt to legitimize a transaction that Gregorio did not intend to be binding upon him nor on his bounty. Article 24 of the Civil Code tells us that in all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.[18] Based on the foregoing, the Court of Appeals concluded that Gregorios consent to the sale of the lots was absent, making the contract null and void. Consequently, the spouses Paragas could not have made a subsequent transfer of the property to Catalino Balacano. Indeed, nemo dat quod non habet. Nobody can dispose of that which does not belong to him.[19] We likewise find to be in accord with the evidence on record the ruling of the Court of Appeals declaring the properties in controversy as paraphernal properties of Gregorio in the absence of competent evidence on the exact date of Gregorios acquisition of ownership of these lots. On the credibility of witnesses, it is in rhyme with reason to believe the testimonies of the witnesses for the complainants vis--vis those of the defendants. In the assessment of the credibility of witnesses, we are guided by the following well-entrenched rules: (1) that evidence to be believed must not only spring from the mouth of a credible witness but must itself be credible, and (2) findings of facts and assessment of credibility of witness are matters best left to the trial court who had the front-line opportunity to personally evaluate the witnesses demeanor, conduct, and behavior while testifying.[20] In the case at bar, we agree in the trial courts conclusion that petitioners star witness, Atty. De Guzman is far from being a credible witness. Unlike this Court, the trial court had the unique opportunity of observing the demeanor of said witness. Thus, we affirm the trial court and the Court of Appeals uniform decision based on the whole evidence in record holding the Deed of Sale in question to be null and void. In Domingo v. Court of Appeals,[21] the Court declared as null and void the deed of sale therein inasmuch as the seller, at the time of the execution of the alleged contract, was already of advanced age and senile. We held . . . She died an octogenarian on March 20, 1966, barely over a year when the deed was allegedly executed on January 28, 1965, but before copies of the deed were entered in the registry allegedly on May 16 and June 10, 1966. The general rule is that a person is not incompetent to contract merely because of advanced years or by reason of physical infirmities. However, when such age or infirmities have impaired the mental faculties so as to prevent the person from properly, intelligently, and firmly protecting her property rights then she is undeniably incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of the alleged execution of the deed, Paulina was already incapacitated physically and mentally. She narrated that Paulina played with her waste and urinated in bed. Given these circumstances, there is in our view sufficient reason to seriously doubt that she consented to the sale of and the price for her parcels of land. Moreover, there is no receipt to show that said price was paid to and received by her. Thus, we are in agreement with the trial courts finding and conclusion on the matter: . . . In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed in the hospital. Gregorio was an octogenarian at the time of the alleged execution of the contract and suffering from liver cirrhosis at that circumstances which raise grave doubts on his physical and mental capacity to freely consent to the contract. Adding to the dubiety of the purported sale and further bolstering respondents claim that their uncle Catalino, one of the children of the decedent, had a hand in the execution of the deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for P60,000.00.[22] One need not stretch his imagination to surmise that Catalino was in cahoots with petitioners in maneuvering the alleged sale.

On the whole, we find no reversible error on the part of the appellate court in CA-G.R. CV No. 64048 that would warrant the reversal thereof. WHEREFORE, the present petition is hereby DENIED. Accordingly, the Decision[23] and the Resolution,[24] dated 15 February 2005 and 17 May 2005, respectively, of the Court of Appeals in CA-G.R. CV No. 64048 are hereby AFFIRMED. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

[1]

Penned by Associate Justice Arturo D. Brion with Associate Justices Eugenio S. Labitoria and Eliezer R. De Los Santos concurring; Rollo, pp. 31-53. Penned by Judge Fe Albano Madrid; Rollo, pp. 111-126. Rollo, pp. 56-59. Rollo, pp. 32-39. Rollo, p. 40. Rollo, p. 41. Rollo, pp. 41-42. Rollo, p. 42. Rollo, p. 42. Penned by Judge Fe Albano Madrid; Rollo, pp. 111-126. Rollo, p. 126. Rollo, p. 53. Rollo, p. 56. Rollo, pp. 17-18. G.R. No. 133148, 17 November 1999, 318 SCRA 373. Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 120262, 17 July 1997, 275 SCRA 621. Rollo, pp. 46-50. Rollo, pp. 51-52. Egao v. Court of Appeals, G.R. No. 79787, 29 June 1989, 174 SCRA 484. People v. Astudillo, G.R. No. 141518, 29 April 2003, 401 SCRA 723. G.R. No. 127540, 17 October 2001, 367 SCRA 368, 380. Rollo, p. 34. Penned by Associate Justice Arturo D. Brion with Associate Justices Eugenio S. Labitoria and Eliezer R. De Los Santos concurring; Rollo, pp. 31-53. Rollo, pp. 56-59.

