G.R. No. L-116650 May 23, 1995 TOYOTA SHAW, INC., petitioner, vs. COURT OF APP ALS a!

" LUNA L. SOSA, respondents.

#A$I# , %R., J.: At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was signed by a sales representative of Toyota Shaw, nc. named !opong "ernardo. The document reads as follows#$ %une &'(' A)*EE+E,TS "ET-EE, +*. S.SA / !.!.,) "E*,A*0. .1 T.2.TA S3A-, ,4. &. all necessary documents will be submitted to T.2.TA S3A-, ,4. 5!.!.,) "E*,A*0.6 a week after, upon arrival of +r. Sosa from the !rovince 5+arindu7ue6 where the unit will be used on the &'th of %une. 8. the downpayment of !&99,999.99 will be paid by +r. Sosa on %une &:, &'('. ;. the T.2.TA S3A-, ,4. < TE A4E yellow, will be pick=up >sic? and released by T.2.TA S3A-, ,4. on the &@th of %une at &9 a.m.Aery truly yours, 5Sgd.6 !.!.,) "E*,A*0.. -as this document, executed and signed by the petitionerBs sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorneyBs feesC The trial court and the 4ourt of Appeals took the affirmative view. The petitioner disagrees. 3ence, this petition for review oncertiorari. The antecedents as disclosed in the decisions of both the trial court and the 4ourt of Appeals, as well as in the pleadings of petitioner Toyota Shaw, nc. 5hereinafter Toyota6 and respondent <una <. Sosa 5hereinafter Sosa6 are as follows. Sometime in %une of &'(', <una <. Sosa wanted to purchase a Toyota <ite Ace. t was then a sellerBs market and Sosa had difficulty finding a dealer with an available unit for sale. "ut upon contacting Toyota Shaw, nc., he was told that there was an available unit. So on &$ %une &'(', Sosa and his son, )ilbert, went to the Toyota office at Shaw "oulevard, !asig, +etro +anila. There they met !opong "ernardo, a sales representative of Toyota. Sosa emphasiDed to "ernardo that he needed the <ite Ace not later than &@ %une &'(' because he, his family, and abalikbayan guest would use it on &( %une &'(' to go to +arindu7ue, his home province, where he would celebrate his birthday on the &'th of %une. 3e added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." "ernardo assured Sosa that a unit would be ready for pick up at &9#99 a.m. on &@ %une &'('. "ernardo then signed the afore7uoted "Agreements "etween +r. Sosa / !opong "ernardo of Toyota Shaw, nc." t was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through ".A. 1inance, and for this )ilbert, on behalf of his father, signed the documents of Toyota and ".A. 1inance pertaining to the application for financing.

The next day, &: %une &'(', Sosa and )ilbert went to Toyota to deliver the downpayment of !&99,999.99. They met "ernardo who then accomplished a printed Aehicle Sales !roposal 5AS!6 ,o. '8(, 2 on which )ilbert signed under the subheading 4.,1.*+E. This document shows that the customerBs name is "+*. <E,A S.SA" with home address at ,o. 8;&F )uiGo Street, Enited !araHa7ue I that the model series of the vehicle is a "<ite Ace &:99" described as "$ 0r minibus"I that payment is by "installment," to be financed by "".A.," 3 with the initial cash outlay of !&99,999.99 broken down as follows# a6 b6 c6 downpayment insurance "<T registration fee 43+. fee service fee accessories J J J J J J ! :;,&$(.99 ! &;,'@9.99 ! &,9F@.99 ! 8,@&:.99 ! :99.99 ! 8',999.99

and that the ""A<A,4E T. "E 1 ,A,4E0" is "!8@$,&;@.99." The spaces provided for "0elivery Terms" were not filled=up. t also contains the following pertinent provisions# 4.,0 T .,S .1 SA<ES &. This sale is subGect to availability of unit. 8. Stated !rice is subGect to change without prior notice, !rice prevailing and in effect at time of selling will apply. . . . *odrigo Kuirante, the Sales Supervisor of "ernardo, checked and approved the AS!. .n &@ %une &'(', at around '#;9 a.m., "ernardo called )ilbert to inform him that the vehicle would not be ready for pick up at &9#99 a.m. as previously agreed upon but at 8#99 p.m. that same day. At 8#99 p.m., Sosa and )ilbert met "ernardo at the latterBs office. According to Sosa, "ernardo informed them that the <ite Ace was being readied for delivery. After waiting for about an hour, "ernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas." Toyota contends, however, that the <ite Ace was not delivered to Sosa because of the disapproval by ".A. 1inance of the credit financing application of Sosa. t further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused. After it became clear that the <ite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a 1ar East "ank check for the full amount of !&99,999.99, & the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation, "without preGudice to our future claims for damages." Thereafter, Sosa sent two letters to Toyota. n the first letter, dated 8@ %une &'(' and signed by him, he demanded the refund, within five days from receipt, of the downpayment of !&99,999.99 plus interest from the time he paid it and the payment of damages with a warning that in case of ToyotaBs failure to do so he would be constrained to take legal action. 6 The second, dated $ ,ovember &'(' and signed by +. .. 4aballes, SosaBs counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days. ' ToyotaBs counsel answered through a letter dated 8@ ,ovember &'(' ( refusing to accede to the demands of Sosa. "ut even

before this answer was made and received by Sosa, the latter filed on 89 ,ovember &'(' with "ranch ;( of the *egional Trial 4ourt 5*T46 of +arindu7ue a complaint against Toyota for damages under Articles &' and 8& of the 4ivil 4ode in the total amount of !&,8;9,999.99. 9 3e alleges, inter alia, that# '. As a result of defendantBs failure andLor refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because# 5i6 he and his family were constrained to take the public transportation from +anila to <ucena 4ity on their way to +arindu7ueI 5ii6 his balikbayan=guest canceled his scheduled first visit to +arindu7ue in order to avoid the inconvenience of taking public transportationI and 5iii6 his relatives, friends, neighbors and other provincemates, continuously irked him about "his "rand=,ew Toyota <ite Ace J that never was." Ender the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of .ne +illion !esos 5!&,999,999.996. 10 n its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that "ernardo had no authority to sign Exhibit "A" for and in its behalf, and that "ernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that# the AS! did not state date of deliveryI Sosa had not completed the documents re7uired by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing re7uirements, submission of all documents, and execution of the sales agreementLinvoiceI the !&99,999.99 was returned to and received by SosaI the venue was improperly laidI and Sosa did not have a sufficient cause of action against it. t also interposed compulsory counterclaims. After trial on the issues agreed upon during the pre=trial session, 11 the trial court rendered on &( 1ebruary &''8 a decision in favor of Sosa. 12 t ruled that Exhibit "A," the "A)*EE+E,TS "ET-EE, +*. S.SA A,0 !.!.,) "E*,A*0.," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him. As to ToyotaBs contention that "ernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of "ernardoBs authority "was not made known to plaintiff," for as testified to by Kuirante, "they do not volunteer any information as to the companyBs sales policy and guidelines because they are internal matters." 13 +oreover, ">f?rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that !opong "ernardo is an authoriDed sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 1& "ernardo then "was an agent of the defendant Toyota Shaw, nc. and hence bound the defendants." 15 The court further declared that "<una Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it disposed as follows# -3E*E1.*E, viewed from the above findings, Gudgment is hereby rendered in favor of the plaintiff and against the defendant# &. ordering the defendant to pay to the plaintiff the sum of !@:,999.99 for moral damagesI 8. ordering the defendant to pay the plaintiff the sum of !&9,999.99 for exemplary damagesI ;. ordering the defendant to pay the sum of !;9,999.99 attorneyBs fees plus !8,999.99 lawyerBs transportation fare per trip in attending to the hearing of this caseI

$. ordering the defendant to pay the plaintiff the sum of !8,999.99 transportation fare per trip of the plaintiff in attending the hearing of this caseI and :. ordering the defendant to pay the cost of suit. S. .*0E*E0. 0issatisfied with the trial courtBs Gudgment, Toyota appealed to the 4ourt of Appeals. The case was docketed as 4A=).*. 4A ,o. $99$;. n its decision promulgated on 8' %uly &''$, 1' the 4ourt of Appeals affirmed in toto the appealed decision. Toyota now comes before this 4ourt via this petition and raises the core issue stated at the beginning of the ponenciaand also the following related issues# 5a6 whether or not the standard AS! was the true and documented understanding of the parties which would have led to the ultimate contract of sale, 5b6 whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non=payment of the consideration and the non=approval of his credit application by ".A. 1inance, 5c6 whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and 5d6 whether or not Toyota may be held liable for damages. -e find merit in the petition. ,either logic nor recourse to oneBs imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale. Article &$:( of the 4ivil 4ode defines a contract of sale as follows# Art. &$:(. "y the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its e7uivalent. A contract of sale may be absolute or conditional. and Article &$@: specifically provides when it is deemed perfected# Art. &$@:. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the obGect of the contract and upon the price. 1rom that moment, the parties may reciprocally demand performance, subGect to the provisions of the law governing the form of contracts. -hat is clear from Exhibit "A" is not what the trial court and the 4ourt of Appeals appear to see. t is not a contract of sale. ,o obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of !&99,999.99 made no specific reference to a sale of a vehicle. f it was intended for a contract of sale, it could only refer to a sale on installment basis, as the AS! executed the following day confirmed. "ut nothing was mentioned about the full purchase price and the manner the installments were to be paid. This 4ourt had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. 1( This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. 0efiniteness as to the price is an essential element of a binding agreement to sell personal property. 19

+oreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. 1or one thing, Sosa did not even sign it. 1or another, Sosa was well aware from its title, written in bold letters, viz., A)*EE+E,TS "ET-EE, +*. S.SA / !.!.,) "E*,A*0. .1 T.2.TA S3A-, ,4. that he was not dealing with Toyota but with !opong "ernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. 3e knew that "ernardo was only a sales representative of Toyota and hence a mere agent of the latter. t was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of "ernardoBs authority as an agent 20 in respect of contracts to sell ToyotaBs vehicles. A person dealing with an agent is put upon in7uiry and must discover upon his peril the authority of the agent. 21 At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely# 5a6 preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the partiesI 5b6 perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contractI and 5c6 consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22 The second phase of the generation or negotiation stage in this case was the execution of the AS!. t must be emphasiDed that thereunder, the downpayment of the purchase price was !:;,&$(.99 while the balance to be paid on installment should be financed by ".A. 1inance 4orporation. t is, of course, to be assumed that ".A. 1inance 4orp. was acceptable to Toyota, otherwise it should not have mentioned ".A. 1inance in the AS!. 1inancing companies are defined in Section ;5a6 of *.A. ,o. :'(9, as amended by !.0. ,o. &$:$ and !.0. ,o. &@';, as "corporations or partnerships, except those regulated by the 4entral "ank of the !hilippines, the nsurance 4ommission and the 4ooperatives Administration .ffice, which are primarily organiDed for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy e7uipment and industrial machinery, business and office machines and e7uipment, appliances and other movable property." 23 Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved# the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. 2& Since ".A. 1inance did not approve SosaBs application, there was then no meeting of minds on the sale on installment basis. -e are inclined to believe ToyotaBs version that ".A. 1inance disapproved SosaBs application for which reason it suggested to Sosa that he pay the full purchase price. -hen the latter refused, Toyota cancelled the AS! and returned to him his !&99,999.99. SosaBs version that the AS! was cancelled because, according to "ernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. t is claimed that "ernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of &@ %une &'('. 3owever, in paragraph @ of his complaint, Sosa solemnly states#

.n %une &@, &'(' at around '#;9 oBclock in the morning, defendantBs sales representative, +r. !opong "ernardo, called plaintiffBs house and informed the plaintiffBs son that the vehicle will not be ready for pick=up at &9#99 a.m. of %une &@, &'(' but at 8#99 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 1 1!"! at #$%% p&m& in order to pick'up the vehicle but the defendant for reasons known only to its representatives, refused and(or failed to release the vehicle to the plaintiff& Plaintiff demanded for an e)planation, but nothing was givenI . . . 5Emphasis supplied6. 25 The AS! was a mere proposal which was aborted in lieu of subse7uent events. t follows that the AS! created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non=delivery did not cause any legally indemnifiable inGury. The award then of moral and exemplary damages and attorneyBs fees and costs of suit is without legal basis. "esides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota <ite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subGect matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. 3e should not have announced his plan to buy a Toyota <ite Ace knowing that he might not be able to pay the full purchase price. t was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. Since Sosa is not entitled to moral damages and there being no award for temperate, li7uidated, or compensatory damages, he is likewise not entitled to exemplary damages. Ender Article 888' of the 4ivil 4ode, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, li7uidated, or compensatory damages. Also, it is settled that for attorneyBs fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorneyBs fees. 26 ,o such explicit determination thereon was made in the body of the decision of the trial court. ,o reason thus exists for such an award. -3E*E1.*E, the instant petition is )*A,TE0. The challenged decision of the 4ourt of Appeals in 4A= ).*. 4A ,.. $99$; as well as that of "ranch ;( of the *egional Trial 4ourt of +arindu7ue in 4ivil 4ase ,o. ('=&$ are *EAE*SE0 and SET AS 0E and the complaint in 4ivil 4ase ,o. ('=&$ is 0 S+ SSE0. The counterclaim therein is likewise 0 S+ SSE0. ,o pronouncement as to costs. S. .*0E*E0.

G.R. No. 1035'' O)*o+,- ', 1996 ROMULO A. CORON L, ALARICO A. CORON L, ANN TT A. CORON L, ANNA. LL C. GON/AL S 01o- 2,-3,41 a!" o! +,2a41 o1 F4o-5"a C. T677,-, a3 a**o-!,y-5!-1a)*8, CI LITO A. CORON L, FLORAI#A A. ALMONT , a!" CATALINA .ALAIS MA.ANAG, petitioners, vs. TH COURT OF APP ALS, CONC PCION #. ALCARA/, a!" RAMONA PATRICIA ALCARA/, a3353*," +y GLORIA F. NO L a3 a**o-!,y-5!-1a)*, respondents. M LO, J.:p The petition before us has its roots in a complaint for specific performance to compel herein petitioners 5except the last named, 4atalina "alais +abanag6 to consummate the sale of a parcel of land with its improvements located along *oosevelt Avenue in KueDon 4ity entered into by the parties sometime in %anuary &'(: for the price of !&,8$9,999.99. The undisputed facts of the case were summariDed by respondent court in this wise# .n %anuary &', &'(:, defendants=appellants *omulo 4oronel, et al. 5hereinafter referred to as 4oronels6 executed a document entitled "*eceipt of 0own !ayment" 5Exh. "A"6 in favor of plaintiff *amona !atricia AlcaraD 5hereinafter referred to as *amona6 which is reproduced hereunder# *E4E !T .1 0.-, !A2+E,T !&,8$9,999.99 J Total amount :9,999 J 0own payment JJJJJJJJJJJ !&,&'9,999.99 J "alance *eceived from +iss *amona !atricia AlcaraD of &$F Timog, KueDon 4ity, the sum of 1ifty Thousand !esos purchase price of our inherited house and lot, covered by T4T ,o. &&'F8@ of the *egistry of 0eeds of KueDon 4ity, in the total amount of !&,8$9,999.99. -e bind ourselves to effect the transfer in our names from our deceased father, 4onstancio !. 4oronel, the transfer certificate of title immediately upon receipt of the down payment above=stated. .n our presentation of the T4T already in or name, -e will immediately execute the deed of absolute sale of said property and +iss *amona !atricia AlcaraD shall immediately pay the balance of the !&,&'9,999.99. 4learly, the conditions appurtenant to the sale are the following# &. *amona will make a down payment of 1ifty Thousand 5!:9,999.996 !esos upon execution of the document aforestatedI 8. The 4oronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the 1ifty Thousand 5!:9,999.996 !esos down paymentI

;. Epon the transfer in their names of the subGect property, the 4oronels will execute the deed of absolute sale in favor of *amona and the latter will pay the former the whole balance of .ne +illion .ne 3undred ,inety Thousand 5!&,&'9,999.996 !esos. .n the same date 5%anuary &:, &'(:6, plaintiff=appellee 4oncepcion 0. AlcaraD 5hereinafter referred to as 4oncepcion6, mother of *amona, paid the down payment of 1ifty Thousand 5!:9,999.996 !esos 5Exh. """, Exh. "8"6. .n 1ebruary F, &'(:, the property originally registered in the name of the 4oronelsB father was transferred in their names under T4T ,o. ;8@9$; 5Exh. "0"I Exh. "$"6 .n 1ebruary &(, &'(:, the 4oronels sold the property covered by T4T ,o. ;8@9$; to intervenor=appellant 4atalina ". +abanag 5hereinafter referred to as 4atalina6 for .ne +illion 1ive 3undred Eighty Thousand 5!&,:(9,999.996 !esos after the latter has paid Three 3undred Thousand 5!;99,999.996 !esos 5Exhs. "1=;"I Exh. "F=4"6 1or this reason, 4oronels canceled and rescinded the contract 5Exh. "A"6 with *amona by depositing the down payment paid by 4oncepcion in the bank in trust for *amona Patricia +lcaraz. .n 1ebruary 88, &'(:, 4oncepcion, et al., filed a complaint for specific performance against the 4oronels and caused the annotation of a notice of lis pendens at the back of T4T ,o. ;8@$9; 5Exh. "E"I Exh. ":"6. .n April 8, &'(:, 4atalina caused the annotation of a notice of adverse claim covering the same property with the *egistry of 0eeds of KueDon 4ity 5Exh. "1"I Exh. "F"6. .n April 8:, &'(:, the 4oronels executed a 0eed of Absolute Sale over the subGect property in favor of 4atalina 5Exh. ")"I Exh. "@"6. .n %une :, &'(:, a new title over the subGect property was issued in the name of 4atalina under T4T ,o. ;:&:(8 5Exh. "3"I Exh. "("6. 5*ollo, pp. &;$=&;F6 n the course of the proceedings before the trial court 5"ranch (;, *T4, KueDon 4ity6 the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein 5now private respondents6 proffered their documentary evidence accordingly marked as Exhibits "A" through "%", inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then defendants 5now petitioners6 accordingly offered and marked them as Exhibits "&" through "&9", likewise inclusive of their corresponding submarkings. Epon motion of the parties, the trial court gave them thirty 5;96 days within which to simultaneously submit their respective memoranda, and an additional &: days within which to submit their corresponding comment or reply thereof, after which, the case would be deemed submitted for resolution. .n April &$, &'((, the case was submitted for resolution before %udge *eynaldo *oura, who was then temporarily detailed to preside over "ranch (8 of the *T4 of KueDon 4ity. .n +arch &, &'(', Gudgment was handed down by %udge *oura from his regular bench at +acabebe, !ampanga for the KueDon 4ity branch, disposing as follows# -3E*E1.*E, Gudgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer 4ertificate of Title ,o. ;8@$9; 5now T4T ,o. ;;&:(86 of the

*egistry of 0eeds for KueDon 4ity, together with all the improvements existing thereon free from all liens and encumbrances, and once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to !&,&'9,999.99 in cash. Transfer 4ertificate of Title ,o. ;;&:(8 of the *egistry of 0eeds for KueDon 4ity in the name of intervenor is hereby canceled and declared to be without force and effect. 0efendants and intervenor and all other persons claiming under them are hereby ordered to vacate the subGect property and deliver possession thereof to plaintiffs. !laintiffsB claim for damages and attorneyBs fees, as well as the counterclaims of defendants and intervenors are hereby dismissed. ,o pronouncement as to costs. So .rdered. +acabebe, !ampanga for KueDon 4ity, +arch &, &'('. 5*ollo, p. &9F6 A motion for reconsideration was filed by petitioner before the new presiding Gudge of the KueDon 4ity *T4 but the same was denied by %udge Estrella T. Estrada, thusly# The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned !residing %udge should be denied for the following reasons# 5&6 The instant case became submitted for decision as of April &$, &'(( when the parties terminated the presentation of their respective documentary evidence and when the !residing %udge at that time was %udge *eynaldo *oura. The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was terminated before %udge *oura and therefore the same should be submitted to him for decisionI 586 -hen the defendants and intervenor did not obGect to the authority of %udge *eynaldo *oura to decide the case prior to the rendition of the decision, when they met for the first time before the undersigned !residing %udge at the hearing of a pending incident in 4ivil 4ase ,o. K=$F&$: on ,ovember &&, &'((, they were deemed to have ac7uiesced thereto and they are now estopped from 7uestioning said authority of %udge *oura after they received the decision in 7uestion which happens to be adverse to themI 5;6 -hile it is true that %udge *eynaldo *oura was merely a %udge=on=detail at this "ranch of the 4ourt, he was in all respects the !residing %udge with full authority to act on any pending incident submitted before this 4ourt during his incumbency. -hen he returned to his .fficial Station at +acabebe, !ampanga, he did not lose his authority to decide or resolve such cases submitted to him for decision or resolution because he continued as %udge of the *egional Trial 4ourt and is of co=e7ual rank with the undersigned !residing %udge. The standing rule and supported by Gurisprudence is that a %udge to whom a case is submitted for decision has the authority to decide the case notwithstanding his transfer to another branch or region of the same court 5Sec. ', *ule &;:, *ule of 4ourt6. 4oming now to the twin prayer for reconsideration of the 0ecision dated +arch &, &'(' rendered in the instant case, resolution of which now pertains to the undersigned !residing %udge, after a meticulous examination of the documentary evidence presented by the parties, she is convinced that the 0ecision of +arch &, &'(' is supported by evidence and, therefore, should not be disturbed. , A E- .1 T3E 1.*E). ,), the "+otion for *econsideration andLor to Annul 0ecision and *ender Anew 0ecision by the ncumbent !residing %udge" dated +arch 89, &'(' is hereby 0E, E0.