[2] [3] [4] [5] [6] [7] [8] [9]

[10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23]

[24]

In its original judgment, respondent Court principally declared DAGUINES "as the lawful owner of the land in question as well as the one-half () of the house erected on said land." Upon reconsideration prayed for by MERCEDES, however, respondent Court resolved: WHEREFORE, the dispositive portion of the Decision of this Court, promulgated on October 6, 1980, is hereby amended to read as follows: (1) Declaring plaintiff as the true and lawful owner of the land in question and the 10 coconut trees; (2) Declaring as null and void the sale of the conjugal house to plaintiff on April 15, 1980 (Exhibit A) including the 3 coconut trees and other crops planted during the conjugal relation between Fernando Canullas (vendor) and his legitimate wife, herein defendant Mercedes CalimlimCanullas; xxx xxx xxx The issues posed for resolution are (1) whether or not the construction of a conjugal house on the exclusive property of the husband ipso facto gave the land the character of conjugal property; and (2) whether or not the sale of the lot together with the house and improvements thereon was valid under the circumstances surrounding the transaction. The determination of the first issue revolves around the interpretation to be given to the second paragraph of Article 158 of the Civil Code, which reads: MELENCIO-HERRERA, J.: Petition for Review on certiorari assailing the Decision, dated October 6, 1980, and the Resolution on the Motion for Reconsideration, dated November 27, 1980, of the then Court of First Instance of Pangasinan, Branch I, in Civil Case No. 15620 entitled "Corazon DAGUINES vs. MERCEDES Calimlim-Canullas," upholding the sale of a parcel of land in favor of DAGUINES but not of the conjugal house thereon' The background facts may be summarized as follows: Petitioner MERCEDES Calimlim-Canullas and FERNANDO Canullas were married on December 19, 1962. They begot five children. They lived in a small house on the residential land in question with an area of approximately 891 square meters, located at Bacabac, Bugallon, Pangasinan. After FERNANDO's father died in 1965, FERNANDO inherited the land. In 1978, FERNANDO abandoned his family and was living with private respondent Corazon DAGUINES. During the pendency of this appeal, they were convicted of concubinage in a judgment rendered on October 27, 1981 by the then Court of First Instance of Pangasinan, Branch II, which judgment has become final. On April 15, 1980, FERNANDO sold the subject property with the house thereon to DAGUINES for the sum of P2,000.00. In the document of sale, FERNANDO described the house as "also inherited by me from my deceased parents." Unable to take possession of the lot and house, DAGUINES initiated a complaint on June 19, 1980 for quieting of title and damages against MERCEDES. The latter resisted and claimed that the house in dispute where she and her children were residing, including the coconut trees on the land, were built and planted with conjugal funds and through her industry; that the sale of the land together with the house and improvements to DAGUINES was null and void because they are conjugal properties and she had not given her consent to the sale, xxx xxx xxx Buildings constructed at the expense of the partnership during the marriage on land belonging to one of the spouses also pertain to the partnership, but the value of the land shall be reimbursed to the spouse who owns the same. We hold that pursuant to the foregoing provision both the land and the building belong to the conjugal partnership but the conjugal partnership is indebted to the husband for the value of the land. The spouse owning the lot becomes a creditor of the conjugal partnership for the value of the lot, 1 which value would be reimbursed at the liquidation of the conjugal partnership. 2 In his commentary on the corresponding provision in the Spanish Civil Code (Art. 1404), Manresa stated: El articulo cambia la doctrine; los edificios construidos durante el matrimonio en suelo propio de uno de los conjuges son gananciales, abonandose el valor del suelo al conj uge a quien pertenezca. It is true that in the case of Maramba vs. Lozano, 3 relied upon by respondent Judge, it was held that the land belonging to one of the spouses, upon which the spouses have built a house, becomes conjugal property only when the conjugal partnership is liquidated and indemnity paid to the owner of the land. We believe that the better rule is that enunciated by Mr. Justice J.B.L. Reyes in Padilla vs. Paterno, 3 SCRA 678, 691 (1961), where the following was explained: As to the above properties, their conversion from paraphernal to conjugal assets should be deemed to retroact to the time the conjugal buildings were first constructed thereon or at the very latest, to the time immediately before the death of Narciso A. Padilla that ended the conjugal partnership. They can not be considered to have become conjugal property only as of

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-57499 June 22, 1984 MERCEDES CALIMLIM- CANULLAS, petitioner, vs. HON. WILLELMO FORTUN, Judge, Court of First instance of Pangasinan, Branch I, and CORAZON DAGUINES, respondents. Fernandez Law Offices for petitioner. Francisco Pulido for respondents.

the time their values were paid to the estate of the widow Concepcion Paterno because by that time the conjugal partnership no longer existed and it could not acquire the ownership of said properties. The acquisition by the partnership of these properties was, under the 1943 decision, subject to the suspensive condition that their values would be reimbursed to the widow at the liquidation of the conjugal partnership; once paid, the effects of the fulfillment of the condition should be deemed to retroact to the date the obligation was constituted (Art. 1187, New Civil Code) ... The foregoing premises considered, it follows that FERNANDO could not have alienated the house and lot to DAGUINES since MERCEDES had not given her consent to said sale. 4 Anent the second issue, we find that the contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the conjugal home where his wife and children lived and from whence they derived their support. That sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects. 5 Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning. Article 1352 also provides that: "Contracts without cause, or with unlawful cause, produce no effect whatsoever.The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy." Additionally, the law emphatically prohibits the spouses from selling property to each other subject to certain exceptions. 6 Similarly, donations between spouses during marriage are prohibited. 7 And this is so because if transfers or con conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, 8 as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union." Those provisions are dictated by public interest and their criterion must be imposed upon the wig of the parties. That was the ruling in Buenaventura vs. Bautista, also penned by Justice JBL Reyes (CA) 50 O.G. 3679, and cited in Matabuena vs. Cervantes. 9 We quote hereunder the pertinent dissertation on this point: We reach a different conclusion. While Art. 133 of the Civil Code considers as void a donation between the spouses during the marriage, policy considerations of the most exigent character as wen as the dictates of morality require that the same prohibition should apply to a common-law relationship. As announced in the outset of this opinion, a 1954 Court of Appeals decision, Buenaventura vs. Bautista, 50 OG 3679, interpreting a similar provision of the old Civil Code speaks unequivocally. If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that Court, 'to prohibit donations in favor of the other consort and his descendants because of fear of undue influence and improper pressure upon the donor, a prejudice deeply rooted in our ancient law, ..., then there is every reason to apply the same prohibitive policy to persons living together as husband and wife without benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased'. Moreover, as pointed out by Ulpian (in his lib 32 ad Sabinum, fr. 1), "It would not be just that such donations should subsist, lest the conditions of those who incurred guilt should turn out to be better." So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage (Emphasis supplied),

WHEREFORE, the Decision of respondent Judge, dated October 6, 1980, and his Resolution of November 27, 1980 on petitioner's Motion for Reconsideration, are hereby set aside and the sale of the lot, house and improvements in question, is hereby declared null and void. No costs. SO ORDERED. Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., and De la Fuente, JJ., concur.

Footnotes 1 Tabotabo vs. Molero, 22 Phil. 418 (1912). 2 Vda. de Padilla vs. Paterno, 3 SCRA 678, 691 (1961). 3 20 SCRA 474 (1967). 4 Article 166, Civil Code. 5 Article 216, Civil Code. 6 Article 1490, Ibid. 7 Article 133, Ibid. 8 Article 1337, Ibid. 9 38 SCRA 284 (1971).

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-35702 May 29, 1973 DOMINGO D. RUBIAS, plaintiff-appellant, vs. ISAIAS BATILLER, defendant-appellee.

Gregorio M. Rubias for plaintiff-appellant. Vicente R. Acsay for defendant-appellee.

A. During the pre-trial conference, the parties have agreed that the following facts are attendant in this case and that they will no longer introduced any evidence, testimonial or documentary to prove them: 1. That Francisco Militante claimed ownership of a parcel of land located in the Barrio of General Luna, municipality of Barotac Viejo province of Iloilo, which he caused to be surveyed on July 18-31, 1934, whereby he was issued a plan Psu-99791 (Exhibit "B"). (The land claimed contained an area of 171:3561 hectares.) 2. Before the war with Japan, Francisco Militante filed with the Court of First Instance of Iloilo an application for the registration of the title of the land technically described in psu-99791 (Exh. "B")opposed by the Director of Lands, the Director of Forestry and other oppositors. However, during the war with Japan, the record of the case was lost before it was heard, so after the war Francisco Militante petitioned this court to reconstitute the record of the case. The record was reconstituted on the Court of the First Instance of Iloilo and docketed as Land Case No. R-695, GLRO Rec. No. 54852. The Court of First Instance heard the land registration case on November 14, 1952, and after the trial this court dismissed the application for registration. The appellant, Francisco Militante, appealed from the decision of this Court to the Court of Appeals where the case was docketed as CA-GR No. 13497-R.. 3. Pending the disposal of the appeal in CA-GR No. 13497-R and more particularly on June 18, 1956, Francisco Militante sold to the plaintiff, Domingo Rubias the land technically described in psu-99791 (Exh. "A"). The sale was duly recorded in the Office of the Register of Deeds for the province of Iloilo as Entry No. 13609 on July 11, 1960 (Exh. "A-1"). (NOTE: As per deed of sale, Exh. A, what Militante purportedly sold to plaintiff-appellant, his son-in-law, for the sum of P2,000.00 was "a parcel of untitled land having an area Of 144.9072 hectares ... surveyed under Psu 99791 ... (and) subject to the exclusions made by me, under (case) CA-i3497, Land Registration Case No. R-695, G.L.R.O. No. 54852, Court of First Instance of the province of Iloilo. These exclusions referred to portions of the original area of over 171 hectares originally claimed by Militante as applicant, but which he expressly recognized during the trial to pertain to some oppositors, such as the Bureau of Public Works and Bureau of Forestry and several other individual occupants and accordingly withdrew his application over the same. This is expressly made of record in Exh. A, which is the Court of Appeals' decision of 22 September 1958 confirming the land registration court's dismissal of Militante's application for registration.) 4. On September 22,1958 the Court of appeals in CA-G.R. No. 13497-R promulgated its judgment confirming the decision of this Court in Land Case No. R-695, GLRO Rec. No. 54852 which dismissed the application for Registration filed by Francisco Militante (Exh. "I"). 5. Domingo Rubias declared the land described in Exh. 'B' for taxation purposes under Tax Dec. No. 8585 (Exh. "C") for 1957; Tax Dec. Nos. 9533 (Exh. "C-1") and 10019 (Exh. "C-3")for the year 1961; Tax Dec. No. 9868 (Exh. "C-2") for the year 1964, paying the land taxes under Tax Dec. No. 8585 and 9533 (Exh. "D", "D-1", "G-6"). 6. Francisco Militante immediate predecessor-in-interest of the plaintiff, has also declared the land for taxation purposes under Tax Dec. No. 5172 in 1940 (Exh. "E") for 1945; under Tax Dec. No. T-86 (Exh. "E-1") for 1948; under Tax Dec. No. 7122 (Exh. "2"), and paid the land taxes for 1940 (Exhs. "G" and "G-7"), for 1945 46 (Exh. "G-1") for 1947 (Exh. "G-2"), for 1947 & 1948 (Exh. "G-3"), for 1948 (Exh. "G-4"), and for 1948 and 1949 (Exh. "G-5"). 7. Tax Declaration No. 2434 in the name of Liberato Demontao for the land described therein (Exh. "F") was cancelled by Tax. Dec. No. 5172 of Francisco Militante (Exh. "E"). Liberato