S. .*0E*E0. KueDon 4ity, !hilippines, %uly &8, &'('. 5*ollo, pp. &9(=&9'6 !etitioners thereupon interposed an appeal, but on 0ecember &F, &''&, the 4ourt of Appeals 5"uena, )onDaga=*eyes, Abad Santos 5!6, %%.6 rendered its decision fully agreeing with the trial court. 3ence, the instant petition which was filed on +arch :, &''8. The last pleading, private respondentsB *eply +emorandum, was filed on September &:, &'';. The case was, however, re=raffled to undersigned ponente only on August 8(, &''F, due to the voluntary inhibition of the %ustice to whom the case was last assigned. -hile we deem it necessary to introduce certain refinements in the dis7uisition of respondent court in the affirmance of the trial courtBs decision, we definitely find the instant petition bereft of merit. The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise determination of the legal significance of the document entitled "*eceipt of 0own !ayment" which was offered in evidence by both parties. There is no dispute as to the fact that said document embodied the binding contract between *amona !atricia AlcaraD on the one hand, and the heirs of 4onstancio !. 4oronel on the other, pertaining to a particular house and lot covered by T4T ,o. &&'F8@, as defined in Article &;9: of the 4ivil 4ode of the !hilippines which reads as follows# Art. &;9:. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. -hile, it is the position of private respondents that the "*eceipt of 0own !ayment" embodied a perfected contract of sale, which perforce, they seek to enforce by means of an action for specific performance, petitioners on their part insist that what the document signified was a mere executory contract to sell, subGect to certain suspensive conditions, and because of the absence of *amona !. AlcaraD, who left for the Enited States of America, said contract could not possibly ripen into a contract absolute sale. !lainly, such variance in the contending partiesB contentions is brought about by the way each interprets the terms andLor conditions set forth in said private instrument. -ithal, based on whatever relevant and admissible evidence may be available on record, this, 4ourt, as were the courts below, is now called upon to adGudge what the real intent of the parties was at the time the said document was executed. The 4ivil 4ode defines a contract of sale, thus# Art. &$:(. "y the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its e7uivalent. Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following# a6 4onsent or meeting of the minds, that is, consent to transfer ownership in exchange for the priceI b6 0eterminate subGect matterI and c6 !rice certain in money or its e7uivalent.

Ender this definition, a 4ontract to Sell may not be considered as a 4ontract of Sale because the first essential element is lacking. n a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subGect of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. -hat the seller agrees or obliges himself to do is to fulfill is promise to sell the subGect property when the entire amount of the purchase price is delivered to him. n other words the full payment of the purchase price partakes of a suspensive condition, the non=fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. n *o,ue vs. -apuz 5'F S4*A @$& >&'(9?6, this 4ourt had occasion to rule# 3ence, -e hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from ac7uiring binding force. Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective sellerBs obligation to sell the subGect property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article &$@' of the 4ivil 4ode which states# Art. &$@'. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subGect property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subGect of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. f the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated 5cf& 3omesite and housing 4orp. vs. 4ourt of Appeals, &;; S4*A @@@ >&'($?6. 3owever, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subGect of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. n a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. t is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subGect property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. n a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property

will transfer to the buyer after registration because there is no defect in the owner=sellerBs title per se, but the latter, of course, may be used for damages by the intending buyer. n a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the sellerBs title thereto. n fact, if there had been previous delivery of the subGect property, the sellerBs ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article &:$$ of the 4ivil 4ode, such second buyer of the property who may have had actual or constructive knowledge of such defect in the sellerBs title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyerBs title. n case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subGect of the sale. -ith the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered into by petitioners and private respondents. t is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended 5Tan vs. 4ourt of Appeals, 8&8 S4*A :(F >&''8?6. Thus, when petitioners declared in the said "*eceipt of 0own !ayment" that they J *eceived from +iss *amona !atricia AlcaraD of &$F Timog, KueDon 4ity, the sum of 1ifty Thousand !esos purchase price of our inherited house and lot, covered by T4T ,o. &&''F8@ of the *egistry of 0eeds of KueDon 4ity, in the total amount of !&,8$9,999.99. without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property. -hen the "*eceipt of 0own !ayment" is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitionerBs father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners=sellers undertook upon receipt of the down payment from private respondent *amona !. AlcaraD, to cause the issuance of a new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price. The agreement could not have been a contract to sell because the sellers herein made no e)press reservation of ownership or title to the sub.ect parcel of land. 1urthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves 5the certificate of title was not in their names6 and not the full payment of the purchase price. Ender the established facts and circumstances of the case, the 4ourt may safely presume that, had the certificate of title been in the names of petitioners=sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then. +oreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the properly to private respondent upon the fulfillment of the suspensive condition. .n the contrary, having already agreed to sell the subGect property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale. Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter. -hat may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer full ownership of the subGect house and lot to the buyer if the documents were then in order. t Gust happened, however, that the transfer

certificate of title was then still in the name of their father. t was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of !:9,999.99. As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale. .nly then will the obligation of the buyer to pay the remainder of the purchase price arise. There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the sellers were the one who were unable to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their father. t was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of absolute sale. -hat is clearly established by the plain language of the subGect document is that when the said "*eceipt of 0own !ayment" was prepared and signed by petitioners *omeo A. 4oronel, et al., the parties had agreed to a conditional contract of sale, consummation of which is subGect only to the successful transfer of the certificate of title from the name of petitionersB father, 4onstancio !. 4oronel, to their names. The 4ourt significantly notes this suspensive condition was, in fact, fulfilled on 1ebruary F, &'(: 5Exh. "0"I Exh. "$"6. Thus, on said date, the conditional contract of sale between petitioners and private respondent *amona !. AlcaraD became obligatory, the only act re7uired for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners une7uivocally committed themselves to do as evidenced by the "*eceipt of 0own !ayment." Article &$@:, in correlation with Article &&(&, both of the 4ivil 4ode, plainly applies to the case at bench. Thus, Art. &$@:. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the obGect of the contract and upon the price. 1rom the moment, the parties may reciprocally demand performance, subGect to the provisions of the law governing the form of contracts. Art. &&(&. n conditional obligations, the ac7uisition of rights, as well as the extinguishment or loss of those already ac7uired, shall depend upon the happening of the event which constitutes the condition. Since the condition contemplated by the parties which is the issuance of a certificate of title in petitionersB names was fulfilled on 1ebruary F, &'(:, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent *amona !. AlcaraD, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to !&,&'9,999.99. t is also significant to note that in the first paragraph in page ' of their petition, petitioners conclusively admitted that# ;. The petitioners=sellers 4oronel bound themselves "to effect the transfer in our names from our deceased father 4onstancio !. 4oronel, the transfer certificate of title immediately upon receipt of the downpayment above=stated". The sale was still sub.ect to this suspensive condition. 5Emphasis supplied.6

5*ollo, p. &F6 !etitioners themselves recogniDed that they entered into a contract of sale subGect to a suspensive condition. .nly, they contend, continuing in the same paragraph, that# . . . 3ad petitioners=sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale. 5Emphasis supplied.6 5/bid.6 not aware that they set their own trap for themselves, for Article &&(F of the 4ivil 4ode expressly provides that# Art. &&(F. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. "esides, it should be stressed and emphasiDed that what is more controlling than these mere hypothetical arguments is the fact that the condition herein referred to was actually and indisputably fulfilled on 0ebruary 1, 1!"2, when a new title was issued in the names of petitioners as evidenced by T4T ,o. ;8@$9; 5Exh. "0"I Exh. "$"6. The inevitable conclusion is that on %anuary &', &'(:, as evidenced by the document denominated as "*eceipt of 0own !ayment" 5Exh. "A"I Exh. "&"6, the parties entered into a contract of sale subGect only to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of their fatherBs name to their names and that, on 1ebruary F, &'(:, this condition was fulfilled 5Exh. "0"I Exh. "$"6. -e, therefore, hold that, in accordance with Article &&(@ which pertinently provides J Art. &&(@. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . . n obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on 1ebruary F, &'(:. As of that point in time, reciprocal obligations of both seller and buyer arose. !etitioners also argue there could been no perfected contract on %anuary &', &'(: because they were then not yet the absolute owners of the inherited property. -e cannot sustain this argument. Article @@$ of the 4ivil 4ode defines Succession as a mode of transferring ownership as follows# Art. @@$. Succession is a mode of ac7uisition by virtue of which the property, rights and obligations to be extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law. !etitioners=sellers in the case at bar being the sons and daughters of the decedent 4onstancio !. 4oronel are compulsory heirs who were called to succession by operation of law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes insofar as the subGect property is

concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. t is expressly provided that rights to the succession are transmitted from the moment of death of the decedent 5Article @@@, 4ivil 4odeI 4uison vs. Aillanueva, '9 !hil. (:9 >&':8?6. "e it also noted that petitionersB claim that succession may not be declared unless the creditors have been paid is rendered moot by the fact that they were able to effect the transfer of the title to the property from the decedentBs name to their names on 1ebruary F, &'(:. Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they cannot be allowed to now take a posture contrary to that which they took when they entered into the agreement with private respondent *amona !. AlcaraD. The 4ivil 4ode expressly states that# Art. &$;&. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. 3aving represented themselves as the true owners of the subGect property at the time of sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that time. !etitioners also contend that although there was in fact a perfected contract of sale between them and *amona !. AlcaraD, the latter breached her reciprocal obligation when she rendered impossible the consummation thereof by going to the Enited States of America, without leaving her address, telephone number, and Special !ower of Attorney 5!aragraphs &$ and &:, Answer with 4ompulsory 4ounterclaim to the Amended 4omplaint, p. 8I *ollo, p. $;6, for which reason, so petitioners conclude, they were correct in unilaterally rescinding rescinding the contract of sale. -e do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. -e note that these supposed grounds for petitionersB rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs 5Sec. &&, *ule F, *evised *ules of 4ourt6. The records are absolutely bereft of any supporting evidence to substantiate petitionersB allegations. -e have stressed time and again that allegations must be proven by sufficient evidence 5,g 4ho 4io vs. ,g 0iong, &&9 !hil. ((8 >&'F&?I *ecaro vs. Embisan, 8 S4*A :'( >&'F&?. +ere allegation is not an evidence 5<agasca vs. 0e Aera, @' !hil. ;@F >&'$@?6. Even assuming arguendo that *amona !. AlcaraD was in the Enited States of America on 1ebruary F, &'(:, we cannot Gustify petitioner=sellersB act of unilaterally and extradicially rescinding the contract of sale, there being no express stipulation authoriDing the sellers to extarGudicially rescind the contract of sale. 5cf. 0ignos vs. 4A, &:( S4*A ;@: >&'((?I Taguba vs. Ada. de <eon, &;8 S4*A @88 >&'($?6 +oreover, petitioners are estopped from raising the alleged absence of *amona !. AlcaraD because although the evidence on record shows that the sale was in the name of *amona !. AlcaraD as the buyer, the sellers had been dealing with 4oncepcion 0. AlcaraD, *amonaBs mother, who had acted for and in behalf of her daughter, if not also in her own behalf. ndeed, the down payment was made by 4oncepcion 0. AlcaraD with her own personal check 5Exh. """I Exh. "8"6 for and in behalf of *amona !. AlcaraD. There is no evidence showing that petitioners ever 7uestioned 4oncepcionBs authority to represent *amona !. AlcaraD when they accepted her personal check. ,either did they raise any obGection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of *amona !. AlcaraD is not a ground to rescind the contract of sale. 4orollarily, *amona !. AlcaraD cannot even be deemed to be in default, insofar as her obligation to pay the full purchase price is concerned. !etitioners who are precluded from setting up the defense of the physical absence of *amona !. AlcaraD as above=explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and signified their willingness and readiness to

execute the deed of absolute sale in accordance with their agreement. *amonaBs corresponding obligation to pay the balance of the purchase price in the amount of !&,&'9,999.99 5as buyer6 never became due and demandable and, therefore, she cannot be deemed to have been in default. Article &&F' of the 4ivil 4ode defines when a party in a contract involving reciprocal obligations may be considered in default, to wit# Art. &&F'. Those obliged to deliver or to do something, incur in delay from the time the obligee Gudicially or extraGudicially demands from them the fulfillment of their obligation. xxx xxx xxx n reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. 1rom the moment one of the parties fulfill his obligation, delay by the other begins. 5Emphasis supplied.6 There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents. -ith the foregoing conclusions, the sale to the other petitioner, 4atalina ". +abanag, gave rise to a case of double sale where Article &:$$ of the 4ivil 4ode will apply, to wit# Art. &:$$. f the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should if be immovable property, the ownership shall belong to the person ac7uiring it who in good faith first recorded it in *egistry of !roperty. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possessionI and, in the absence thereof to the person who presents the oldest title, provided there is good faith. The record of the case shows that the 0eed of Absolute Sale dated April 8:, &'(: as proof of the second contract of sale was registered with the *egistry of 0eeds of KueDon 4ity giving rise to the issuance of a new certificate of title in the name of 4atalina ". +abanag on %une :, &'(:. Thus, the second paragraph of Article &:$$ shall apply. The above=cited provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being# 5a6 when the second buyer, in good faith, registers the sale ahead of the first buyer, and 5b6 should there be no inscription by either of the two buyers, when the second buyer, in good faith, ac7uires possession of the property ahead of the first buyer. Enless, the second buyer satisfies these re7uirements, title or ownership will not transfer to him to the preGudice of the first buyer. n his commentaries on the 4ivil 4ode, an accepted authority on the subGect, now a distinguished member of the 4ourt, %ustice %ose 4. Aitug, explains# The governing principle is prius tempore, potior .ure 5first in time, stronger in right6. Mnowledge by the first buyer of the second sale cannot defeat the first buyerBs rights except when the second buyer first registers in good faith the second sale 5.livares vs. )onDales, &:' S4*A ;;6. 4onversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith 5see also Astorga vs. 4ourt of Appeals, ).*. ,o. :(:;9, 8F 0ecember &'($6. n 3ruz vs. 3abana 5).*. ,o. :F8;8, 88 %une &'($, &8' S4*A F:F6, it has held that it is essential,

to merit the protection of Art. &:$$, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale 5citing 4arbonell vs. 4ourt of Appeals, F' S4*A '', 4risostomo vs. 4A, ).*. ,o. ':($;, 98 September &''86. 5J. 4itug 3ompendium of 3ivil -aw and Jurisprudence, 1!!5 6dition, p& 1%76. !etitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the subGect property only on 1ebruary 88, &'(:, whereas, the second sale between petitioners 4oronels and petitioner +abanag was supposedly perfected prior thereto or on 1ebruary &(, &'(:. The idea conveyed is that at the time petitioner +abanag, the second buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in good faith. -e are not persuaded by such argument. n a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. As clearly borne out by the evidence in this case, petitioner +abanag could not have in good faith, registered the sale entered into on 1ebruary &(, &'(: because as early as 1ebruary 88, &'(:, a notice of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner +abanag registered the said sale sometime in April, &'(:. At the time of registration, therefore, petitioner +abanag knew that the same property had already been previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. !etitioner +abanag cannot close her eyes to the defect in petitionersB title to the property at the time of the registration of the property. This 4ourt had occasions to rule that# f a vendee in a double sale registers that sale after he has ac7uired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a pervious sale, the registration will constitute a registration in bad faith and will not confer upon him any right. 5Salvoro vs. Tanega, (@ S4*A ;$' >&'@(?I citing !alarca vs. 0irector of <and, $; !hil. &$FI 4agaoan vs. 4agaoan, $; !hil. ::$I 1ernandeD vs. +ercader, $; !hil. :(&.6 Thus, the sale of the subGect parcel of land between petitioners and *amona !. AlcaraD, perfected on 1ebruary F, &'(:, prior to that between petitioners and 4atalina ". +abanag on 1ebruary &(, &'(:, was correctly upheld by both the courts below. Although there may be ample indications that there was in fact an agency between *amona as principal and 4oncepcion, her mother, as agent insofar as the subGect contract of sale is concerned, the issue of whether or not 4oncepcion was also acting in her own behalf as a co=buyer is not s7uarely raised in the instant petition, nor in such assumption disputed between mother and daughter. Thus, -e will not touch this issue and no longer disturb the lower courtsB ruling on this point. -3E*E1.*E, premises considered, the instant petition is hereby 0 S+ SSE0 and the appealed Gudgment A11 *+E0. S. .*0E*E0.