TEEHANKEE, J.: In this appeal certified by the Court of Appeals to this Court as involving purely legal questions, we affirm the dismissal order rendered by the Iloilo court of first instance after pre-trial and submittal of the pertinent documentary exhibits. Such dismissal was proper, plaintiff having no cause of action, since it was duly established in the record that the application for registration of the land in question filed by Francisco Militante, plaintiff's vendor and predecessor interest, had been dismissed by decision of 1952 of the land registration court as affirmed by final judgment in 1958 of the Court of Appeals and hence, there was no title or right to the land that could be transmitted by the purported sale to plaintiff. As late as 1964, the Iloilo court of first instance had in another case of ejectment likewise upheld by final judgment defendant's "better right to possess the land in question . having been in the actual possession thereof under a claim of title many years before Francisco Militante sold the land to the plaintiff." Furthermore, even assuming that Militante had anything to sell, the deed of sale executed in 1956 by him in favor of plaintiff at a time when plaintiff was concededly his counsel of record in the land registration case involving the very land in dispute (ultimately decided adversely against Militante by the Court of Appeals' 1958 judgment affirming the lower court's dismissal of Militante's application for registration) was properly declared inexistent and void by the lower court, as decreed by Article 1409 in relation to Article 1491 of the Civil Code. The appellate court, in its resolution of certification of 25 July 1972, gave the following backgrounder of the appeal at bar: On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover the ownership and possession of certain portions of lot under Psu-99791 located in Barrio General Luna, Barotac Viejo, Iloilo which he bought from his father-in-law, Francisco Militante in 1956 against its present occupant defendant, Isaias Batiller, who illegally entered said portions of the lot on two occasions in 1945 and in 1959. Plaintiff prayed also for damages and attorneys fees. (pp. 1-7, Record on Appeal). In his answer with counter-claim defendant claims the complaint of the plaintiff does not state a cause of action, the truth of the matter being that he and his predecessors-in-interest have always been in actual, open and continuous possession since time immemorial under claim of ownership of the portions of the lot in question and for the alleged malicious institution of the complaint he claims he has suffered moral damages in the amount of P 2,000.00, as well as the sum of P500.00 for attorney's fees. ... On December 9, 1964, the trial court issued a pre-trial order, after a pre-trial conference between the parties and their counsel which order reads as follows.. 'When this case was called for a pre-trial conference today, the plaintiff appeared assisted by himself and Atty. Gregorio M. Rubias. The defendant also appeared, assisted by his counsel Atty. Vicente R. Acsay.