G.R. No. L-2&'32

A7-54 30, 196(

PIO SIAN M LLI/A, petitioner, vs. CITY OF ILOILO, UNI$ RSITY OF TH PHILIPPIN S a!" TH COURT APP ALS, respondents. 3ornelio P& *avena for petitioner& 8ffice of the Solicitor 9eneral for respondents& . NG/ON, %.P., J.: %uliana +elliDa during her lifetime owned, among other properties, three parcels of residential land in loilo 4ity registered in her name under .riginal 4ertificate of Title ,o. ;$F8. Said parcels of land were known as <ots ,os. 8, : and &8&$. The total area of <ot ,o. &8&$ was 8',9@; s7uare meters. .n ,ovember 8@, &';& she donated to the then +unicipality of loilo, ',999 s7uare meters of <ot &8&$, to serve as site for the municipal hall. & The donation was however revoked by the parties for the reason that the area donated was found inade7uate to meet the re7uirements of the development plan of the municipality, the so=called "Arellano !lan". 8 Subse7uently, <ot ,o. &8&$ was divided by 4erteDa Surveying 4o., nc. into <ots &8&$=A and &8&$=". And still later, <ot &8&$=" was further divided into <ots &8&$="=&, <ot &8&$="=8 and <ot &8&$="=;. As approved by the "ureau of <ands, <ot &8&$="=& with $,:F8 s7uare meters, became known as <ot &8&$="I <ot &8&$= "=8, with F,F:; s7uare meters, was designated as <ot &8&$=4I and <ot &8&$="=&;, with $,&;: s7uare meters, became <ot &8&$=0. .n ,ovember &:, &';8 %uliana +elliDa executed an instrument without any caption containing the following# Kue en consideracion a la suma total de SE S + < 4EAT*. 4 E,T.S AE ,T 0.S !ES.S 5!F,$88.996, moneda filipina 7ue por la presente declaro haber recibido a mi entera satisfaccion del )obierno +unicipal de loilo, cedo y traspaso en venta real y difinitiva a dicho )obierno +unicipal de loilo los lotes y porciones de los mismos 7ue a continuacion se especifican a saber# el lote ,o. : en toda su extensionI una porcion de @FF' metros cuadrados del lote ,o. 8, cuya porcion esta designada como sub=lotes ,os. 8=" y 8=4 del piano de subdivision de dichos lotes preparado por la 4erteDa Surveying 4o., nc., y una porcion de &9,@(( metros cuadrados del lote ,o. &8&$ J cuya porcion esta designada como sub=lotes ,os. &8&$="=8 y &8&$="=; del mismo plano de subdivision. Asimismo nago constar 7ue la cesion y traspaso 7ue ariba se mencionan es de venta difinitiva, y 7ue para la meGor identificacion de los lotes y porciones de los mismos 7ue son obGeto de la presente, hago constar 7ue dichos lotes y porciones son los 7ue necesita el )obierno +unicipal de loilo para la construccion de avenidas, par7ues y 4ity 3all site del +unicipal )overnment 4enter de iloilo, segun el plano Arellano. .n %anuary &$, &';( %uliana +elliDa sold her remaining interest in <ot &8&$ to *emedios Sian Aillanueva who thereafter obtained her own registered title thereto, under Transfer 4ertificate of Title ,o. &(&@(. *emedios in turn on ,ovember $, &'$F transferred her rights to said portion of land to !io Sian +elliDa, who obtained Transfer 4ertificate of Title ,o. 8$'8 thereover in his name. Annotated at the back of !io Sian +elliDaBs title certificate was the following# ... 5a6 that a portion of &9,@(( s7uare meters of <ot &8&$ now designated as <ots ,os. &8&$="=8 and &8&$="=; of the subdivision plan belongs to the +unicipality of loilo as per instrument dated ,ovember &:, &';8....

.n August 8$, &'$' the 4ity of loilo, which succeeded to the +unicipality of loilo, donated the city hall site together with the building thereon, to the Eniversity of the !hilippines 5 loilo branch6. The site donated consisted of <ots ,os. &8&$=", &8&$=4 and &8&$=0, with a total area of &:,;:9 s7uare meters, more or less. Sometime in &':8, the Eniversity of the !hilippines enclosed the site donated with a wire fence. !io Sian +elliDa thereupon made representations, thru his lawyer, with the city authorities for payment of the value of the lot 5<ot &8&$="6. ,o recovery was obtained, because as alleged by plaintiff, the 4ity did not have funds 5p. ', AppellantBs "rief.6 The Eniversity of the !hilippines, meanwhile, obtained Transfer 4ertificate of Title ,o. @&:8 covering the three lots, ,os. &8&$=", &8&$=4 and &8&$=0. .n 0ecember &9, &':: !io Sian +elliDa filed an action in the 4ourt of 1irst nstance of loilo against loilo 4ity and the Eniversity of the !hilippines for recovery of <ot &8&$=" or of its value. The defendants answered, contending that <ot &8&$=" was included in the public instrument executed by %uliana +elliDa in favor of loilo municipality in &';8. After stipulation of facts and trial, the 4ourt of 1irst nstance rendered its decision on August &:, &':@, dismissing the complaint. Said court ruled that the instrument executed by %uliana +elliDa in favor of loilo municipality included in the conveyance <ot &8&$= ". n support of this conclusion, it referred to the portion of the instrument stating# Asimismo hago constar 7ue la cesion y traspaso 7ue arriba se mencionan es de venta difinitiva, y 7ue para la maGor identificacion de los lotes y porciones de los mismos 7ue son obGeto de la presente, hago constar 7ue dichos lotes y porciones son los 7ue necesita el )obierno municipal de loilo para la construccion de avenidas, par7ues y 4ity 3all site del +unicipal )overnment 4enter de loilo, segun el plano Arellano. and ruled that this meant that %uliana +elliDa not only sold <ots &8&$=4 and &8&$=0 but also such other portions of lots as were necessary for the municipal hall site, such as -ot 1#17':& +nd thus it held that /loilo 3ity had the right to donate -ot 1#17': to the E.!. !io Sian +elliDa appealed to the 4ourt of Appeals. n its decision on +ay &', &'F:, the 4ourt of Appeals affirmed the interpretation of the 4ourt of 1irst nstance, that the portion of <ot &8&$ sold by %uliana +elliDa was not limited to the &9,@(( s7uare meters specifically mentioned but included whatever was needed for the construction of avenues, parks and the city hall site. ,onetheless, it ordered the remand of the case for reception of evidence to determine the area actually taken by loilo 4ity for the construction of avenues, parks and for city hall site. The present appeal therefrom was then taken to Es by !io Sian +elliDa. Appellant maintains that the public instrument is clear that only <ots ,os. &8&$=4 and &8&$=0 with a total area of &9,@(( s7uare meters were the portions of <ot &8&$ included in the saleI that the purpose of the second paragraph, relied upon for a contrary interpretation, was only to better identify the lots sold and none otherI and that to follow the interpretation accorded the deed of sale by the 4ourt of Appeals and the 4ourt of 1irst nstance would render the contract invalid because the law re7uires as an essential element of sale, a "determinate" obGect 5Art. &$$:, now &$$(, 4ivil 4ode6. Appellees, on the other hand, contend that the present appeal improperly raises only 7uestions of fact. And, further, they argue that the parties to the document in 7uestion really intended to include <ot &8&$=" therein, as shown by the silence of the vendor after loilo 4ity exercised ownership thereoverI that not to include it would have been absurd, because said lot is contiguous to the others admittedly included in the conveyance, lying directly in front of the city hall, separating that building from <ots &8&$=4 and &8&$=0, which were included therein. And, finally, appellees argue that the saleBs obGect was determinate, because it could be ascertained, at the time of the execution of the contract, what lots were needed by loilo

municipality for avenues, parks and city hall site "according to the Arellano !lan", since the Arellano plan was then already in existence. The appeal before Es calls for the interpretation of the public instrument dated ,ovember &:, &';8. And interpretation of such contract involves a 7uestion of law, since the contract is in the nature of law as between the parties and their successors=in=interest. At the outset, it is well to mark that the issue is whether or not the conveyance by %uliana +elliDa to loilo municipality included that portion of <ot &8&$ known as <ot &8&$=". f not, then the same was included, in the instrument subse7uently executed by %uliana +elliDa of her remaining interest in <ot &8&$ to *emedios Sian Aillanueva, who in turn sold what she thereunder had ac7uired, to !io Sian +elliDa. t should be stressed, also, that the sale to *emedios Sian Aillanueva J from which !io Sian +elliDa derived title J did not specifically designate -ot 1#17':, but only such portions of -ot 1#17 as were not included in the previous sale to /loilo municipality5Stipulation of 1acts, par. :, *ecord on Appeal, p. 8;6. And thus, if said <ot &8&$=" had been included in the prior conveyance to loilo municipality, then it was excluded from the sale to *emedios Sian Aillanueva and, later, to !io Sian +elliDa. The point at issue here is then the true intention of the parties as to the obGect of the public instrument Exhibit "0". Said issue revolves on the paragraph of the public instrument afore7uoted and its purpose, i.e., whether it was intended merely to further describe the lots already specifically mentioned, or whether it was intended to cover other lots not yet specifically mentioned. 1irst of all, there is no 7uestion that the paramount intention of the parties was to provide loilo municipality with lots sufficient or ade7uate in area for the construction of the loilo 4ity hall site, with its avenues and parks. 1or this matter, a previous donation for this purpose between the same parties was revoked by them, because of inade7uacy of the area of the lot donated. Secondly, reading the public instrument in toto, with special reference to the paragraphs describing the lots included in the sale, shows that said instrument describes four parcels of land by their lot numbers and areaI and then it goes on to further describe, not only those lots already mentioned, but the lots ob.ect of the sale, by stating that said lots are the ones needed for the construction of the city hall site, avenues and parks according to the +rellano plan. f the parties intended merely to cover the specified lots J <ots 8, :, &8&$=4 and &8&$=0, there would scarcely have been any need for the next paragraph, since these lots are already plainly and very clearly described by their respective lot number and area. Said next paragraph does not really add to the clear description that was already given to them in the previous one. t is therefore the more reasonable interpretation, to view it as describing those other portions of land contiguous to the lots aforementioned that, by reference to the Arellano plan, will be found needed for the purpose at hand, the construction of the city hall site. Appellant however challenges this view on the ground that the description of said other lots in the afore7uoted second paragraph of the public instrument would thereby be legally insufficient, because the obGect would allegedly not be determinate as re7uired by law. Such contention fails on several counts. The re7uirement of the law that a sale must have for its obGect a determinate thing, is fulfilled as long as, at the time the contract is entered into, the obGect of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties 5Art. &8@;, old 4ivil 4odeI Art. &$F9, ,ew 4ivil 4ode6. The specific mention of some of the lots plus the statement that the lots obGect of the sale are the ones needed for city hall site, avenues and parks, according to the +rellano plan, sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further agreement of the parties.

The Arellano plan was in existence as early as &'8(. As stated, the previous donation of land for city hall site on ,ovember 8@, &';& was revoked on +arch F, &';8 for being inade7uate in area under said Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not fixed until &';:, and thus it could not be a basis for determining the lots sold on ,ovember &:, &';8. Appellant however fails to consider that thearea needed under that plan for city hall site was then already knownI that the specific mention of some of the lots covered by the sale in effect fixed the corresponding location of the city hall site under the planI that, therefore, considering the said lots specifically mentioned in the public instrument Exhibit "0", and the proGected city hall site, with its area, as then shown in the Arellano plan 5Exhibit 86, it could be determined which, and how much of the portions of land contiguous to those specifically named, were needed for the construction of the city hall site. And, moreover, there is no 7uestion either that <ot &8&$=" is contiguous to <ots &8&$=4 and &8&$=0, admittedly covered by the public instrument. t is stipulated that, after execution of the contract Exhibit "0", the +unicipality of loilo possessed it together with the other lots sold. t sits practically in the heart of the city hall site. 1urthermore, !io Sian +elliDa, from the stipulation of facts, was the notary public of the public instrument. As such, he was aware of its terms. Said instrument was also registered with the *egister of 0eeds and such registration was annotated at the back of the corresponding title certificate of %uliana +elliDa. 1rom these stipulated facts, it can be inferred that !io Sian +elliDa knew of the aforesaid terms of the instrument or is chargeable with knowledge of themI that knowing so, he should have examined the Arellano plan in relation to the public instrument Exhibit "0"I that, furthermore, he should have taken notice of the possession first by the +unicipality of loilo, then by the 4ity of loilo and later by the Eniversity of the !hilippines of <ot &8&$=" as part of the city hall site conveyed under that public instrument, and raised proper obGections thereto if it was his position that the same was not included in the same. The fact remains that, instead, for twenty long years, !io Sian +elliDa and his predecessors=in=interest, did not obGect to said possession, nor exercise any act of possession over <ot &8&$=". Applying, therefore, principles of civil law, as well as laches, estoppel, and e7uity, said lot must necessarily be deemed included in the conveyance in favor of loilo municipality, now loilo 4ity. -3E*E1.*E, the decision appealed from is affirmed insofar as it affirms that of the 4ourt of 1irst nstance, and the complaint in this case is dismissed. ,o costs. So ordered.

G.R. No. L-36902 %a!6a-y 30, 19(2 LUIS PICH L, petitioner, vs. PRU# NCIO ALON/O, respondent.

GU RR RO, J.9 This is a petition to review on certiorari the decision of the 4ourt of 1irst nstance of "asilan 4ity dated %anuary :, &'@; in 4ivil 4ase ,o. (89 entitled "!rudencio AlonDo, plaintiff, vs. <uis !ichel, defendant." This case originated in the lower 4ourt as an action for the annulment of a "0eed of Sale" dated August &$, &'F( and executed by !rudencio AlonDo, as vendor, in favor of <uis !ichel, as vendee, involving property awarded to the former by the !hilippine )overnment under *epublic Act ,o. $@@. !ertinent portions of the document sued upon read as follows# That the AE,0.* for and in consideration of the sum of 1.E* T3.ESA,0 T-. 3E,0*E0 !ES.S 5!$,899.996, !hilippine 4urrency, in hand paid by the AE,0EE to the entire satisfaction of the AE,0.*, the AE,0.* hereby sells transfers, and conveys, by way of absolute sale, all the coconut fruits of his coconut land, designated as <ot ,o. 8& = Subdivision !lan ,o. !sd= ;8$F:, situated at "alactasan !lantation, <amitan, "asilan 4ity, !hilippinesI That for the herein sale of the coconut fruits are for all the fruits on the aforementioned parcel of land presently found therein as well as for future fruits to be produced on the said parcel of land during the years periodI which shag commence to run as of SE!TE+"E* &:,&'F(I up to %A,EA*2 &, &'@F 5sic6I That the delivery of the subGect matter of the 0eed of Sale shall be from time to time and at the expense of the AE,0EE who shall do the harvesting and gathering of the fruitsI That the AendorBs right, title, interest and participation herein conveyed is of his own exclusive and absolute property, free from any liens and encumbrances and he warrants to the Aendee good title thereto and to defend the same against any and all claims of all persons whomsoever. 1 After the pre=trial conference, the 4ourt a 7uo issued an .rder dated ,ovember ', &'@8 which in part read thus# The following facts are admitted by the parties# !laintiff !rudencio AlonDo was awarded by the )overnment that parcel of land designated as <ot ,o. 8& of Subdivision !lan !sd ;8$F: of "alactasan, <amitan, "asilan 4ity in accordance with *epublic Act ,o. $@@. The award was cancelled by the "oard of <i7uidators on %anuary 8@, &'F: on the ground that, previous thereto, plaintiff was proved to have alienated the land to another, in violation of law. n &'@ 8, plaintiffBs rights to the land were reinstated. .n August &$, &'F(, plaintiff and his wife sold to defendant an the fruits of the coconut trees which may be harvested in the land in 7uestion for the period, September &:, &'F( to %anuary &, &'@F, in consideration of !$,899.99. Even as of the date of sale, however, the land was still under lease to one, *amon Sua, and it was the agreement that part of the

consideration of the sale, in the sum of !;,F:9.99, was to be paid by defendant directly to *amon Sua so as to release the land from the clutches of the latter. !ending said payment plaintiff refused to snow the defendant to make any harvest. n %uly &'@8, defendant for the first time since the execution of the deed of sale in his favor, caused the harvest of the fruit of the coconut trees in the land. xxx xxx xxx 4onsidering the foregoing, two issues appear posed by the complaint and the answer which must needs be tested in the crucible of a trial on the merits, and they are# 1irst.J -hether or nor defendant actually paid to plaintiff the full sum of !$,899.99 upon execution of the deed of sale. Second.J s the deed of sale, Exhibit BAB, the prohibited encumbrance contemplated in Section ( of *epublic Act ,o. $@@C 2 Anent the first issue, counsel for plaintiff AlonDo subse7uently Bstipulated and agreed that his client ... admits fun payment thereof by defendant. 3 The remaining issue being one of law, the 4ourt below considered the case submitted for summary Gudgment on the basis of the pleadings of the parties, and the admission of facts and documentary evidence presented at the pre=trial conference. The lower court rendered its decision now under review, holding that although the agreement in 7uestion is denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendorBs land, it actually is, for all legal intents and purposes, a contract of lease of the land itself. According to the 4ourt# ... the sale aforestated has given defendant complete control and enGoyment of the improvements of the land. That the contract is consensualI that its purpose is to allow the enGoyment or use of a thingI that it is onerous because rent or price certain is stipulatedI and that the enGoyment or use of the thing certain is stipulated to be for a certain and definite period of time, are characteristics which admit of no other conclusion. ... The provisions of the contract itself and its characteristics govern its nature. & The 4ourt, therefore, concluded that the deed of sale in 7uestion is an encumbrance prohibited by *epublic Act ,o. $@@ which provides thus# Sec. (. Except in favor of the )overnment or any of its branches, units, or institutions, land ac7uired under the provisions of this Act or any permanent improvements thereon shall not be thereon and for a term of ten years from and after the date of issuance of the certificate of title, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of such period. Any occupant or applicant of lands under this Act who transfers whatever rights he has ac7uired on said lands andLor on the improvements thereon before the date of the award or signature of the contract of sale, shall not be entitled to apply for another piece of agricultural land or urban, homesite or residential lot, as the case may be, from the ,ational Abaca and .ther 1ibers 4orporationI and such transfer shall be considered null and void. 5 The dispositive portion of the lower 4ourtBs decision states# -3E*E1.*E, it is the Gudgment of this 4ourt that the deed of sale, Exhibit BAB, should be, as it is, hereby declared nun and voidI that plaintiff be, as he is, ordered to pay back to defendant the consideration of the sale in the sum of !$,899.99 the same to bear legal

interest from the date of the filing of the complaint until paidI that defendant shall pay to the plaintiff the sum of !:99.99 as attorneyBs fees. 4osts against the defendant. 6 "efore going into the issues raised by the instant !etition, the matter of whether, under the admitted facts of this case, the respondent had the right or authority to execute the "0eed of Sale" in &'F(, his award over <ot ,o. 8& having been cancelled previously by the "oard of <i7uidators on %anuary 8@, &'F:, must be clarified. The case in point is *as vs& Sua ' wherein it was categorically stated by this 4ourt that a cancellation of an award granted pursuant to the provisions of *epublic Act ,o. $@@ does not automatically divest the awardee of his rights to the land. Such cancellation does not result in the immediate reversion of the property subGect of the award, to the State. Speaking through +r. %ustice %.".<. *eyes, this 4ourt ruled that "until and unless an appropriate proceeding for reversion is instituted by the State, and its reac7uisition of the ownership and possession of the land decreed by a competent court, the grantee cannot be said to have been divested of whatever right that he may have over the same property." ( There is nothing in the record to show that at any time after the supposed cancellation of herein respondentBs award on %anuary 8@, &'F:, reversion proceedings against <ot ,o. 8& were instituted by the State. nstead, the admitted fact is that the award was reinstated in &'@8. Applying the doctrine announced in the above=cited *as case, therefore, herein respondent is not deemed to have lost any of his rights as grantee of <ot ,o. 8& under *epublic Act ,o. $@@ during the period material to the case at bar, i.e., from the cancellation of the award in &'F: to its reinstatement in &'@8. -ithin said period, respondent could exercise all the rights pertaining to a grantee with respect to <ot ,o. 8&. This brings Es to the issues raised by the instant !etition. n his "rief, petitioner contends that the lower 4ourt erred# &. n resorting to construction and interpretation of the deed of sale in 7uestion where the terms thereof are clear and unambiguous and leave no doubt as to the intention of the partiesI 8. n declaring J granting without admitting that an interpretation is necessary J the deed of sale in 7uestion to be a contract of lease over the land itself where the respondent himself waived and abandoned his claim that said deed did not express the true agreement of the parties, and on the contrary, respondent admitted at the pre=trial that his agreement with petitioner was one of sale of the fruits of the coconut trees on the landI ;. n deciding a 7uestion which was not in issue when it declared the deed of sale in 7uestion to be a contract of lease over <ot 8&I $. n declaring furthermore the deed of sale in 7uestion to be a contract of lease over the land itself on the basis of facts which were not proved in evidenceI :. n not holding that the deed of sale, Exhibit "A" and "8", expresses a valid contract of saleI F. n not deciding s7uarely and to the point the issue as to whether or not the deed of sale in 7uestion is an encumbrance on the land and its improvements prohibited by Section ( of *epublic Act $@@I and @. n awarding respondent attorneyBs fees even granting, without admitting, that the deed of sale in 7uestion is violative of Section ( of *epublic Act $@@. The first five assigned errors are interrelated, hence, -e shall consider them together. To begin with, -e agree with petitioner that construction or interpretation of the document in 7uestion is not called for. A

perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and une7uivocal, hence the literal and plain meaning thereof should be observed. Such is the mandate of the 4ivil 4ode of the !hilippines which provides that# Art. &;@9. f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control ... . !ursuant to the afore=7uoted legal provision, the first and fundamental duty of the courts is the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible. 9 Simply and directly stated, the "0eed of Sale dated August &$, &'F( is precisely what it purports to be. t is a document evidencing the agreement of herein parties for the sale of coconut fruits of <ot ,o. 8&, and not for thelease of the land itself as found by the lower 4ourt. n clear and express terms, the document defines the obGect of the contract thus# "the herein sale of the coconut fruits are for an the fruits on the aforementioned parcel of land during the years ...5from6 SE!TE+"E* &:, &'F(I up to %A,EA*2 &, &'@F." +oreover, as petitioner correctly asserts, the document in 7uestion expresses a valid contract of sale. t has the essential elements of a contract of sale as defined under Article &$(: of the ,ew 4ivil 4ode which provides thus# Art. &$:(. "y the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its e7uivalent. A contract of sale may be absolute or conditional. The subGect matter of the contract of sale in 7uestion are the fruits of the coconut trees on the land during the years from September &:, &'F( up to %anuary &, &'@F, which subGect matter is a determinate thing. Ender Article &$F& of the ,ew 4ivil 4ode, things having a potential existence may be the obGect of the contract of sale. And inSibal vs& 4aldez, :9 !hil. :&8, pending crops which have potential existence may be the subGect matter of the sale. 3ere, the Supreme 4ourt, citing +echem on Sales and American cases said which have potential existence may be the subGect matter of sale. 3ere, the Supreme 4ourt, citing +echem on Sales and American cases said# +r. +echem says that a valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes into existence. 5Emerson vs. European *ailway 4o., F@ +e., ;(@I 4utting vs. !ackers Exchange, 8& Am. St. *ep. F;6 Things of this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually possess. 3e may make a valid sale of the wine that a vineyard is expected to produceI or the grain a field may grow in a given timeI or the milk a cow may yield during the coming yearI or the wool that shall thereafter grow upon sheepI or what may be taken at the next case of a fishermanBs netI or fruits to growI or young animals not yet in existenceI or the goodwill of a trade and the like. The thing sold, however, must be specific and dentified. They must be also owned at the time by the vendor. 53ull vs. 3ull $( 4onn. 8:9 5$9 Am. *ep., &F:6 5pp. :88=:8;6. -e do not agree with the trial court that the contract executed by and between the parties is "actually a contract of lease of the land and the coconut trees there." 541 0ecision, p. F8, *ecords6. The 4ourtBs holding that the contract in 7uestion fits the definition of a lease of things wherein one of the parties binds himself to give to another the enGoyment or use of a thing for a price certain and for a period which may be definite or indefinite 5Art. &F$;, 4ivil 4ode of the !hilippines6 is erroneous. The essential difference

between a contract of sale and a lease of things is that the delivery of the thing sold transfers ownership, while in lease no such transfer of ownership results as the rights of the lessee are limited to the use and enGoyment of the thing leased. n *odriguez vs& :orromeo, $; !hil. $@', $'9, the Supreme 4ourt held# Since according to article &:$; of the same 4ode the contract of lease is defined as the giving or the concession of the enGoyment or use of a thing for a specified time and fixed price, and since such contract is a form of enGoyment of the property, it is evident that it must be regarded as one of the means of enGoyment referred to in said article ;'(, inasmuch as the terms enGoyment, use, and benefit involve the same and analogous meaning relative to the general utility of which a given thing is capable. 5&9$ %urisprudencia 4ivil, $$;6 n concluding that the possession and enGoyment of the coconut trees can therefore be said to be the possession and enGoyment of the land itself because the defendant=lessee in order to enGoy his right under the contract, he actually takes possession of the land, at least during harvest time, gather all of the fruits of the coconut trees in the land, and gain exclusive use thereof without the interference or intervention of the plaintiff=lessor such that said plaintiff=lessor is excluded in fact from the land during the period aforesaid, the trial court erred. The contract was clearly a "sale of the coconut fruits." The vendor sold, transferred and conveyed "by way of absolute sale, all the coconut fruits of his land," thereby divesting himself of all ownership or dominion over the fruits during the seven=year period. The possession and enGoyment of the coconut trees cannot be said to be the possession and enGoyment of the land itself because these rights are distinct and separate from each other, the first pertaining to the accessory or improvements 5coconut trees6 while the second, to the principal 5the land6. A transfer of the accessory or improvement is not a transfer of the principal. t is the other way around, the accessory follows the principal. 3ence, the sale of the nuts cannot be interpreted nor construed to be a lease of the trees, much less extended further to include the lease of the land itself. The real and pivotal issue of this case which is taken up in petitionerBs sixth assignment of error and as already stated above, refers to the validity of the "0eed of Sale", as such contract of sale, vis=a=vis the provisions of Sec. (, *.A. ,o. $@@. The lower 4ourt did not rule on this 7uestion, having reached the conclusion that the contract at bar was one of lease. t was from the context of a lease contract that the 4ourt below determined the applicability of Sec. (, *.A. ,o. $@@, to the instant case. *esolving now this principal issue, -e find after a close and careful examination of the terms of the first paragraph of Section ( hereinabove 7uoted, that the grantee of a parcel of land under *.A. ,o. $@@ is not prohibited from alienating or disposing of the natural andLor industrial fruits of the land awarded to him. -hat the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent improvements thereon. !ermanent improvements on a parcel of land are things incorporated or attached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land which is characteriDed by fixity, immutability or immovability. 3ouses, buildings, machinery, animal houses, trees and plants would fall under the category of permanent improvements, the alienation or encumbrance of which is prohibited by *.A. ,o. $@@. -hile coconut trees are permanent improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severed from the trees, to be used, enGoyed, sold or otherwise disposed of by the owner of the land. 3erein respondents, as the grantee of <ot ,o. 8& from the )overnment, had the right and prerogative to sell the coconut fruits of the trees growing on the property. "y virtue of *.A. ,o. $@@, bona fide occupants, veterans, members of guerilla organiDations and other 7ualified persons were given the opportunity to ac7uire government lands by purchase, taking into account their limited means. t was intended for these persons to make good and productive use of the lands awarded to them, not only to enable them to improve their standard of living, but likewise to help provide for the annual payments to the )overnment of the purchase price of the lots awarded to them. Section ( was included, as stated by the 4ourt a 7uo, to protect the grantees from themselves and the incursions of

opportunists who prey on their misery and poverty." t is there to insure that the grantees themselves benefit from their respective lots, to the exclusion of other persons. The purpose of the law is not violated when a grantee sells the produce or fruits of his land. .n the contrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and productive, thus making it possible for him and his family to be economically self=sufficient and to lead a respectable life. At the same time, the )overnment is assured of payment on the annual installments on the land. -e agree with herein petitioner that it could not have been the intention of the legislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation wherein the grantee would not be able to receive and enGoy the fruits of the property in the real and complete sense. *espondent through counsel, in his Answer to the !etition contends that even granting arguendo that he executed a deed of sale of the coconut fruits, he has the "privilege to change his mind and claim it as 5an6 implied lease," and he has the "legitimate right" to file an action for annulment "which no law can stop." 3e claims it is his "sole construction of the meaning of the transaction that should prevail and not petitioner. 5sic6. 10 *espondentBs counsel either misapplies the law or is trying too hard and going too far to defend his clientBs hopeless cause. Suffice it to say that respondent=grantee, after having received the consideration for the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the preGudice of petitioner who contracted in good faith and for a consideration. The issue raised by the seventh assignment of error as to the propriety of the award of attorneyBs fees made by the lower 4ourt need not be passed upon, such award having been apparently based on the erroneous finding and conclusion that the contract at bar is one of lease. -e shall limit .urselves to the 7uestion of whether or not in accordance with .ur ruling in this case, respondent is entitled to an award of attorneyBs fees. The 4ivil 4ode provides that# Art. 889(. n the absence of stipulation, attorneyBs fees and expenses of litigation, other than Gudicial costs, cannot be recovered, except# 5&6 -hen exemplary damages are awardedI 586 -hen the defendantBs act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interestI 5;6 n criminal cases of malicious prosecution against the plaintiffI 5$6 n case of a clearly unfounded civil action or proceeding against the plaintiffI 5:6 -here the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffBs plainly valid, Gust and demandable claimI 5F6 n actions for legal supportI 5@6 n actions for the recovery of wages of household helpers, laborers and skilled workersI 5(6 n actions for indemnity under workmenBs compensation and employerBs liability lawsI 5'6 n a separate civil action to recover civil liability arising from a crimeI 5&96 -hen at least double Gudicial costs are awardedI

5&&6 n any other case where the court deems it Gust and e7uitable that attorneyBs fees and expenses of litigation should be recovered. n all cases, the attorneyBs fees and expenses of litigation must be reasonable. -e find that none of the legal grounds enumerated above exists to Gustify or warrant the grant of attorneyBs fees to herein respondent. , A E- .1 T3E 1.*E). ,), the Gudgment of the lower 4ourt is hereby set aside and another one is entered dismissing the 4omplaint. -ithout costs. S. .*0E*E0.

G.R. No. L-36902 %a!6a-y 30, 19(2 LUIS PICH L, petitioner, vs. PRU# NCIO ALON/O, respondent.

GU RR RO, J.9 This is a petition to review on certiorari the decision of the 4ourt of 1irst nstance of "asilan 4ity dated %anuary :, &'@; in 4ivil 4ase ,o. (89 entitled "!rudencio AlonDo, plaintiff, vs. <uis !ichel, defendant." This case originated in the lower 4ourt as an action for the annulment of a "0eed of Sale" dated August &$, &'F( and executed by !rudencio AlonDo, as vendor, in favor of <uis !ichel, as vendee, involving property awarded to the former by the !hilippine )overnment under *epublic Act ,o. $@@. !ertinent portions of the document sued upon read as follows# That the AE,0.* for and in consideration of the sum of 1.E* T3.ESA,0 T-. 3E,0*E0 !ES.S 5!$,899.996, !hilippine 4urrency, in hand paid by the AE,0EE to the entire satisfaction of the AE,0.*, the AE,0.* hereby sells transfers, and conveys, by way of absolute sale, all the coconut fruits of his coconut land, designated as <ot ,o. 8& = Subdivision !lan ,o. !sd= ;8$F:, situated at "alactasan !lantation, <amitan, "asilan 4ity, !hilippinesI That for the herein sale of the coconut fruits are for all the fruits on the aforementioned parcel of land presently found therein as well as for future fruits to be produced on the said parcel of land during the years periodI which shag commence to run as of SE!TE+"E* &:,&'F(I up to %A,EA*2 &, &'@F 5sic6I That the delivery of the subGect matter of the 0eed of Sale shall be from time to time and at the expense of the AE,0EE who shall do the harvesting and gathering of the fruitsI That the AendorBs right, title, interest and participation herein conveyed is of his own exclusive and absolute property, free from any liens and encumbrances and he warrants to the Aendee good title thereto and to defend the same against any and all claims of all persons whomsoever. 1 After the pre=trial conference, the 4ourt a 7uo issued an .rder dated ,ovember ', &'@8 which in part read thus# The following facts are admitted by the parties# !laintiff !rudencio AlonDo was awarded by the )overnment that parcel of land designated as <ot ,o. 8& of Subdivision !lan !sd ;8$F: of "alactasan, <amitan, "asilan 4ity in accordance with *epublic Act ,o. $@@. The award was cancelled by the "oard of <i7uidators on %anuary 8@, &'F: on the ground that, previous thereto, plaintiff was proved to have alienated the land to another, in violation of law. n &'@ 8, plaintiffBs rights to the land were reinstated. .n August &$, &'F(, plaintiff and his wife sold to defendant an the fruits of the coconut trees which may be harvested in the land in 7uestion for the period, September &:, &'F( to %anuary &, &'@F, in consideration of !$,899.99. Even as of the date of sale, however, the land was still under lease to one, *amon Sua, and it was the agreement that part of the

consideration of the sale, in the sum of !;,F:9.99, was to be paid by defendant directly to *amon Sua so as to release the land from the clutches of the latter. !ending said payment plaintiff refused to snow the defendant to make any harvest. n %uly &'@8, defendant for the first time since the execution of the deed of sale in his favor, caused the harvest of the fruit of the coconut trees in the land. xxx xxx xxx 4onsidering the foregoing, two issues appear posed by the complaint and the answer which must needs be tested in the crucible of a trial on the merits, and they are# 1irst.J -hether or nor defendant actually paid to plaintiff the full sum of !$,899.99 upon execution of the deed of sale. Second.J s the deed of sale, Exhibit BAB, the prohibited encumbrance contemplated in Section ( of *epublic Act ,o. $@@C 2 Anent the first issue, counsel for plaintiff AlonDo subse7uently Bstipulated and agreed that his client ... admits fun payment thereof by defendant. 3 The remaining issue being one of law, the 4ourt below considered the case submitted for summary Gudgment on the basis of the pleadings of the parties, and the admission of facts and documentary evidence presented at the pre=trial conference. The lower court rendered its decision now under review, holding that although the agreement in 7uestion is denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendorBs land, it actually is, for all legal intents and purposes, a contract of lease of the land itself. According to the 4ourt# ... the sale aforestated has given defendant complete control and enGoyment of the improvements of the land. That the contract is consensualI that its purpose is to allow the enGoyment or use of a thingI that it is onerous because rent or price certain is stipulatedI and that the enGoyment or use of the thing certain is stipulated to be for a certain and definite period of time, are characteristics which admit of no other conclusion. ... The provisions of the contract itself and its characteristics govern its nature. & The 4ourt, therefore, concluded that the deed of sale in 7uestion is an encumbrance prohibited by *epublic Act ,o. $@@ which provides thus# Sec. (. Except in favor of the )overnment or any of its branches, units, or institutions, land ac7uired under the provisions of this Act or any permanent improvements thereon shall not be thereon and for a term of ten years from and after the date of issuance of the certificate of title, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of such period. Any occupant or applicant of lands under this Act who transfers whatever rights he has ac7uired on said lands andLor on the improvements thereon before the date of the award or signature of the contract of sale, shall not be entitled to apply for another piece of agricultural land or urban, homesite or residential lot, as the case may be, from the ,ational Abaca and .ther 1ibers 4orporationI and such transfer shall be considered null and void. 5 The dispositive portion of the lower 4ourtBs decision states# -3E*E1.*E, it is the Gudgment of this 4ourt that the deed of sale, Exhibit BAB, should be, as it is, hereby declared nun and voidI that plaintiff be, as he is, ordered to pay back to defendant the consideration of the sale in the sum of !$,899.99 the same to bear legal

interest from the date of the filing of the complaint until paidI that defendant shall pay to the plaintiff the sum of !:99.99 as attorneyBs fees. 4osts against the defendant. 6 "efore going into the issues raised by the instant !etition, the matter of whether, under the admitted facts of this case, the respondent had the right or authority to execute the "0eed of Sale" in &'F(, his award over <ot ,o. 8& having been cancelled previously by the "oard of <i7uidators on %anuary 8@, &'F:, must be clarified. The case in point is *as vs& Sua ' wherein it was categorically stated by this 4ourt that a cancellation of an award granted pursuant to the provisions of *epublic Act ,o. $@@ does not automatically divest the awardee of his rights to the land. Such cancellation does not result in the immediate reversion of the property subGect of the award, to the State. Speaking through +r. %ustice %.".<. *eyes, this 4ourt ruled that "until and unless an appropriate proceeding for reversion is instituted by the State, and its reac7uisition of the ownership and possession of the land decreed by a competent court, the grantee cannot be said to have been divested of whatever right that he may have over the same property." ( There is nothing in the record to show that at any time after the supposed cancellation of herein respondentBs award on %anuary 8@, &'F:, reversion proceedings against <ot ,o. 8& were instituted by the State. nstead, the admitted fact is that the award was reinstated in &'@8. Applying the doctrine announced in the above=cited *as case, therefore, herein respondent is not deemed to have lost any of his rights as grantee of <ot ,o. 8& under *epublic Act ,o. $@@ during the period material to the case at bar, i.e., from the cancellation of the award in &'F: to its reinstatement in &'@8. -ithin said period, respondent could exercise all the rights pertaining to a grantee with respect to <ot ,o. 8&. This brings Es to the issues raised by the instant !etition. n his "rief, petitioner contends that the lower 4ourt erred# &. n resorting to construction and interpretation of the deed of sale in 7uestion where the terms thereof are clear and unambiguous and leave no doubt as to the intention of the partiesI 8. n declaring J granting without admitting that an interpretation is necessary J the deed of sale in 7uestion to be a contract of lease over the land itself where the respondent himself waived and abandoned his claim that said deed did not express the true agreement of the parties, and on the contrary, respondent admitted at the pre=trial that his agreement with petitioner was one of sale of the fruits of the coconut trees on the landI ;. n deciding a 7uestion which was not in issue when it declared the deed of sale in 7uestion to be a contract of lease over <ot 8&I $. n declaring furthermore the deed of sale in 7uestion to be a contract of lease over the land itself on the basis of facts which were not proved in evidenceI :. n not holding that the deed of sale, Exhibit "A" and "8", expresses a valid contract of saleI F. n not deciding s7uarely and to the point the issue as to whether or not the deed of sale in 7uestion is an encumbrance on the land and its improvements prohibited by Section ( of *epublic Act $@@I and @. n awarding respondent attorneyBs fees even granting, without admitting, that the deed of sale in 7uestion is violative of Section ( of *epublic Act $@@. The first five assigned errors are interrelated, hence, -e shall consider them together. To begin with, -e agree with petitioner that construction or interpretation of the document in 7uestion is not called for. A

perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and une7uivocal, hence the literal and plain meaning thereof should be observed. Such is the mandate of the 4ivil 4ode of the !hilippines which provides that# Art. &;@9. f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control ... . !ursuant to the afore=7uoted legal provision, the first and fundamental duty of the courts is the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible. 9 Simply and directly stated, the "0eed of Sale dated August &$, &'F( is precisely what it purports to be. t is a document evidencing the agreement of herein parties for the sale of coconut fruits of <ot ,o. 8&, and not for thelease of the land itself as found by the lower 4ourt. n clear and express terms, the document defines the obGect of the contract thus# "the herein sale of the coconut fruits are for an the fruits on the aforementioned parcel of land during the years ...5from6 SE!TE+"E* &:, &'F(I up to %A,EA*2 &, &'@F." +oreover, as petitioner correctly asserts, the document in 7uestion expresses a valid contract of sale. t has the essential elements of a contract of sale as defined under Article &$(: of the ,ew 4ivil 4ode which provides thus# Art. &$:(. "y the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its e7uivalent. A contract of sale may be absolute or conditional. The subGect matter of the contract of sale in 7uestion are the fruits of the coconut trees on the land during the years from September &:, &'F( up to %anuary &, &'@F, which subGect matter is a determinate thing. Ender Article &$F& of the ,ew 4ivil 4ode, things having a potential existence may be the obGect of the contract of sale. And inSibal vs& 4aldez, :9 !hil. :&8, pending crops which have potential existence may be the subGect matter of the sale. 3ere, the Supreme 4ourt, citing +echem on Sales and American cases said which have potential existence may be the subGect matter of sale. 3ere, the Supreme 4ourt, citing +echem on Sales and American cases said# +r. +echem says that a valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes into existence. 5Emerson vs. European *ailway 4o., F@ +e., ;(@I 4utting vs. !ackers Exchange, 8& Am. St. *ep. F;6 Things of this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually possess. 3e may make a valid sale of the wine that a vineyard is expected to produceI or the grain a field may grow in a given timeI or the milk a cow may yield during the coming yearI or the wool that shall thereafter grow upon sheepI or what may be taken at the next case of a fishermanBs netI or fruits to growI or young animals not yet in existenceI or the goodwill of a trade and the like. The thing sold, however, must be specific and dentified. They must be also owned at the time by the vendor. 53ull vs. 3ull $( 4onn. 8:9 5$9 Am. *ep., &F:6 5pp. :88=:8;6. -e do not agree with the trial court that the contract executed by and between the parties is "actually a contract of lease of the land and the coconut trees there." 541 0ecision, p. F8, *ecords6. The 4ourtBs holding that the contract in 7uestion fits the definition of a lease of things wherein one of the parties binds himself to give to another the enGoyment or use of a thing for a price certain and for a period which may be definite or indefinite 5Art. &F$;, 4ivil 4ode of the !hilippines6 is erroneous. The essential difference

between a contract of sale and a lease of things is that the delivery of the thing sold transfers ownership, while in lease no such transfer of ownership results as the rights of the lessee are limited to the use and enGoyment of the thing leased. n *odriguez vs& :orromeo, $; !hil. $@', $'9, the Supreme 4ourt held# Since according to article &:$; of the same 4ode the contract of lease is defined as the giving or the concession of the enGoyment or use of a thing for a specified time and fixed price, and since such contract is a form of enGoyment of the property, it is evident that it must be regarded as one of the means of enGoyment referred to in said article ;'(, inasmuch as the terms enGoyment, use, and benefit involve the same and analogous meaning relative to the general utility of which a given thing is capable. 5&9$ %urisprudencia 4ivil, $$;6 n concluding that the possession and enGoyment of the coconut trees can therefore be said to be the possession and enGoyment of the land itself because the defendant=lessee in order to enGoy his right under the contract, he actually takes possession of the land, at least during harvest time, gather all of the fruits of the coconut trees in the land, and gain exclusive use thereof without the interference or intervention of the plaintiff=lessor such that said plaintiff=lessor is excluded in fact from the land during the period aforesaid, the trial court erred. The contract was clearly a "sale of the coconut fruits." The vendor sold, transferred and conveyed "by way of absolute sale, all the coconut fruits of his land," thereby divesting himself of all ownership or dominion over the fruits during the seven=year period. The possession and enGoyment of the coconut trees cannot be said to be the possession and enGoyment of the land itself because these rights are distinct and separate from each other, the first pertaining to the accessory or improvements 5coconut trees6 while the second, to the principal 5the land6. A transfer of the accessory or improvement is not a transfer of the principal. t is the other way around, the accessory follows the principal. 3ence, the sale of the nuts cannot be interpreted nor construed to be a lease of the trees, much less extended further to include the lease of the land itself. The real and pivotal issue of this case which is taken up in petitionerBs sixth assignment of error and as already stated above, refers to the validity of the "0eed of Sale", as such contract of sale, vis=a=vis the provisions of Sec. (, *.A. ,o. $@@. The lower 4ourt did not rule on this 7uestion, having reached the conclusion that the contract at bar was one of lease. t was from the context of a lease contract that the 4ourt below determined the applicability of Sec. (, *.A. ,o. $@@, to the instant case. *esolving now this principal issue, -e find after a close and careful examination of the terms of the first paragraph of Section ( hereinabove 7uoted, that the grantee of a parcel of land under *.A. ,o. $@@ is not prohibited from alienating or disposing of the natural andLor industrial fruits of the land awarded to him. -hat the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent improvements thereon. !ermanent improvements on a parcel of land are things incorporated or attached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land which is characteriDed by fixity, immutability or immovability. 3ouses, buildings, machinery, animal houses, trees and plants would fall under the category of permanent improvements, the alienation or encumbrance of which is prohibited by *.A. ,o. $@@. -hile coconut trees are permanent improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severed from the trees, to be used, enGoyed, sold or otherwise disposed of by the owner of the land. 3erein respondents, as the grantee of <ot ,o. 8& from the )overnment, had the right and prerogative to sell the coconut fruits of the trees growing on the property. "y virtue of *.A. ,o. $@@, bona fide occupants, veterans, members of guerilla organiDations and other 7ualified persons were given the opportunity to ac7uire government lands by purchase, taking into account their limited means. t was intended for these persons to make good and productive use of the lands awarded to them, not only to enable them to improve their standard of living, but likewise to help provide for the annual payments to the )overnment of the purchase price of the lots awarded to them. Section ( was included, as stated by the 4ourt a 7uo, to protect the grantees from themselves and the incursions of

opportunists who prey on their misery and poverty." t is there to insure that the grantees themselves benefit from their respective lots, to the exclusion of other persons. The purpose of the law is not violated when a grantee sells the produce or fruits of his land. .n the contrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and productive, thus making it possible for him and his family to be economically self=sufficient and to lead a respectable life. At the same time, the )overnment is assured of payment on the annual installments on the land. -e agree with herein petitioner that it could not have been the intention of the legislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation wherein the grantee would not be able to receive and enGoy the fruits of the property in the real and complete sense. *espondent through counsel, in his Answer to the !etition contends that even granting arguendo that he executed a deed of sale of the coconut fruits, he has the "privilege to change his mind and claim it as 5an6 implied lease," and he has the "legitimate right" to file an action for annulment "which no law can stop." 3e claims it is his "sole construction of the meaning of the transaction that should prevail and not petitioner. 5sic6. 10 *espondentBs counsel either misapplies the law or is trying too hard and going too far to defend his clientBs hopeless cause. Suffice it to say that respondent=grantee, after having received the consideration for the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the preGudice of petitioner who contracted in good faith and for a consideration. The issue raised by the seventh assignment of error as to the propriety of the award of attorneyBs fees made by the lower 4ourt need not be passed upon, such award having been apparently based on the erroneous finding and conclusion that the contract at bar is one of lease. -e shall limit .urselves to the 7uestion of whether or not in accordance with .ur ruling in this case, respondent is entitled to an award of attorneyBs fees. The 4ivil 4ode provides that# Art. 889(. n the absence of stipulation, attorneyBs fees and expenses of litigation, other than Gudicial costs, cannot be recovered, except# 5&6 -hen exemplary damages are awardedI 586 -hen the defendantBs act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interestI 5;6 n criminal cases of malicious prosecution against the plaintiffI 5$6 n case of a clearly unfounded civil action or proceeding against the plaintiffI 5:6 -here the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffBs plainly valid, Gust and demandable claimI 5F6 n actions for legal supportI 5@6 n actions for the recovery of wages of household helpers, laborers and skilled workersI 5(6 n actions for indemnity under workmenBs compensation and employerBs liability lawsI 5'6 n a separate civil action to recover civil liability arising from a crimeI 5&96 -hen at least double Gudicial costs are awardedI

5&&6 n any other case where the court deems it Gust and e7uitable that attorneyBs fees and expenses of litigation should be recovered. n all cases, the attorneyBs fees and expenses of litigation must be reasonable. -e find that none of the legal grounds enumerated above exists to Gustify or warrant the grant of attorneyBs fees to herein respondent. , A E- .1 T3E 1.*E). ,), the Gudgment of the lower 4ourt is hereby set aside and another one is entered dismissing the 4omplaint. -ithout costs. S. .*0E*E0.

G.R. No. L-11&91

A6:63* 23, 191(

AN#R S ;UIROGA, plaintiff=appellant, vs. PARSONS HAR#WAR CO., defendant=appellee. +lfredo 3hicote, Jose +rnaiz and Pascual :& +zanza for appellant& 3rossfield ; 8':rien for appellee& A$ANC <A, J.9 .n %anuary 8$, &'&&, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and %. !arsons 5to whose rights and obligations the present defendant later subrogated itself6, as party of the second part# 4.,T*A4T ENE4ETE0 "2 A,0 "ET-EE, A,0*ES KE *.)A A,0 %. !A*S.,S, ".T3 +E*43A,TS ESTA"< S3E0 , +A, <A, 1.* T3E EN4<ES AE SA<E .1 "KE *.)A" "E0S , T3E A SA2A, S<A,0S. A*T 4<E &. 0on Andres Kuiroga grants the exclusive right to sell his beds in the Aisayan slands to %. !arsons under the following conditions# 5A6 +r. Kuiroga shall furnish beds of his manufacture to +r. !arsons for the latterBs establishment in loilo, and shall invoice them at the same price he has fixed for sales, in +anila, and, in the invoices, shall make and allowance of a discount of 8: per cent of the invoiced prices, as commission on the saleI and +r. !arsons shall order the beds by the doDen, whether of the same or of different styles. 5"6 +r. !arsons binds himself to pay +r. Kuiroga for the beds received, within a period of sixty days from the date of their shipment. 546 The expenses for transportation and shipment shall be borne by +. Kuiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by +r. !arsons. 506 f, before an invoice falls due, +r. Kuiroga should re7uest its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 8 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which +r. !arsons may deem convenient to pay in cash. 5E6 +r. Kuiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to +r. !arsons, such order shall enGoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, +r. Kuiroga assumed the obligation to invoice the beds at the price at which the order was given. 516 +r. !arsons binds himself not to sell any other kind except the "Kuiroga" beds. A*T. 8. n compensation for the expenses of advertisement which, for the benefit of both contracting parties, +r. !arsons may find himself obliged to make, +r. Kuiroga assumes the obligation to offer and give the preference to +r. !arsons in case anyone should apply for the exclusive agency for any island not comprised with the Aisayan group.

A*T. ;. +r. !arsons may sell, or establish branches of his agency for the sale of "Kuiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to +r. Kuiroga for his approval. A*T. $. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. .f the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subGect matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations# not to sell the beds at higher prices than those of the invoicesI to have an open establishment in loiloI itself to conduct the agencyI to keep the beds on public exhibition, and to pay for the advertisement expenses for the sameI and to order the beds by the doDen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the doDen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. "ut the plaintiff alleged that the defendant was his agent for the sale of his beds in loilo, and that said obligations are implied in a contract of commercial agency. The whole 7uestion, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds. n order to classify a contract, due regard must be given to its essential clauses. n the contract in 7uestion, what was essential, as constituting its cause and subGect matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in +anila, with a discount of from 89 to 8: per cent, according to their class. !ayment was to be made at the end of sixty days, or before, at the plaintiffBs re7uest, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. "y virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. t would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. "ut, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiffBs contention. ,ot a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause 5A6 of article & mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 8 and ;, only expresses that the defendant was the only one that could sell the plaintiffBs beds in the Aisayan slands. -ith regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. The plaintiff calls attention to the testimony of Ernesto Aidal, a former vice=president of the defendant corporation and who established and managed the latterBs business in loilo. t appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, )uillermo !arsons, of falsification. 3e testified that it was he who drafted the contract Exhibit A, and, when 7uestioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. 3owever, according to the defendantBs evidence, it was +ariano <opeD Santos, a director of the corporation, who prepared Exhibit A. "ut, even supposing that Ernesto Aidal has stated the truth, his statement as to what

was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial agency. This only means that Ernesto Aidal was mistaken in his classification of the contract. "ut it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. The plaintiff also endeavored to prove that the defendant had returned beds that it could not sellI that, without previous notice, it forwarded to the defendant the beds that it wantedI and that the defendant received its commission for the beds sold by the plaintiff directly to persons in loilo. "ut all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its termsI and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. .nly the acts of the contracting parties, subse7uent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. 1urthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kindI and for the letter Exhibit <=&, re7uested the plaintiffBs prior consent with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so=called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in loilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiffBs beds, such sales were to be considered as a result of that advertisement. n respect to the defendantBs obligation to order by the doDen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditionsI but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will. 1or the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. The Gudgment appealed from is affirmed, with costs against the appellant. So ordered.

G.R. No. L-65(&

O)*o+,- 16, 1911

INCHAUSTI AN# CO., plaintiff=appellant, vs. LLIS CROMW LL, Co44,)*o- o1 I!*,-!a4 R,=,!6,, defendant=appellee. <aussermann, 3ohn ; 0isher, for appellant& +cting +ttorney'9eneral <arvey, for appellee&

MOR LAN#, J.: This is an appeal by the plaintiff from a Gudgment of the 4ourt of 1irst nstance of the city of +anila, the 3on. Simplicio del *osario presiding, dismissing the complaint upon the merits after trial, without costs. The facts presented to this court are agreed upon by both parties, consisting, in so far as they are material to a decision of the case, in the following# . That the plaintiff firm for many years past has been and now is engaged in the business of buying and selling at wholesale hemp, both for its own account and on commission. A. That it is customary to sell hemp in bales which are made by compressing the loose fiber by means of presses, covering two sides of the bale with matting, and fastening it by means of strips of rattanI that the operation of bailing hemp is designated among merchants by the word "prensaGe." A. That in all sales of hemp by the plaintiff firm, whether for its own account or on commission for others, the price is 7uoted to the buyer at so much per picul, no mention being made of bailingI but with the tacit understanding, unless otherwise expressly agreed, that the hemp will be delivered in bales and that, according to the custom prevailing among hemp merchants and dealers in the !hilippine slands, a charge, the amount of which depends upon the then prevailing rate, is to be made against the buyer under the denomination of "prensaGe." That this charge is made in the same manner in all cases, even when the operation of bailing was performed by the plaintiff or by its principal long before the contract of sale was made. Two specimens of the ordinary form of account used in these operations are hereunto appended, marked Exhibits A and ", respectively, and made a part hereof. A . That the amount of the charge made against hemp buyers by the plaintiff firm and other sellers of hemp under the denomination of "prensaGe" during the period involved in this litigation was !&.@: per baleI that the average cost of the rattan and matting used on each bale of hemp is fifteen 5&:6 centavos and that the average total cost of bailing hemp is one 5&6 peso per bale. A . That insurance companies in the !hilippine slands, in estimating the insurable value of hemp always add to the 7uoted price of same the charge made by the seller under the denomination of "prensaGe." A . That the average weight of a bale of hemp is two 586 piculs 5&8F.: kilograms6. N. That between the first day of %anuary, &'9:, and the ;&st day of +arch, &'&9, the plaintiff firm, in accordance with the custom mentioned in paragraph A hereof, collected and received, under the denomination of "prensaGe," from purchasers of hemp sold by the said firm for its own account, in addition to the price expressly agreed upon for the said hemp, sums aggregating !;(9,&8$.;:I and between the &st day of .ctober, &'9(, and the &st day of +arch, &'&9, collected for the account of the owners of hemp sold by the plaintiff firm in +anila on commission, and under the said

denomination of "prensaGe," in addition to the price expressly agreed upon the said hemp, sums aggregating !;&,9(9. N. That the plaintiff firm in estimating the amount due it as commissions on sales of hemp made by it for its principals has always based the said amount on the total sum collected from the purchasers of the hemp, including the charge made in each case under the denomination of "prensaGe." N . That the plaintiff has always paid to the defendant or to his predecessor in the office of the 4ollector of nternal *evenue the tax collectible under the provisions of section &;' of Act ,o. &&(' upon the selling price expressly agreed upon for all hemp sold by the plaintiff firm both for its own account and on commission, but has not, until compelled to do so as hereinafter stated, paid the said tax upon sums received from the purchaser of such hemp under the denomination of "prensaGe." N . That of the 8'th day of April, &'&9, the defendant, acting in his official capacity as 4ollector of nternal *evenue of the !hilippine slands, made demand in writing upon the plaintiff firm for the payment within the period of five 5:6 days of the sum of !&,;@9.F( as a tax of one third of one per cent on the sums of money mentioned in !aragraph N hereof, and which the said defendant claimed to be entitled to receive, under the provisions of the said section &;' of Act ,o. &&(', upon the said sums of money so collected from purchasers of hemp under the denomination of "prensaGe." N . That on the $th day of +ay, &'&9, the plaintiff firm paid to the defendant under protest the said sum of !&,;@9.F', and on the same date appealed to the defendant as 4ollector of nternal *evenue, against the ruling by which the plaintiff firm was re7uired to make said payment, but defendant overruled said protest and adversely decided said appeal, and refused and still refuses to return to plaintiff the said sum of !&,;@9.F( or any part thereof.1awphil&net N A. Epon the facts above set forth t is contended by the plaintiff that the tax of !&,;@9.F( assessed by the defendant upon the aggregate sum of said charges made against said purchasers of hemp by the plaintiff during the period in 7uestion, under the denomination of "prensaGe" as aforesaid, namely, !$&&,89$.;:, is illegal upon the ground that the said charge does not constitute a part of the selling price of the hemp, but is a charge made for the service of baling the hemp, and that the plaintiff firm is therefore entitled to recover of the defendant the said sum of !&,;@9.F( paid to him under protest, together with all interest thereon at the legal rate since payment, and the costs of this action. Epon the facts above stated it is the contention of the defendant that the said charge made under the denomination of "prensaGe" is in truth and in fact a part of the gross value of the hemp sold and of its actual selling price, and that therefore the tax imposed by section &;' of Act ,o. &&(' lawfully accrued on said sums, that the collection thereof was lawfully and properly made and that therefore the plaintiff is not entitled to recover back said sum or any part thereofI and that the defendant should have Gudgment against plaintiff for his costs. Ender these facts we are of the opinion that the Gudgment of the court below was right. t is one of the stipulations in the statement of facts that it is customary to sell hemp in bales, and that the price 7uoted in the market for hemp per picul is the price for the hemp baled. The fact is that among large dealers like the plaintiff in this case it is practically impossible to handle hemp without its being baled, and it is admitted by the statement of facts, as well as demonstrated by the documentary proof introduced in the case, that if the plaintiff sold a 7uality of hemp it would be the under standing, without words, that such hemp would be delivered in bales, and that the purchase price would include the cost and expense of baling. n other words, it is the fact as stipulated, as well as it would be the fact of necessity, that in all dealings in hemp in the general market the selling price consists of the value of the hemp loose plus the cost and expense of putting it into marketable form. n the sales made by the plaintiff, which are the basis of the controversy