Demontao paid the land tax under Tax Dec. No. 2434 on Dec. 20, 1939 for the years 1938 (50%) and 1959 (Exh. "H"). 8. The defendant had declared for taxation purposes Lot No. 2 of the Psu-155241 under Tax Dec. Not. 8583 for 1957 and a portion of Lot No. 2, Psu-155241, for 1945 under Tax Dec. No. 8584 (Exh. "2-A" Tax No. 8583 (Exh. "2") was revised by Tax Dec. No. 9498 in the name of the defendant (Exh. "2-B") and Tax Dec. No. 8584 (Exh. "2-A") was cancelled by Tax Dec. No. 9584 also in the name of the defendant (Exh. "2-C"). The defendant paid the land taxes for Lot 2, Psu155241, on Nov. 9, 1960 for the years 1945 and 1946, for the year 1950, and for the year 1960 as shown by the certificate of the treasurer (Exh. "3"). The defendant may present to the Court other land taxes receipts for the payment of taxes for this lot. 9. The land claimed by the defendant as his own was surveyed on June 6 and 7,1956, and a planapproved by Director of Land on November 15, 1956 was issued, identified as Psu 155241 (Exh. "5"). 10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer case against Isaias Batiller in the Justice of the Peace Court of Barotac Viejo Province of Iloilo (Exh. "4") to which the defendant Isaias Batiller riled his answer on August 29, 1960 (Exh. "4-A"). The Municipal Court of Barotac Viejo after trial, decided the case on May 10, 1961 in favor of the defendant and against the plaintiff (Exh. "4-B"). The plaintiff appealed from the decision of the Municipal Court of Barotac Viejo which was docketed in this Court as Civil Case No. 5750 on June 3, 1961, to which the defendant, Isaias Batiller, on June 13, 1961 filed his answer (Exh. "4-C"). And this Court after the trial. decided the case on November 26, 1964, in favor of the defendant, Isaias Batiller and against the plaintiff (Exh. "4-D"). (NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision of 26 November 1964dismissing plaintiff's therein complaint for ejectment against defendant, the iloilo court expressly found "that plaintiff's complaint is unjustified, intended to harass the defendant" and "that the defendant, Isaias Batiller, has a better right to possess the land in question described in Psu 155241 (Exh. "3"), Isaias Batiller having been in the actual physical possession thereof under a claim of title many years before Francisco Militante sold the land to the plaintiff-hereby dismissing plaintiff's complaint and ordering the plaintiff to pay the defendant attorney's fees ....") B. During the trial of this case on the merit, the plaintiff will prove by competent evidence the following: 1. That the land he purchased from Francisco Militante under Exh. "A" was formerly owned and possessed by Liberato Demontao but that on September 6, 1919 the land was sold at public auction by virtue of a judgment in a Civil Case entitled "Edw J. Pflieder plaintiff vs. Liberato Demontao Francisco Balladeros and Gregorio Yulo, defendants", of which Yap Pongco was the purchaser (Exh. "1-3"). The sale was registered in the Office of the Register of Deeds of Iloilo on August 4, 1920, under Primary Entry No. 69 (Exh. "1"), and a definite Deed of Sale was executed by Constantino A. Canto, provincial Sheriff of Iloilo, on Jan. 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having been registered in the Office of the Register of Deeds of Iloilo on February 10, 1934 (Exh. "1-1"). 2. On September 22, 1934, Yap Pongco sold this land to Francisco Militante as evidenced by a notarial deed (Exh. "J") which was registered in the Registry of Deeds on May 13, 1940 (Exh. "J1"). 3. That plaintiff suffered damages alleged in his complaint. C. Defendants, on the other hand will prove by competent evidence during the trial of this case the following facts:

1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and possessed by Felipe Batiller, grandfather of the defendant Basilio Batiller, on the death of the former in 1920, as his sole heir. Isaias Batiller succeeded his father , Basilio Batiller, in the ownership and possession of the land in the year 1930, and since then up to the present, the land remains in the possession of the defendant, his possession being actual, open, public, peaceful and continuous in the concept of an owner, exclusive of any other rights and adverse to all other claimants. 2. That the alleged predecessors in interest of the plaintiff have never been in the actual possession of the land and that they never had any title thereto. 3. That Lot No. 2, Psu 155241, the subject of Free Patent application of the defendant has beenapproved. 4. The damages suffered by the defendant, as alleged in his counterclaim."' 1 The appellate court further related the developments of the case, as follows: On August 17, 1965, defendant's counsel manifested in open court that before any trial on the merit of the case could proceed he would file a motion to dismiss plaintiff's complaint which he did, alleging that plaintiff does not have cause of action against him because the property in dispute which he (plaintiff) allegedly bought from his father-in-law, Francisco Militante was the subject matter of LRC No. 695 filed in the CFI of Iloilo, which case was brought on appeal to this Court and docketed as CA-G.R. No. 13497-R in which aforesaid case plaintiff was the counsel on record of his father-in-law, Francisco Militante. Invoking Arts. 1409 and 1491 of the Civil Code which reads: 'Art. 1409. The following contracts are inexistent and void from the beginning: xxx xxx xxx (7) Those expressly prohibited by law. 'ART. 1491. The following persons cannot acquire any purchase, even at a public auction, either in person of through the mediation of another: . xxx xxx xxx (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights of in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring an assignment and shall apply tolawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.' defendant claims that plaintiff could not have acquired any interest in the property in dispute as the contract he (plaintiff) had with Francisco Militante was inexistent and void. (See pp. 22-31, Record on Appeal). Plaintiff strongly opposed defendant's motion to dismiss claiming that defendant can not invoke Articles 1409 and 1491 of the Civil Code as Article 1422 of the same Code provides that 'The defense of illegality of contracts is not available to third persons whose interests are not directly affected' (See pp. 32-35 Record on Appeal).