here, there were n services performed by him for his vendee. There was agreement that services should be performed. ndeed, at the time of such sales it was not known by the vendee whether the hemp was then actually baled or not. All that he knew and all that concerned him was that the hemp should be delivered to him baled. 3e did not ask the plaintiff to perform services for him, nor did the plaintiff agree to do so. The contract was single and consisted solely in the sale and purchase of hemp. The purchaser contracted for nothing else and the vendor agreed to deliver nothing else. The word "price" signifies the sum stipulated as the e7uivalent of the thing sold and also every incident taken into consideration for the fixing of the price, put to the debit of the vendee and agreed to by him. t is 7uite possible that the plaintiff, in this case in connection with the hemp which he sold, had himself already paid the additional expense of baling as a part of the purchase price which he paid and that he himself had received the hemp baled from his vendor. t is 7uite possible also that such vendor of the plaintiff may have received the same hemp from his vendor in baled form, that he paid the additions cost of baling as a part of the purchase price which he paid. n such case the plaintiff performed no service whatever for his vendee, nor did the plaintiffBs vendor perform any service for him. The distinction between a contract of sale and one for work, labor, and materials is tested by the in7uiry whether the thing transferred is one no in existence and which never would have existed but for the order of the party desiring to ac7uire it, or a thing which would have existed and been the subGect of sale to some other person, even if the order had not been given. 5)roves vs& "uck, ; +aule / S., &@(I Towers vs& .sborne, & Strange, :9FI "enGamin on Sales, '9.6 t is clear that in the case at bar the hemp was in existence in baled form before the agreements of sale were made, or, at least, would have been in existence even if none of the individual sales here in 7uestion had been consummated. t would have been baled, nevertheless, for sale to someone else, since, according to the agreed statement of facts, it is customary to sell hemp in bales. -hen a person stipulates for the future sale of articles which he is habitually making, and which at the time are not made or finished, it is essentially a contract of sale and not a contract for labor. t is otherwise when the article is made pursuant to agreement. 5<amb vs& 4rafts, &8 +et., ;:;I Smith vs& ,.2.4. *y. 4o., $ Meyes, &(9I "enGamin on Sales, '(.6 -here labor is employed on the materials of the seller he can not maintain an action for work and labor. 5Atkinson vs& "ell, ( "arn. / 4., 8@@I <ee vs& )riffin, ;9 <.%.,. S.K."., 8:8I !rescott vs& <ocke, :& ,.3., '$.6 f the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at the defendantBs re7uest, it is a contract of sale, even though it may be entirely made after, and in conse7uence of, the defendantBs order for it. 5)arbutt s. -atson, : "arn. / Ald., F&;I )ardner vs&%oy, ' +et., &@@I <amb vs& 4rafts, &8 +et., ;:;I -aterman vs& +eigs, $ 4ush., $'@., 4lark vs& ,ichols, &9@ +ass., :$@I +ay vs& -ard, &;$ +ass., &8@I Abbott vs& )ilchrist, ;( +e., 8F9I 4rocket vs& Scribner, F$ +e., &9:I !itkin vs&,oyes, $( ,. 3., 8'$I !rescott vs& <ocke, :& ,. 3., '$I Ellison vs& "righam, ;( At., F$.6 t has been held in +assachusetts that a contract to make is a contract of sale if the article ordered is already substantially in existence at the time of the order and merely re7uires some alteration, modification, or adoption to the buyerBs wishes or purposes. 5+ixer vs& 3owarth, 8& !ick., 89:.6 t is also held in that state that a contract for the sale of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract for the sale of goods to which the statute of frauds applies. "ut if the goods are to be manufactured especially for the purchaser and upon his special order, and not for the general market, the case is not within the statute. 5)oddard vs& "inney, &&: +ass., $:9.6 t is clear to our minds that in the case at bar the baling was performed for the general market and was not something done by plaintiff which was a result of any peculiar wording of the particular contract between him and his vendee. t is undoubted that the plaintiff prepared his hemp for the general market. This would be necessary. .ne whose exposes goods for sale in the market must have them in marketable form. The hemp in 7uestion would not have been in that condition if it had not been baled. the baling, therefore, was nothing peculiar to the contract between the plaintiff and his vendee. t was precisely the same contract that was made by every other seller of hemp, engaged as was the plaintiff, and resulted simply in the transfer of title to goods already prepared for the general market. The method of bookkeeping and form of the account rendered is not controlling as to the nature of the contract made. t is conceded in the case tat a separate entry and charge would have been made for the baling even if the plaintiff had not been the one

who baled the hemp but, instead, had received it already baled from his vendor. This indicates of necessity tat the mere fact of entering a separate item for the baling of the hemp is formal rather than essential and in no sense indicates in this case the real transaction between the parties. t is undisputable that, if the plaintiff had brought the hemp in 7uestion already baled, and that was the hemp the sale which formed the subGect of this controversy, then the plaintiff would have performed no service for his vendee and could not, therefore, lawfully charge for the rendition of such service. t is, nevertheless, admitted that in spite of that fact he would still have made the double entry in his invoice of sale to such vendee. This demonstrates the nature of the transaction and discloses, as we have already said, that the entry of a separate charge for baling does not accurately describe the transaction between the parties. Section &;' >Act ,o. &&('? of the nternal *evenue <aw provides that# There shall be paid by each merchant and manufacturer a tax at the rate of one=third of one per centum on the gross value in money of all goods, wares and merchandise sold, bartered or exchanged in the !hilippine slands, and that this tax shall be assessed on the actual selling price at which every such merchant or manufacturer disposes of his commodities. The operation of baling undoubtedly augments the value of the goods. -e agree that there can be no 7uestion that, if the value of the hemp were not augmented to the amount of !&.@: per bale by said operation, the purchaser would not pay that sum. f one buys a bale of hemp at a stipulated price of !89, well knowing that there is an agreement on his part, express or implied, to pay an additional amount of !&.@: for that bale, he considers the bale of hemp worth !8&. @:. t is agreed, as we have before stated, that hemp is sold in bales. Therefore, baling is performed before the sale. The purchaser of hemp owes to the seller nothing whatever by reason of their contract except the value of the hemp delivered. That value, that sum which the purchaser pays to the vendee, is the true selling price of the hemp, and every item which enters into such price is a part of such selling price. "y force of the custom prevailing among hemp dealers in the !hilippine slands, a purchaser of hemp in the market, unless he expressly stipulates that it shall be delivered to him in loose form, obligates himself to purchase and pay for baled hemp. -heher or not such agreement is express or implied, whether it is actual or tacit, it has the same force. After such an agreement has once been made by the purchaser, he has no right to insists thereafter that the seller shall furnish him with unbaled hemp. t is undoubted that the vendees, in the sales referred to in the case at bar, would have no right, after having made their contracts, to insists on the delivery of loose hemp with the purpose in view themselves to perform the baling and thus save @: centavos per bale. t is un7uestioned that the seller, the plaintiff, would have stood upon his original contract of sale, that is, the obligation to deliver baled hemp, and would have forced his vendees to accept baled hemp, he himself retaining among his own profits those which accrued from the proceed of baling. -e are of the opinion that the Gudgment appealed from must be affirmed, without special finding as to costs, and it is so ordered.

G.R. No. L-(506

A6:63* 31, 1956

C L STINO CO > COMPANY, petitioner, vs. COLL CTOR OF INT RNAL R $ NU , respondent. 8ffice of the Solicitor 9eneral +mbrosio Padilla, 0isrt +ssistant Solicitor 9eneral 9uillermo 6& Torres and Solicitor 0ederico 4& Sian for respondent& . NG/ON, J.9 Appeal from a decision of the 4ourt of Tax Appeals. 4elestino 4o / 4ompany is a duly registered general copartnership doing business under the trade name of ".riental Sash 1actory". 1rom &'$F to &':& it paid percentage taxes of @ per cent on the gross receipts of its sash, door and window factory, in accordance with section one hundred eighty=six of the ,ational *evenue 4ode imposing taxes on sale of manufactured articles. 3owever in &':8 it began to claim liability only to the contractorBs ; per cent tax 5instead of @ per cent6 under section &'& of the same 4odeI and having failed to convince the "ureau of nternal *evenue, it brought the matter to the 4ourt of Tax Appeals, where it also failed. Said the 4ourt# To support his contention that his client is an ordinary contractor . . . counsel presented . . . duplicate copies of letters, sketches of doors and windows and price 7uotations supposedly sent by the manager of the .riental Sash 1actory to four customers who allegedly made special orders to doors and window from the said factory. The conclusion that counsel would like us to deduce from these few exhibits is that the .riental Sash 1actory does not manufacture ready=made doors, sash and windows for the public but only upon special order of its select customers. . . . cannot believe that petitioner company would take, as in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold print =8riental Sash 0actory 54elestino 4o / 4ompany, !rop.6 '8F *aon St. Kuiapo, +anila, Tel. ,o. ;;9@F, >anufacturers of all kinds of doors, windows, sashes, furniture, etc& used season'dried and kiln'dried lumber, of the best ,uality workmanships= solely for the purpose of supplying the needs for doors, windows and sash of its special and limited customers. .ne ill note that petitioner has chosen for its tradename and has offered itself to the public as a "1actory", which means it is out to do business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of special design only in particular cases but the bulk of their sales is derived from a ready=made doors and windows of standard siDes for the average home. +oreover, as shown from the investigation of petitionerBs book of accounts, during the period from %anuary &, &':8 to September ;9, &':8, it sold sash, doors and windows worth !&((,@:$.F'. find it difficult to believe that this amount which runs to six figures was derived by petitioner entirely from its few customers who made special orders for these items. Even if we were to believe petitionerBs claim that it does not manufacture ready=made sash, doors and windows for the public and that it makes these articles only special order of its customers, that does not make it a contractor within the purview of section &'& of the national nternal *evenue 4ode. there are no less than fifty occupations enumerated in the aforesaid section of the national nternal *evenue 4ode subGect to percentage tax and after reading carefully each and every one of them, we cannot find under which the business of manufacturing sash, doors and windows upon special order of customers fall under the category of "road, building, navigation, artesian well, water workers and other construction work contractors" are those who alter or repair buildings, structures, streets, highways, sewers, street railways railroads logging roads, electric lines or power lines, and includes any other work for the construction, altering or repairing for which machinery driven by mechanical power is used. 5!ayton vs. 4ity of Anadardo F$ !. 8d (@(, ((9, &@' .kl. F(6.

3aving thus eliminated the feasibility off taxing petitioner as a contractor under &'& of the national nternal *evenue 4ode, this leaves us to decide the remaining issue whether or not petitioner could be taxed with lesser strain and more accuracy as seller of its manufactured articles under section &(F of the same code, as the respondent 4ollector of nternal *evenue has in fact been doing the .riental Sash 1actory was established in &'$F. The percentage tax imposed in section &'& of our Tax 4ode is generally a tax on the sales of services, in contradiction with the tax imposed in section &(F of the same 4ode which is a tax on the original sales of articles by the manufacturer, producer or importer. 51ormilleDaBs 4ommentaries and %urisprudence on the ,ational nternal *evenue 4ode, Aol. , p. @$$6. The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section &(F of the ,ational nternal *evenue 4ode as a sale of articles. There was a strong dissentI but upon careful consideration of the whole matter are inclines to accept the above statement of the facts and the law. The important thing to remember is that 4elestino 4o / 4ompany habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material=moulding, frames, panels=as it ordinarily manufactured or was in a position habitually to manufacture. !erhaps the following paragraph represents in brief the appellantBs position in this 4ourt# Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash, windows and doors only for special customers and upon their special orders and in accordance with the desired specifications of the persons ordering the same and not for the general market# since the doors ordered by 0on Toribio Teodoro / Sons, nc., for instance, are not in existence and which never would have existed but for the order of the party desiring itI and since petitionerBs contractual relation with his customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services, it follows that the petitioner should be taxed under section &'& of the Tax 4ode and ,.T under section &(: of the same 4ode." 5AppellantBs brief, p. &&=&86. "ut the argument rests on a false foundation. Any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it serves special customers only or confines its services to them alone. And anyone who sees, and likes, the doors ordered by 0on Toribio Teodoro / Sons nc. may purchase from appellant doors of the same kind, provided he pays the price. Surely, the appellant will not refuse, for it can easily duplicate or even mass=produce the same doors=it is mechanically e7uipped to do so. That the doors and windows must meet desired specifications is neither here nor there. f these specifications do not happen to be of the kind habitually manufactured by appellant J special forms for sash, mouldings of panels J it would not accept the order J and no sale is made. f they do, the transaction would be no different from a purchasers of manufactured goods held is stock for saleI they are bought because they meet the specifications desired by the purchaser. ,obody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer=siDes not previously held in stock for sale to the public=it thereby becomes an employee or servant of the customer,& not the seller of lumber. The same consideration applies to this sash manufacturer. The .riental Sash 1actory does nothing more than sell the goods that it mass=produces or habitually makesI sash, panels, mouldings, frames, cutting them to such siDes and combining them in such forms as its customers may desire.

.n the other hand, petitionerBs idea of being a contractor doing construction Gobs is untenable. ,obody would regard the doing of two window panels a construction work in common parlance.8 Appellant invokes Article &$F@ of the ,ew 4ivil 4ode to bolster its contention that in filing orders for windows and doors according to specifications, it did not sell, but merely contracted for particular pieces of work or "merely sold its services". Said article reads as follows# A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is contract for a piece of work. t is at once apparent that the .riental Sash 1actory did not merely sell its services to 0on Toribio Teodoro / 4o. 5To take one instance6 because it also sold the materials. The truth of the matter is that it sold materials ordinarily manufactured by it J sash, panels, mouldings J to Teodoro / 4o., although in such form or combination as suited the fancy of the purchaser. Such new form does not divest the .riental Sash 1actory of its character as manufacturer. ,either does it take the transaction out of the category of sales under Article &$F@ above 7uoted, because although the 1actory does not, in the ordinary course of its business, manufacture and keep on stockdoors of the kind sold to Teodoro, it could stock andLor probably had in stock the sash, mouldings and panels it used therefor 5some of them at least6. n our opinion when this 1actory accepts a Gob that re7uires the use of extraordinary or additional e7uipment, or involves services not generally performed by it=it thereby contracts for a piece of work J filing special orders within the meaning of Article &$F@. The orders herein exhibited were not shown to be special. They were merely orders for work J nothing is shown to call them special re7uiring extraordinary service of the factory. The thought occurs to us that if, as alleged=all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work. -ould a factory do business performing only special, extraordinary or peculiar merchandiseC Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services nor contract Gobs by a contractor. "ut as the doors and windows had been admittedly "manufactured" by the .riental Sash 1actory, such transactions could be, and should be taxed as "transfers" thereof under section &(F of the ,ational *evenue 4ode. The appealed decision is conse7uently affirmed. So ordered.

G.R. No. (029( A7-54 26, 1990 #CA PU.LISHING > #ISTRI.UTING CORP., petitioner, vs. TH SPOUS S L ONOR a!" G RAR#O SANTOS, "o5!: +635!,33 6!",- *2, !a?, a!" 3*y4, o1 @SANTOS .OOASTOR ,@ a!" TH COURT OF APP ALS, respondents. 6miliano S& Samson, *& :alderrama'Samson, >ary +nne :& Samson for petitioner& 3endana Santos, ?elmundo ; 3endana for private respondents& CRU/, J.: The case before us calls for the interpretation of Article ::' of the 4ivil 4ode and raises the particular 7uestion of when a person may be deemed to have been "unlawfully deprived" of movable property in the hands of another. The article runs in full as follows# Art. ::'. The possession of movable property ac7uired in good faith is e7uivalent to a title. ,evertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. f the possessor of a movable lost or of which the owner has been unlawfully deprived has ac7uired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. The movable property in this case consists of books, which were bought from the petitioner by an impostor who sold it to the private respondents. .wnership of the books was recogniDed in the private respondents by the +unicipal Trial 4ourt, 1 which was sustained by the *egional Trial 4ourt, 2 which was in turn sustained by the 4ourt of Appeals. 3 The petitioner asks us to declare that all these courts have erred and should be reversed. This case arose when on .ctober :, &'(&, a person identifying himself as !rofessor %ose 4ruD placed an order by telephone with the petitioner company for $9F books, payable on delivery. & E04A prepared the corresponding invoice and delivered the books as ordered, for which 4ruD issued a personal check covering the purchase price of !(,'':.F:. 5 .n .ctober @, &'(&, 4ruD sold &89 of the books to private respondent <eonor Santos who, after verifying the sellerBs ownership from the invoice he showed her, paid him !&,@99.99. 6 +eanwhile, E04A having become suspicious over a second order placed by 4ruD even before clearing of his first check, made in7uiries with the 0e la Salle 4ollege where he had claimed to be a dean and was informed that there was no such person in its employ. 1urther verification revealed that 4ruD had no more account or deposit with the !hilippine Amanah "ank, against which he had drawn the payment check. ' E04A then went to the police, which set a trap and arrested 4ruD on .ctober @, &'(&. nvestigation disclosed his real name as Tomas de la !eHa and his sale of &89 of the books he had ordered from E04A to the private respondents. ( .n the night of the same date, E04A sought the assistance of the police in !recinct : at the E, Avenue, which forced their way into the store of the private respondents and threatened <eonor Santos with prosecution for buying stolen property. They seiDed the &89 books without warrant, loading them in a van belonging to E04A, and thereafter turned them over to the petitioner. 9 !rotesting this high=handed action, the private respondents sued for recovery of the books after demand for their return was reGected by E04A. A writ of preliminary attachment was issued and the petitioner, after

initial refusal, finally surrendered the books to the private respondents. 10 As previously stated, the petitioner was successively rebuffed in the three courts below and now hopes to secure relief from us. To begin with, the 4ourt expresses its disapproval of the arbitrary action of the petitioner in taking the law into its own hands and forcibly recovering the disputed books from the private respondents. The circumstance that it did so with the assistance of the police, which should have been the first to uphold legal and peaceful processes, has compounded the wrong even more deplorably. Kuestions like the one at bar are decided not by policemen but by Gudges and with the use not of brute force but of lawful writs. ,ow to the merits t is the contention of the petitioner that the private respondents have not established their ownership of the disputed books because they have not even produced a receipt to prove they had bought the stock. This is unacceptable. !recisely, the first sentence of Article ::' provides that "the possession of movable property ac7uired in good faith is e7uivalent to a title," thus dispensing with further proof. The argument that the private respondents did not ac7uire the books in good faith has been dismissed by the lower courts, and we agree. <eonor Santos first ascertained the ownership of the books from the E04A invoice showing that they had been sold to 4ruD, who said he was selling them for a discount because he was in financial need. !rivate respondents are in the business of buying and selling books and often deal with hard=up sellers who urgently have to part with their books at reduced prices. To <eonor Santos, 4ruD must have been only one of the many such sellers she was accustomed to dealing with. t is hardly bad faith for any one in the business of buying and selling books to buy them at a discount and resell them for a profit. "ut the real issue here is whether the petitioner has been unlawfully deprived of the books because the check issued by the impostor in payment therefor was dishonored. n its extended memorandum, E04A cites numerous cases holding that the owner who has been unlawfully deprived of personal property is entitled to its recovery except only where the property was purchased at a public sale, in which event its return is subGect to reimbursement of the purchase price. The petitioner is begging the 7uestion. t is putting the cart before the horse. Enlike in the cases invoked, it has yet to be established in the case at bar that E04A has been unlawfully deprived of the books. The petitioner argues that it was, because the impostor ac7uired no title to the books that he could have validly transferred to the private respondents. ts reason is that as the payment check bounced for lack of funds, there was a failure of consideration that nullified the contract of sale between it and 4ruD. The contract of sale is consensual and is perfected once agreement is reached between the parties on the subGect matter and the consideration. According to the 4ivil 4ode# Art. &$@:. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the obGect of the contract and upon the price. 1rom that moment, the parties may reciprocally demand performance, subGect to the provisions of the law governing the form of contracts. xxx xxx xxx Art. &$@@. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. Art. &$@(. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price.