On October 18, 1965, the lower court issued an order disclaiming plaintiffs complaint (pp. 42-49, Record on Appeal.) In the aforesaid order of dismissal the lower court practically agreed with defendant's contention that the contract (Exh. A) between plaintiff and Francism Militante was null and void. In due season plaintiff filed a motion for reconsideration (pp. 50-56 Record on Appeal) which was denied by the lower court on January 14, 1966 (p. 57, Record on Appeal). Hence, this appeal by plaintiff from the orders of October 18, 1965 and January 14, 1966. Plaintiff-appellant imputes to the lower court the following errors: '1. The lower court erred in holding that the contract of sale between the plaintiff-appellant and his father-in-law, Francisco Militante, Sr., now deceased, of the property covered by Plan Psu-99791, (Exh. "A") was void, not voidable because it was made when plaintiff-appellant was the counsel of the latter in the Land Registration case. '2. The lower court erred in holding that the defendant-appellee is an interested person to question the validity of the contract of sale between plaintiff-appellant and the deceased, Francisco Militante, Sr. '3. The lower court erred in entertaining the motion to dismiss of the defendant-appellee after he had already filed his answer, and after the termination of the pre-trial, when the said motion to dismiss raised a collateral question. '4. The lower court erred in dismissing the complaint of the plaintiffappellant.' The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2) legal posers (1) whether or not the contract of sale between appellant and his father-in-law, the late Francisco Militante over the property subject of Plan Psu-99791 was void because it was made when plaintiff was counsel of his father-in-law in a land registration case involving the property in dispute; and (2) whether or not the lower court was correct in entertaining defendantappellee's motion to dismiss after the latter had already filed his answer and after he (defendant) and plaintiffappellant had agreed on some matters in a pre-trial conference. Hence, its elevation of the appeal to this Court as involving pure questions of law. It is at once evident from the foregoing narration that the pre-trial conference held by the trial court at which the parties with their counsel agreed and stipulated on the material and relevant facts and submitted their respective documentary exhibits as referred to in the pre-trial order, supra, 2 practically amounted to a fulldress trial which placed on record all the facts and exhibits necessary for adjudication of the case. The three points on which plaintiff reserved the presentation of evidence at the-trial dealing with the source of the alleged right and title of Francisco Militante's predecessors, supra, 3 actually are already made of record in thestipulated facts and admitted exhibits. The chain of Militante's alleged title and right to the land as supposedly traced back to Liberato Demontao was actually asserted by Militante (and his vendee, lawyer and son-in-law, herein plaintiff) in the land registration case and rejected by the Iloilo land registration court which dismissedMilitante's application for registration of the land. Such dismissal, as already stated, was affirmed by the final judgment in 1958 of the Court of Appeals. 4 The four points on which defendant on his part reserved the presentation of evidence at the trial dealing with his and his ancestors' continuous, open, public and peaceful possession in the concept of owner of the land and the Director of Lands' approval of his survey plan thereof, supra, 5 are likewise already duly established facts of record, in the land

registration case as well as in the ejectment case wherein the Iloilo court of first instance recognized the superiority of defendant's right to the land as against plaintiff. No error was therefore committed by the lower court in dismissing plaintiff's complaint upon defendant's motion after the pre-trial. 1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of cause of action and justified the outright dismissal of the complaint. Plaintiff's claim of ownership to the land in question was predicated on the sale thereof for P2,000.00 made in 1956 by his father-in- law, Francisco Militante, in his favor, at a time when Militante's application for registration thereof had already been dismissed by the Iloilo land registration court and was pending appeal in the Court of Appeals. With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's application for registration, the lack of any rightful claim or title of Militante to the land was conclusively and decisively judicially determined. Hence, there was no right or title to the land that could be transferred or sold by Militante's purported sale in 1956 in favor of plaintiff. Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of the land and to be restored to possession thereof with damages was bereft of any factual or legal basis. 2. No error could be attributed either to the lower court's holding that the purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of the Philippine Civil Code, reproduced supra; 6 and that consequently, plaintiff's purchase of the property in litigation from his client (assuming that his client could sell the same since as already shown above, his client's claim to the property was defeated and rejected) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts "expressly prohibited or declared void by law' are "inexistent and that "(T)hese contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived." The 1911 case of Wolfson vs. Estate of Martinez 7 relied upon by plaintiff as holding that a sale of property in litigation to the party litigant's lawyer "is not void but voidable at the election of the vendor" was correctly held by the lower court to have been superseded by the later 1929 case of Director of Lands vs. Abagat. 8 In this later case of Abagat, the Court expressly cited two antecedent cases involving the same transaction of purchase of property in litigation by the lawyer which was expressly declared invalid under Article 1459 of the Civil Code of Spain (of which Article 1491 of our Civil Code of the Philippines is the counterpart) upon challenge thereof not by the vendor-client but by the adverse parties against whom the lawyer was to enforce his rights as vendee thus acquired. These two antecedent cases thus cited in Abagat clearly superseded (without so expressly stating the previous ruling in Wolfson: The spouses, Juan Soriano and Vicente Macaraeg, were the owners of twelve parcels of land. Vicenta Macaraeg died in November, 1909, leaving a large number of collateral heirs but no descendants. Litigation between the surviving husband, Juan Soriano, and the heirs of Vicenta immediately arose, and the herein appellant Sisenando Palarca acted as Soriano's lawyer. On May 2, 1918, Soriano executed a deed for the aforesaid twelve parcels of land in favor of Sisenando Palarca and on the following day, May 3, 1918, Palarca filed an application for the registration of the land in the deed. After hearing, the Court of First Instance declared that the deed was invalid by virtue of the provisions of article 1459 of the Civil Code, which prohibits lawyers and solicitors from purchasing property rights involved in any litigation in which they take part by virtue of their profession. The application for registration was consequently denied, and upon appeal by Palarca to the Supreme Court, the judgement of the lower court was affirmed by a decision promulgated November 16,1925. (G.R. No. 24329, Palarca vs. Director of Lands, not reported.)