t is clear from the above provisions, particularly the last one 7uoted, that ownership in the thing sold shall not pass to the buyer until full payment of the purchase only if there is a stipulation to that effect. .therwise, the rule is that such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been paid. ,on=payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of bouncing checks. "ut absent the stipulation above noted, delivery of the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another. n Asiatic 4ommercial 4orporation v. Ang, 11 the plaintiff sold some cosmetics to 1rancisco Ang, who in turn sold them to Tan Sit "in. Asiatic not having been paid by Ang, it sued for the recovery of the articles from Tan, who claimed he had validly bought them from Ang, paying for the same in cash. 1inding that there was no conspiracy between Tan and Ang to deceive Asiatic the 4ourt of Appeals declared# 2et the defendant invoked Article $F$ 12 of the 4ivil 4ode providing, among other things that "one who has been unlawfully deprived of personal property may recover it from any person possessing it." -e do not believe that the plaintiff has been unlawfully deprived of the cartons of )loco Tonic within the scope of this legal provision. t has voluntarily parted with them pursuant to a contract of purchase and sale. The circumstance that the price was not subse7uently paid did not render illegal a transaction which was valid and legal at the beginning. n Tagatac v. %imeneD, 13 the plaintiff sold her car to 1eist, who sold it to SancheD, who sold it to %imeneD. -hen the payment check issued to Tagatac by 1eist was dishonored, the plaintiff sued to recover the vehicle from %imeneD on the ground that she had been unlawfully deprived of it by reason of 1eistBs deception. n ruling for %imeneD, the 4ourt of Appeals held# The point of in7uiry is whether plaintiff=appellant Trinidad 4. Tagatac has been unlawfully deprived of her car. At first blush, it would seem that she was unlawfully deprived thereof, considering that she was induced to part with it by reason of the chicanery practiced on her by -arner <. 1eist. 4ertainly, swindling, like robbery, is an illegal method of deprivation of property. n a manner of speaking, plaintiff=appellant was "illegally deprived" of her car, for the way by which -arner <. 1eist induced her to part with it is illegal and is punished by law. "ut does this "unlawful deprivation" come within the scope of Article ::' of the ,ew 4ivil 4odeC xxx xxx xxx . . . The fraud and deceit practiced by -arner <. 1eist earmarks this sale as a voidable contract 5Article &;'9 ,.4.4.6. "eing a voidable contract, it is susceptible of either ratification or annulment. f the contract is ratified, the action to annul it is extinguished 5Article &;'8, ,.4.4.6 and the contract is cleansed from all its defects 5Article &;'F, ,.4.4.6I if the contract is annulled, the contracting parties are restored to their respective situations before the contract and mutual restitution follows as a conse7uence 5Article &;'(, ,.4.4.6. 3owever, as long as no action is taken by the party entitled, either that of annulment or of ratification, the contract of sale remains valid and binding. -hen plaintiff=appellant Trinidad 4. Tagatac delivered the car to 1eist by virtue of said voidable contract of sale, the title to the car passed to 1eist. .f course, the title that 1eist ac7uired was defective and voidable. ,evertheless, at the time he sold the car to 1elix SancheD, his title thereto had not been avoided and he therefore conferred a good title on the latter, provided he bought the car in good faith, for value and without notice of the defect in 1eistBs title 5Article &:9F, ,.4.4.6. There being no proof on record that 1elix SancheD acted in bad faith, it is safe to assume that he acted in good faith.

The above rulings are sound doctrine and reflect our own interpretation of Article ::' as applied to the case before us. Actual delivery of the books having been made, 4ruD ac7uired ownership over the books which he could then validly transfer to the private respondents. The fact that he had not yet paid for them to E04A was a matter between him and E04A and did not impair the title ac7uired by the private respondents to the books. .ne may well imagine the adverse conse7uences if the phrase "unlawfully deprived" were to be interpreted in the manner suggested by the petitioner. A person relying on the sellerBs title who buys a movable property from him would have to surrender it to another person claiming to be the original owner who had not yet been paid the purchase price therefor. The buyer in the second sale would be left holding the bag, so to speak, and would be compelled to return the thing bought by him in good faith without even the right to reimbursement of the amount he had paid for it. t bears repeating that in the case before us, <eonor Santos took care to ascertain first that the books belonged to 4ruD before she agreed to purchase them. The E04A invoice 4ruD showed her assured her that the books had been paid for on delivery. "y contrast, E04A was less than cautious J in fact, too trusting in dealing with the impostor. Although it had never transacted with him before, it readily delivered the books he had ordered 5by telephone6 and as readily accepted his personal check in payment. t did not verify his identity although it was easy enough to do this. t did not wait to clear the check of this unknown drawer. -orse, it indicated in the sales invoice issued to him, by the printed terms thereon, that the books had been paid for on delivery, thereby vesting ownership in the buyer. Surely, the private respondent did not have to go beyond that invoice to satisfy herself that the books being offered for sale by 4ruD belonged to himI yet she did. Although the title of 4ruD was presumed under Article ::' by his mere possession of the books, these being movable property, <eonor Santos nevertheless demanded more proof before deciding to buy them. t would certainly be unfair now to make the private respondents bear the preGudice sustained by E04A as a result of its own negligence. -e cannot see the Gustice in transferring E04ABs loss to the Santoses who had acted in good faith, and with proper care, when they bought the books from 4ruD. -hile we sympathiDe with the petitioner for its plight, it is clear that its remedy is not against the private respondents but against Tomas de la !eHa, who has apparently caused all this trouble. The private respondents have themselves been unduly inconvenienced, and for merely transacting a customary deal not really unusual in their kind of business. t is they and not E04A who have a right to complain. -3E*E1.*E, the challenged decision is A11 *+E0 and the petition is 0E, E0, with costs against the petitioner.

G.R. No. L-10'(9

May 2(, 195'

AMA#OR TA%ANLANGIT, T AL., plaintiff=appellants, vs. SOUTH RN MOTORS, INC., T AL., defendants=appellees. +lmacen and +lmacen for appellants& ?iosdado 9aringalao for appellees& . NG/ON, J.9 The case. Appellants seek to reverse the order of 3on. !antaleon !elayo, %udge of the loilo court of first instance refusing to interfere with the alias writ of execution issued in 4ivil 4ase ,o. 8'$8 pending in another sala of the same court. The facts. n April &':; Amador TaGanlangit and his wife Angeles, residents of loilo, bought, from the Southern +otors nc. of loilo two tractors and a thresher. n payment for the same, they executed the promissory note Annex A whereby they undertook to satisfy the total purchase price of !8$,@::.@: in several installments 5with interest6 payable on stated dates from +ay &(, &':; 0ecember &9, &'::. The note stipulated that if default be made in the payment of interest or of any installment, then the total principal sum still unpaid with interest shall at once become demandable etc. The spouse failed to meet any installment. -herefore, they were sued, in the above 4ivil 4ase ,o. 8'$8, for the amount of the promissory note.& The spouses defaulted, and the court, after listening to the Southern +otorsB evidence entered %udgment for it in the total sum of !8$,@::.@: together with interest at &8 per cent, plus &9 per cent of the total amount due as attorneyBs fees and costs of collection. 4arrying out the order of execution, the sheriff levied on the same machineries and farm implements which had been bought by the spousesI and later sold them at public auction to the highest bidder J which turned out to be the Southern +otors itself J for the total sum of !&9,999. As its Gudgment called for much more, the Southern +otors subse7uently asked and obtained, an alias writ of executionI and pursuant thereto, the provincial sheriff levied attachment on the TaGanlangitsB rights and interests in certain real properties J with a view to another sale on execution. To prevent such sale, the TaGanlangits instituted this action in the loilo court of first instance for the purpose among others, of annulling the alias writ of execution and all proceedings subse7uent thereto. Their two main theories# 5&6 They had returned the machineries and farm implements to the Southern +otors nc., the latter accepted them, and had thereby settled their accountsI for that reason, said spouses did not contest the action in 4ivil 4ase ,o. 8'$8I and 586 as the Southern +otors nc. had repossessed the machines purchased on installment 5and mortgaged6 the buyers were thereby relieved from further responsibility, in view of the *ecto <aw, now article &$($ of the ,ew 4ivil 4ode. 1or answer, the company denied the alleged "settlement and understanding" during the pendency of civil case ,o. 8'$'. t also denied having repossessed the machineries, the truth being that they were attached by the sheriff and then deposited by the latter in its shop for safekeeping, before the sale at public auction. The case was submitted for decision mostly upon a stipulation of facts. Additional testimony was offered together with documentary evidence. Everything considered the court entered Gudgment, saying in partI The proceedings in 4ivil 4ase ,o. 8'$8 above referred to, were had in the 4ourt of 1irst nstance 5"ranch &6 of the !rovince and of the 4ity of loilo. -hile this court 5"ranch A6 sympathiDes with plaintiffs, it cannot grant, in this action, the relief prayed for the complaint because courts of similar Gurisdiction cannot invalidate the Gudgments and orders of each other. !laintiffs have not pursued the proper remedy. This court is without authority and Gurisdiction to declare null and void the order

directing the issuance of aliaswrit of execution because it was made by another court of e7ual rank and category 5see 4abiao and D7uierdo vs& 0el *osario and <im, $$ !hil., (8=&(F6. -3E*E1.*E, Gudgement is hereby rendered dismissing the complaint with costs against plaintiffs costs against plaintiffs. <et the writ of preliminiary inGunction issued on August 8F, &':$, be lifted. The plaintiffs reasonably brought the matter to the 4ourt of Appeals, but the latter forwarded the expediente, being of the opinion that the appeal involved 7uestions of Gurisdiction andLor law 0iscussion. AppellantsB brief elaborately explains in the nine errors assigned, their original two theories although their "settlement" idea appears to be somewhat modified. "-hat is being sought in this present action" say appellants "is to prohibit and forbid the appellee Sheriff of loilo from attaching and selling at public auction sale the real properties of appellants because that is now forbidden by our law after the chattels that have been purchased and duly mortgagee had already been repossessed by the same vendor=mortgagee and later on sold at public auction sale and purchased by the same at such meager sum of !&9,999." ".ur law" provides, A*T. &$($. n a contract of sale of personal property the price of which is payable in installments, the vendor may exercise of the following remedies# 5&6 Exact fulfillment of the obligation, should the vendee fail to payI 586 4ancel the sale, should the vendeeBs failure to pay cover two or more installmentsI 5;6 1oreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendeeBs failure to pay cover two or more installments. n this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. 5,ew 4ivil 4ode.6 Appellants would invoke the last paragraph. "ut there has been no foreclosure of the chattel mortgage nor a foreclosure sale. Therefore the prohibition against further collection does not apply. At any rate it is the actual sale of the mortgaged chattel in accordance with section &$ Act ,o. &:9( that would bar the creditor 5who chooses to foreclose6 from recovering any unpaid balance. 5!acific 4om. 4o. vs&0e la *ama, @8 !hil. ;(9.6 5+anila +otor 4o. vs& 1ernandeD, '' !hil., @(8.6. t is true that there was a chattel mortgage on the goods sold. "ut the Southern +otors elected to sue on the note exclusively, i.e. to exact fulfillment of the obligation to pay. t had a right to select among the three remedies established in Article &$($. n choosing to sue on the note, it was not thereby limited to the proceeds of the sale, on execution, of the mortgaged good.8 n Southern >otors /nc& vs& >agbanua, 5&99 !hil., &::6 a similar situation arose in connection with the purchase on installment of a 4hevrolet truck by +agbanua. Epon the latterBs default, suit on the note was filed, and the truck levied on together with other properties of the debtor. 4ontending that the seller was limited to the truck, the debtor obtained a discharge of the other properties. This court said# "y praying that the defendant be ordered to pay the sum of !$,F'9 together with the stipulated interest at &8O per annum from &@ +arch &':$ until fully paid, plus &9 per cent of the total amount due as attorneyBs fees and cost of collection, the plaintiff acted to e)act the fulfillment of the obligation and not to foreclose the mortgage on the truck. . . .

As the plaintiff has chosen to exact the fulfillment of the defendantBs obligation, the former may enforce execution of the Gudgement rendered in its favor on the personal and real properties of the latter not exempt from execution sufficient to satisfy the Gudgment. That part of the .udgement depriving the plaintiff of its right to enforce Gudgment against the properties of the defendant except the mortgaged truck and discharging the writ of attachment on his other properties is erroneous. 5Emphasis ours.6 4oncerning their second theory, J settlement or cancellation J appellants allege that the very implements sold "were duly returned" by them, and "were duly received and accepted by the said vendor=mortgagee". Therefore they argue, "upon the return of the same chattels and due acceptance of the same by the vendor=mortgagee, the conditional sale is ipso facto cancelled, with the right of the vendor=mortgagee to appropriate whatever downpayment and posterior monthly installments made by the purchaser as it did happen in the present case at bar." The trouble with the argument is that it assumes that acceptance of the goods by the Southern +otors 4o, with a view to "cancellation" of the sale. The company denies such acceptance and cancellation, asserting the goods, were deposited in its shop when the sheriff attached them in pursuance of the execution. ts assertion is backed up by the sheriff, of whose credibility there is no reason to doubt. Anyway this cancellation or settlement theory may not be heeded now, because it would contravene the decision in 4ivil 4ase ,o. 8'$8 above=mentioned J it would show the TaGanlangits owned nothing to Southern +otors nc. Such decision is binding upon them, unless and until they manage to set it aside in a proper proceeding J and this is not it. There are other points involved in the case, such as the authority of the Gudge of one branch of a court of first instance to enGoin proceedings in another branch of the same court. As stated, %udge !elayo refused to interfere on that ground. Appellants insist this was error on several counts. -e deem it unnecessary to deal with this procedural aspect, inasmuch as we find that, on the merits, plaintiffs are not entitled to the relief demanded. %udgment. The decision dismissing the complaint, is affirmed, with costs against appellants. So ordered.

0elta +otor Sales 4orporation vs. ,iu Mim 0uan ).*. ,o. F&9$;. September 8, &''8.P 0E<TA +.T.* SA<ES 4.*!.*AT .,, plaintiff=appellee, vs. , E M + 0EA, and 43A, 1EE E,), defendants=appellants. 4ivil <awI 4ontractsI Sales on installments of personal propertyI Aalidity of stipulation that installments paid shall not be returned to vendee.J0efendants=appellants cannot complain that their downpayment of !@@$.99 and installment payments of !:,F::.'8 were treated as rentalsJeven though the total amount of !F,$8'.'8 which they had paid, approximates one=third 5&L;6 of the cost of the three 5;6 air=conditioners. A stipulation in a contract that the installments paid shall not be returned to the vendee is valid insofar as the same may not be unconscionable under the circumstances is sanctioned by Article &$(F of the ,ew 4ivil 4ode. The monthly installment payable by defendants=appellants was !@@$.99. The !:,F::.'8 installment payments correspond only to seven 5@6 monthly installments. Since they admit having used the air= conditioners for twenty=two 5886 months, this means that they did not pay fifteen 5&:6 monthly installments on the said air=conditioners and were thus using the same 1*EE for said periodJto the preGudice of plaintiff=appellee. Ender the circumstances, the treatment of the installment payments as rentals cannot be said to be unconscionable. SameI SameI SameI *emedies of vendor.JThe vendor in a sale of personal property payable in installments may exercise one of three remedies, namely, 5&6 exact the fulfillment of the obligation, should the vendee fail to payI 586 cancel the sale upon the vendeeQs failure to pay two or more installmentsI 5;6 foreclose the chattel mortgage, if one has been constituted on the property sold, upon the vendeeQs failure to pay two or more installments. The third option or remedy, however, is subGect to the limitation that the vendor cannot recover any unpaid balance of the price and any agreement to the contrary is void 5Art. &$($6. The three 5;6 remedies are alternative and ,.T cumulative. f the creditor chooses one remedy, he cannot avail himself of the other two. A!!EA< from the decision of the *egional Trial 4ourt of +akati, +etro +anila, "r. ;F. +edialdea, %.

The facts are stated in the opinion of the 4ourt. 1rancisco 4. "onoan for plaintiff=appellee. Agapito +. %oa7uin for defendants=appellants. ,.4.,, %.#

Elevated to this 4ourt by the 4ourt of Appeals, in its *esolution of +ay 89, &'(8, on a pure 7uestion of law,& is the appeal therein by defendants=appellants, ,iu Mim 0uan and 4han 1ue Eng assailing the trial courtQs decision promulgated on .ctober &&, &'@@,8 which ordered them to pay plaintiff=appellee, 0elta +otor Sales 4orporation, the amount of !F,&((.8' with a &$O per annum interest which was due on the three 5;6 R0aikinS airconditioners defendants=appellants purchased from plaintiff=appellee under a 0eed of 4onditional Sale, after the same was declared rescinded by the trial court. They were likewise ordered to pay plaintiff=appellee !&,999.99 for and as attorneyQs fees.