In the meantime cadastral case No. 30 of the Province of Tarlac was instituted, and on August 21, 1923, Eleuteria Macaraeg, as administratrix of the estate of Vicente Macaraeg, filed claims for the parcels in question. Buenaventura Lavitoria administrator of the estate of Juan Soriano, did likewise and so did Sisenando Palarca. In a decision dated June 21, 1927, the Court of First Instance, Judge Carballo presiding, rendered judgment in favor of Palarea and ordered the registration of the land in his name. Upon appeal to this court by the administration of the estates of Juan Soriano and Vicente Macaraeg, the judgment of the court below was reversed and the land adjudicated to the two estates as conjugal property of the deceased spouses . (G.R. No. 28226, Director of Lands vs. Abagat, promulgated May 21, 1928, not reported.) 9 In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the lawyer's purchase of the land in litigation from his client, ordered the issuance of a writ of possession for the return of the land by the lawyer to the adverse parties without reimbursement of the price paid by him and other expenses, and ruled that "the appellant Palarca is a lawyer and is presumed to know the law. He must, therefore, from the beginning, have been well aware of the defect in his title and is, consequently, a possessor in bad faith." As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the Civil Code of Spain then adopted here, until it was superseded on August 30, 1950 by the Civil Code of the Philippines whose counterpart provision is Article 1491. Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control over the property, from acquiring such property in their trust or control either directly or indirectly and "even at a public or judicial auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and employees; judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified by law. In Wolfson which involved the sale and assignment of a money judgment by the client to the lawyer, Wolfson, whose right to so purchase the judgment was being challenged by the judgment debtor, the Court, through Justice Moreland, then expressly reserved decision on "whether or not the judgment in question actually falls within the prohibition of the article" and held only that the sale's "voidability can not be asserted by one not a party to the transaction or his representative," citing from Manresa 10 that "(C)onsidering the question from the point of view of the civil law, the view taken by the code, we must limit ourselves to classifying as void all acts done contrary to the express prohibition of the statute. Now then: As the code does not recognize such nullity by the mere operation of law, the nullity of the acts hereinbefore referred to must be asserted by the person having the necessary legal capacity to do so and decreed by a competent court." 11 The reason thus given by Manresa in considering such prohibited acquisitions under Article 1459 of the Spanish Civil Code as merely voidable at the instance and option of the vendor and not void "that the Code does not recognize such nullity de pleno derecho" is no longer true and applicable to our own Philippine Civil Code whichdoes recognize the absolute nullity of contracts "whose cause, object, or purpose is contrary to law, morals, good customs, public order or public policy" or which are "expressly prohibited or declared void by law" and declares such contracts "inexistent and void from the beginning." 12 The Supreme Court of Spain and modern authors have likewise veered from Manresa's view of the Spanish codal provision itself. In its sentencia of 11 June 1966, the Supreme Court of Spain ruled that the prohibition of Article 1459 of the Spanish Civil Code is based on public policy, that violation of the prohibition contract cannot be validated by confirmation or ratification, holding that: ... la prohibicion que el articulo 1459 del C.C. establece respecto a los administradores y apoderados, la cual tiene conforme a la doctrina de esta Sala, contendia entre otras, en S. de 27-5-1959, un fundamento de orden moral lugar la violacion de esta a la nulidad de pleno derecho del acto o negocio celebrado, ... y prohibicion legal, afectante orden publico, no cabe con efecto alguno la aludida retification ... 13

The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) as a matter of public order and policy as applied by the Supreme Court of Spain to administrators and agents in its above cited decision should certainly apply with greater reason to judges, judicial officers, fiscals and lawyers under paragraph 5 of the codal article. Citing the same decisions of the Supreme Court of Spain, Gullon Ballesteros, his "Curso de Derecho Civil, (Contratos Especiales)" (Madrid, 1968) p. 18, affirms that, with respect to Article 1459, Spanish Civil Code:. Que caracter tendra la compra que se realice por estas personas? Porsupuesto no cabe duda de que el caso (art.) 1459, 40 y 50, la nulidad esabsoluta porque el motivo de la prohibicion es de orden publico. 14 Perez Gonzales in such view, stating that "Dado el caracter prohibitivo delprecepto, la consequencia de la infraccion es la nulidad radical y ex lege." 15 Castan, quoting Manresa's own observation that. "El fundamento do esta prohibicion es clarisimo. No sa trata con este precepto tan solo de guitar la ocasion al fraude; persiguese, ademasel proposito de rodear a las personas que intervienen en la administrcionde justicia de todos los retigios que necesitan pora ejercer su ministerio librandolos de toda suspecha, que aunque fuere in fundada, redundura endescredito de la institucion." 16 arrives at the contrary and now accepted view that "Puede considerace en nuestro derecho inexistente 'o radicalmente nulo el contrato en los siguentes cases: a) ...; b) cuando el contrato se ha celebrado en violacion de una prescripcion 'o prohibicion legal, fundada sobre motivos de orden publico (hipotesis del art. 4 del codigo) ..." 17 It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration of public policy render void and inexistent such expressly prohibited purchase (e.g. by public officers and employees of government property intrusted to them and by justices, judges, fiscals and lawyers of property and rights in litigation and submitted to or handled by them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has been adopted in a new article of our Civil Code, viz, Article 1409 declaring such prohibited contracts as "inexistent and void from the beginning." 18 Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification. In his aspect, the permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions it had been opined that they may be "ratified" by means of and in "the form of a new contact, in which cases its validity shall be determined only by the circumstances at the time the execution of such new contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of the first contract, may have already become lawful at the time of the ratification or second contract; or the service which was impossible may have become possible; or the intention which could not be ascertained may have been clarified by the parties. The ratification or second contract would then be valid from its execution; however, it does not retroact to the date of the first contract." 19 As applied to the case at bar, the lower court therefore properly acted upon defendant-appellant's motion to dismiss on the ground of nullity of plaintiff's alleged purchase of the land, since its juridical effects and plaintiff's alleged cause of action founded thereon were being asserted against defendant-appellant. The principles governing the nullity of such prohibited contracts and judicial declaration of their nullity have been well restated by Tolentino in his treatise on our Civil Code, as follows: Parties Affected. Any person may invoke the in existence of the contract whenever juridical effects founded thereon are asserted against him. Thus, if there has been a void transfer of property, the transferor can recover it by the accion reinvindicatoria; and any prossessor may refuse to deliver it to the transferee, who cannot enforce the contract. Creditors may attach property of the debtor which has been alienated by the latter under a void contract; a mortgagee

can allege the inexistence of a prior encumbrance; a debtor can assert the nullity of an assignment of credit as a defense to an action by the assignee. Action On Contract. Even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence, the intervention of the competent court is necessary to declare the absolute nullity of the contract and to decree the restitution of what has been given under it. The judgment, however, will retroact to the very day when the contract was entered into. If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any party should bring an action to enforce it, the other party can simply set up the nullity as a defense. 20 ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in all instances against plaintiffappellant. So ordered. Makalintal, Zaldivar, Castro,. Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

14 Emphasis added. 15 Perez Gonzales & Alguer: Enneccerus, Derecho Civil, Tomo II have been clarified by the parties. The ratification or second 20, p.26. 16 Castan, Derecho Civil Tomo 4, p. 73 (9a Ed.), citing 10 Manresa 107; emphasis added. 17 Castan, Derecho Civil, Tomo 3, p. 437 (8a Ed.); emphasis added. 18 Tolentino in Vol. IV, p. 575, states that as to the "Source of Article(that) This provision is new but merely groups together contracts which have already been considered as void and initio under the old Civil Code, as interpreted by jurispundence and commentators." 19 Idem, at pp. 578-579. 20 Idem, at p. 578.

Footnotes 1 Notes in parenthesis are added. 2 At pages 2 to 5; sub-paragraphs 1 to 10 of Par. A. 3 At pages 5 to 6; sub-paragraphs 1 to 3 of Par. B. 4 Exhibit "1". 5 At page 6; sub-paragraphs 1 to 4 of Par. C. 6 At page 7. 7 Phil. 340, 342-343 (Oct. 13, 1911). 8 Phil. 147 (March 27, 1929). 9 53 Phil. at pp. 147-148; emphasis added. 10 Vol. 10, P.108. 11 Phil. at p. 343. 12 Article 1409, pars. (1) and (7), Philippine Civil Code. 13 Rodriguez Navarro, Doctrina Civil del Tribunal Supremo, Appendice de 1961-1966, pp. 693694; emphasis added.