The events which led to the filing of the case in the lower court were summariDed by the 4ourt of Appeals, as follows# R T.n %uly :, &'@:, the defendants purchased from the plaintiff three 5;6 units of T0A M ,Q air=conditioner all valued at !&',;:9.99 as evidenced by the 0eed of 4onditional Sale, Exhibit AI that the aforesaid deed of sale had the following terms and conditions# T5a6 the defendants shall pay a down payment of !@@$.99 and the balance of !&(,:@F.99 shall >be? paid by them in twenty four 58$6 installmentsI 5b6 the title to the properties purchased shall remain with the plaintiff until the purchase price thereof is fully paidI 5c6 if any two installments are not paid by the defendants on their due dates, the whole of the principal sum remaining unpaid shall become due, with interest at the rate of &$O per annumI and 5d6 in case of a suit, the defendants shall pay an amount e7uivalent to 8:O of the remaining unpaid obligation as damages, penalty and attoneyQs feesI that to secure the payment of the balance of !&(,:@F.99 the defendants Gointly and severally executed in favor of the plaintiff a promissory note, Exhibit 4I that the three 5;6 air=conditioners were delivered to and received by the defendants as shown by the delivery receipt, Exhibit "I that after paying the amount of !F,'FF.99, the defendants failed to pay at least two 586 monthly installmentsI that as of %anuary F, &'@@, the remaining unpaid obligation of the defendants amounted to !&8,'89.9(I that statements of accounts were sent to the defendants and the plaintiffQs collectors personally went to the former to effect collections but they failed to do soI that because of the unGustified refusal of the defendants to pay their outstanding account and their wrongful detention of the properties in 7uestion, the plaintiff tried to recover the said properties extra=Gudicially but it failed to do soI that the matter was later referred by the plaintiff to its legal counsel for legal actionI that in its verified complaint dated %anuary 8(, &'@@, the plaintiff prayed for the issuance of a writ of replevin, which the 4ourt granted in its .rder dated 1ebruary 8(, &'@@, after the plaintiff posted the re7uisite bondI that on April &&, &'@@, the plaintiff, by virtue of the aforesaid writ, succeeded in retrieving the properties in 7uestionI that as of .ctober ;, &'@@, the outstanding account of the defendants is only in the amount of !F,&((.8' as shown by the computation, Exhibit 1, after deducting the interests in arrears, cover charges, replevin bond premiums, the value of the units repossessed and the likeI and, that in view of the failure of the defendants to pay their obligations, the amount of !F,'FF.99 which had been paid by way of installments were treated as rentals for the units in 7uestion for two 586 years pursuant to the provisions of paragraph : of the 0eed of 4onditional Sale, Exhibit A.Q 5pp. :=@, *ecordI pp. $=F, AppellantQs "rief6.S As above=stated, the trial court ruled in favor of plaintiff=appellee. 0efendants=appellants assail the 0eed of 4onditional Sale under which they purchased the three 5;6 0aikin air=conditioners from plaintiff=appellee as being contrary to law, morals, good custom, public order or public policy. n particular, they point to the contractQs paragraphs : and @ as ini7uitous, which paragraphs state that# R:. Should "E2E* fail to pay any of the monthly installments when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, this contract shall automatically become null and voidI and all sums so paid by "E2E* by reason thereof shall be considered as rental and the SE<<E* shall then and there be free to take possession thereof without liability for trespass or responsibility for any article left in or attached to the !*.!E*T2I xxx xxx

R@. Should SE<<E* rescind this contract for any of the reasons stipulated in the preceding paragraph, the "E2E*, by these presents obligates himself to peacefully deliver the !*.!E*T2 to the SE<<E* in case of rescission, and should a suit be brought in court by the SE<<E* to seek Gudicial declaration of rescission

and take possession of the !*.!E*T2, the "E2E* hereby obligates himself to pay all the expenses to be incurred by reason of such suit and in addition to pay the sum e7uivalent to 8:O of the remaining unpaid obligation as damages, penalty and attorneyQs feesIS; 0efendants=appellants claim that for the use of the plaintiff=appelleeQs three air=conditioners, from %uly :, &'@:$ to April &&, &'@@,: or for a period of about 88 months, they, in effect, paid rentals in the amount of !F,$8'.'8,F or roughly one=third 5&L;6 of the entire price of said air=conditioners which was !&',;:9.99. They also complain that for the said period the trial court is ordering them to pay !F,&((.8' as the balance due for the three air=conditioners repossessed. 0efendants=appellants were likewise ordered to pay !&,999.99 as attorneyQs fees when plaintiff=appellee never sought for attorneyQs fees in its complaint. They satirically pointed out that by putting Ra few touches here and there, the same units can be sold again to the next imprudent customerS@ by plaintiff=appellee. Thus, enforcement of the 0eed of 4onditional Sale will unGustly enrich plaintiff=appellee at the expense of defendants=appellants.

0efendants=appellants cannot complain that their downpayment of !@@$.99 and installment payments of !:,F::.'8( were treated as rentalsJeven though the total amount of !F,$8'.'8 which they had paid, approximates one=third 5&L;6 of the cost of the three 5;6 air=conditioners. A stipulation in a contract that the installments paid shall not be returned to the vendee is valid insofar as the same may not be unconscionable under the circumstances is sanctioned by Article &$(F of the ,ew 4ivil 4ode.' The monthly installment payable by defendants=appellants was !@@$.99.&9 The !:,F::.'8 installment payments correspond only to seven 5@6 monthly installments. Since they admit having used the air= conditioners for twenty=two 5886 months, this means that they did not pay fifteen 5&:6 monthly installments on the said air=conditioners and were thus using the same 1*EE for said periodJto the preGudice of plaintiff=appellee. Ender the circumstances, the treatment of the installment payments as rentals cannot be said to be unconscionable.

The vendor in a sale of personal property payable in installments may exercise one of three remedies, namely, 5&6 exact the fulfillment of the obligation, should the vendee fail to payI 586 cancel the sale upon the vendeeQs failure to pay two or more installmentsI 5;6 foreclose the chattel mortgage, if one has been constituted on the property sold, upon the vendeeQs failure to pay two or more installments. The third option or remedy, however, is subGect to the limitation that the vendor cannot recover any unpaid balance of the price and any agreement to the contrary is void 5Art. &$($6&& The three 5;6 remedies are alternative and ,.T cumulative. f the creditor chooses one remedy, he cannot avail himself of the other two. t is not disputed that the plaintiff=appellee had taken possession of the three air=conditioners, through a writ of replevin when defendants=appellants refused to extra=Gudicially surrender the same. This was done pursuant to paragraphs : and @ of its 0eed of 4onditional Sale when defendants=appellants failed to pay at least two 586 monthly installments, so much so that as of %anuary F, &'@@, the total amount they owed plaintiff=appellee, inclusive of interest, was !&8,'89.9(.&8 The case plaintiff=appellee filed was to seek a Gudicial declaration that it had validly rescinded the 0eed of 4onditional Sale.&; 4learly, plaintiff=appellee chose the second remedy of Article &$($ in seeking enforcement of its contract with defendants=appellants. This is shown from the fact that its Exhibit R1S which showed the computation of the outstanding account of defendants=appellants as of .ctober ;, &'@@ took into account Rthe value of the units repossessed.S&$ 3aving done so, it is barred from exacting payment from defendants=appellants

of the balance of the price of the three air=conditioning units which it had already repossessed. t cannot have its cake and eat it too.&: -3E*E1.*E, the Gudgment of the trial court in 4ivil 4ase ,o. 8::@( is hereby SET AS 0E and the complaint filed by plaintiff=appellee 0elta +otor Sales 4orporation is hereby 0 S+ SSE0. ,o costs. S. .*0E*E0. ,arvasa 54.%., 4hairman6, !adilla, *egalado and +elo, %%., concur. %udgment set aside. ,ote.JThe three 5;6 remedies of the vendor in case the vendee defaults under Art. &$($ are alternative and cannot be exercised simultaneously or cumulatively by the vendor=creditor 5Esguerra vs. 4ourt of Appeals, &@; S4*A &6. JJo9oJJ

G.R. No. (250( S,7*,?+,- 29, 19(9

FILIN$ ST CR #IT CORPORATION, petitioner, vs. TH COURT OF APP ALS, %OS SY .ANG a!" ILUMINA#A TAN SY .ANG,B respondents. -aba,uis, -oyola, +ngara and +ssociates for petitioner& +lfredo 1& *aya for private respondents&

SARMI NTO, J.: This is a petition for review on certiorari of the decision, 1 dated +arch &@, &'((, of the 4ourt of Appeals which affirmed with modification the decision 2 of the *egional Trial 4ourt of KueDon, "ranch < N, <ucena 4ity. The controversy stemmed from the following facts# The private respondents, the spouses %ose Sy "ang and luminada Tan, were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. n order to increase their production, they engaged the services of +r. *uben +ercurio, the proprietor of )emini +otor Sales in <ucena 4ity, to look for a rock crusher which they could buy. +r. +ercurio referred the private respondents to the *iDal 4onsolidated 4orporation which then had for sale one such machinery described as# .,E E, T < !!+A, !.*TA"<E 4*ES3 ,) !<A,T 5*E4.,0 T .,E06 >sic? %A- 4*ES3E*=&9xlF 0.E"<E *.<< 4*ES3E* &Fx&F ; E, TS !*.0E4T 4.,AE2.* @: 3! E<E4T* 4 +.T.* ( !4S. "*A,0 ,E- T *ES 43ASS S ,.. &'F'F )..0 *E,, ,) 4.,0 T ., 3 .scar Sy "ang, a brother of private respondent %ose Sy "ang, went to inspect the machine at the *iDal 4onsolidatedBs plant site. Apparently satisfied with the machine, the private respondents signified their intent to purchase the same. They were however confronted with a problem=the rock crusher carried a cash price tag of ! ::9,999.99. "ent on ac7uiring the machinery, the private respondents applied for financial assistance from the petitioner, 1ilinvest 4redit 4orporation. The petitioner agreed to extend to the private respondents financial aid on the following conditions# that the machinery be purchased in the petitionerBs nameI that it be leased 5with option to purchase upon the termination of the lease period6 to the private respondentsI and that the private respondents execute a real estate mortgage in favor of the petitioner as security for the amount advanced by the latter. Accordingly, on +ay &(,&'(&, a contract of lease of machinery 5with option to purchase6 was entered into by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher for two years starting from %uly :, & '(& payable as follows# !&9,999.99 = first ; months 8;,999.99 = next F months 8$,(99.99 = next &: months The contract likewise stipulated that at the end of the two=year period, the machine would be owned by the private respondents. Thus, the private respondents issued in favor of the petitioner a check for !&:9,::9.99, as initial rental 5or guaranty deposit6, and twenty=four 58$6 postdated checks corresponding to

the 8$ monthly rentals. n addition, to guarantee their compliance with the lease contract, the private respondents executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock crusher was delivered to the private respondents on %une ', &'(&. Three months from the date of delivery, or on September @, &'(&, however, the private respondents, claiming that they had only tested the machine that month, sent a letter=complaint to the petitioner, alleging that contrary to the 89 to $9 tons per hour capacity of the machine as stated in the lease contract, the machine could only process : tons of rocks and stones per hour. They then demanded that the petitioner make good the stipulation in the lease contract. They followed that up with similar written complaints to the petitioner, but the latter did not, however, act on them. Subse7uently, the private respondents stopped payment on the remaining checks they had issued to the petitioner. 5 As a conse7uence of the non=payment by the private respondents of the rentals on the rock crusher as they fell due despite the repeated written demands, the petitioner extraGudicially foreclosed the real estate mortgage. 6 .n April &(, &'(;, the private respondents received a Sheriff s ,otice of Auction Sale informing them that their mortgaged properties were going to be sold at a public auction on +ay 8:, &'(; at &9#99 oBclock in the morning at the .ffice of the !rovincial Sheriff in <ucena 4ity to satisfy their indebtedness to the petitioner. ' To thwart the impending auction of their properties, the private respondents filed before the *egional Trial 4ourt of KueDon, on +ay $, &'(;, ( a complaint against the petitioner, for the rescission of the contract of lease, annullment of the real estate mortgage, and for inGunction and damages, with prayer for the issuance of a writ of preliminary inGunction. 9 .n +ay 8;, &'(;, three days before the scheduled auction sale, the trial court issued a temporary restraining order commanding the !rovincial Sheriff of KueDon, and the petitioner, to refrain and desist from proceeding with the public auction. 10 Two years later, on September $, &'(:, the trial court rendered a decision in favor of the private respondents, the dispositive portion of which reads# -3E*E1.*E, !*E+ SES 4.,S 0E*E0, Gudgment is hereby rendered# &. making the inGunction permanentI 8. rescinding the contract of lease of the machinery and e7uipment and ordering the plaintiffs to return to the defendant corporation the machinery subGect of the lease contract, and the defendant corporation to return to plaintiffs the sum of !$@9,':9.99 it received from the latter as guaranty deposit and rentals with legal interest thereon until the amount is fully restitutedI ;. annulling the real estate mortgage constituted over the properties of the plaintiffs covered by Transfer 4ertificate of Title ,os. T;8$(9 and T=:@@' of the *egistry of 0eeds of <ucena 4ityI $. ordering the defendant corporation to pay plaintiffs !;9,999.99 as attorneyBs fees and the costs of the suit. S. .*0E*E0. 11 0issatisfied with the trial courtBs decision, the petitioner elevated the case to the respondent 4ourt of Appeals. .n +arch &@, &'((, the appellate court, finding no error in the appealed Gudgment, affirmed the same in toto. 123ence, this petition. "efore us, the petitioner reasserts that the private respondentsB cause of action is not against it 5the petitioner6, but against either the *iDal 4onsolidated 4orporation, the original owner=seller of the subGect rock crusher, or )emini +otors Sales which served as a conduit facilitator of the purchase of the said machine. The petitioner argues that it is a financing institution engaged in 7uasi=banking activities, primarily

the lending of money to entrepreneurs such as the private respondents and the general public, but certainly not the leasing or selling of heavy machineries like the subGect rock crusher. The petitioner denies being the seller of the rock crusher and only admits having financed its ac7uisition by the private respondents. 1urther, the petitioner absolves itself of any liability arising out of the lease contract it signed with the private respondents due to the waiver of warranty made by the latter. The petitioner likewise maintains that the private respondents being presumed to be knowledgeable about machineries, should be held responsible for the detection of defects in the machine they had ac7uired, and on account of that, they are estopped from claiming any breach of warranty. 1inally, the petitioner interposed the defense of prescription, invoking Article &:@& of the 4ivil 4ode, which provides# Art. &:@&. Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold. -e find the petitionerBs first contention untenable. -hile it is accepted that the petitioner is a financing institution, it is not, however, immune from any recourse by the private respondents. ,otwithstanding the testimony of private respondent %ose Sy "ang that he did not purchase the rock crusher from the petitioner, the fact that the rock crusher was purchased from *iDal 4onsolidated 4orporation in the name and with the funds of the petitioner proves beyond doubt that the ownership thereof was effectively transferred to it. t is precisely this ownership which enabled the petitioner to enter into the "4ontract of <ease of +achinery and E7uipment" with the private respondents. "e that as it may, the real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence, i.e., a sale on installments. t is basic that a contract is what the law defines it and the parties intend it to be, not what it is called by the parties. 13 t is apparent here thatthe intent of the parties to the subGect contract is for the so=called rentals to be the installment payments. Epon the completion of the payments, then the rock crusher, subGect matter of the contract, would become the property of the private respondents. This form of agreement has been criticiDed as a lease only in name. Thus in 4da& de Jose v& :arrueco 1& we stated# Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have fre7uently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so=called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. t is obvious that such transactions are leases only in name. The so=called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee. 15 The importance of the criticism is heightened in the light of Article &$($ of the new 4ivil 4ode which provides for the remedies of an unpaid seller of movables on installment basis. Article &$($. n a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies# 5&6 Exact fulfillment of the obligation, should the vendee fail to payI 586 4ancel the sale, should the vendeeBs failure to pay cover two or more installmentsI 5;6 1oreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendeeBs failure to pay cover two or more installments. n this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. Ender the afore7uoted provision, the seller of movables in installments, in case the buyer fails to pay two or more installments may elect to pursue either of the following remedies# 5&6 exact fulfillment by the

purchaser of the obligationI 586 cancel the saleI or 5;6 foreclose the mortgage on the purchased property if one was constituted thereon. t is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. ndubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent Article &$($, particularly paragraph 5;6 thereof.Through the set=up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee=lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. +ore important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments=cum=rentals already paid. t is thus for these reasons that Article &$(: of the new 4ivil 4ode provides that# Article &$(:. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of possession or enGoyment of the thing. 5Emphasis ours.6 Enfortunately, even with the foregoing findings, we however fail to find any reason to hold the petitioner liable for the rock crusherBs failure to produce in accordance with its described capacity. According to the petitioner, it was the private respondents who chose, inspected, and tested the subGect machinery. t was only after they had inspected and tested the machine, and found it to their satisfaction, that the private respondents sought financial aid from the petitioner. These allegations of the petitioner had never been rebutted by the private respondents. n fact, they were even admitted by the private respondents in the contract they signed. Thus# <ESSEEBS SE<E4T .,, ,S!E4T ., A,0 AE* 1 4AT .,.=The <ESSEE hereby confirms and acknowledges that he has independently inspected and verified the leased property and has selected and received the same from the 0ealer of his own choosing in good order and excellent running and operating condition and on the basis of such verification, etc. the <ESSEE has agreed to enter into this 4ontract." 16 +oreover, considering that between the parties, it is the private respondents, by reason of their business, who are presumed to be more knowledgeable, if not experts, on the machinery subGect of the contract, they should not therefore be heard now to complain of any alleged deficiency of the said machinery. t is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to their difficulty and to this conflict. A well= established principle in law is that between two parties, he, who by his negligence caused the loss, shall bear the same. At any rate, even if the private respondents could not be adGudged as negligent, they still are precluded from imputing any liability on the petitioner. .ne of the stipulations in the contract they entered into with the petitioner is an express waiver of warranties in favor of the latter. "y so signing the agreement, the private respondents absolved the petitioner from any liability arising from any defect or deficiency of the machinery they bought. The stipulation on the machineBs production capacity being "typewritten" and that of the waiver being "printed" does not militate against the latterBs effectivity. As such, whether "a capacity of 89 to $9 tons per hour" is a condition or a description is of no moment. -hat stands is that the private respondents had expressly exempted the petitioner from any warranty whatsoever. Their 3ontract of -ease 8f >achinery +nd 6,uipment states# -A**A,T2=<ESSEE absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated. 1' Taking into account that due to the nature of its business and its mode of providing financial assistance to clients, the petitioner deals in goods over which it has no sufficient know=how or expertise, and the selection of a particular item is left to the client concerned, the latter, therefore, shoulders the responsibility

of protecting himself against product defects. This is where the waiver of warranties is of paramount importance. 4ommon sense dictates that a buyer inspects a product before purchasing it 5under the principle of caveat emptor or "buyer beware"6 and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty. n the case at bar, to declare the waiver as non=effective, as the lower courts did, would impair the obligation of contracts. 4ertainly, the waiver in 7uestion could not be considered a mere surplusage in the contract between the parties. +oreover, nowhere is it shown in the records of the case that the private respondent has argued for its nullity or illegality. n any event, we find no ambiguity in the language of the waiver or the release of warranty. There is therefore no room for any interpretation as to its effect or applicability vis=a= vis the deficient output of the rock crusher. Suffice it to say that the private respondents have validly excused the petitioner from any warranty on the rock crusher. 3ence, they should bear the loss for any defect found therein. -3E*E1.*E, the !etition is )*A,TE0I the 0ecision of the 4ourt of Appeals dated +arch &@, &'(( is hereby *EAE*SE0 A,0 SET AS 0E, and another one rendered 0 S+ SS ,) the complaint. 4osts against the private respondents. S. .*0E*E0.

G.R. No. 16(960

%64y 5, 2010

AM LIA .. H .RON, !etitioner, vs. FRANCO L. LOYOLA, ANG LO L. LOYOLA, RAFA L L. LOYOLA, ARMAN#O L. LOYOLA, S N N L. LOYOLA, MA. $ NUS L. RON;UILLO, P RLA L. A.A# a!" *2, I!*,3*a*, 3*a*, o1 #UAR#O L.

LOYOLA, CARM LITA A. MANA.O, H RMINIA AGUINAL#O-ROSAS, #IGNA AGUINAL#O$AL NCIA, ROG LIO AGUINAL#O, MILA AGUINAL#O-#IA/, .A.Y AGUINAL#O, RU. N LOYOLA 36+3*5*6*," +y %OS FINA C. LOYOLA, GL SIL#A A. L GOSTO, $ LYN C. LOYOLA, MARINA C. LOYOLA, AUR C. LOYOLA, CORA/ON C. LUGAR#A a!" %O$ N FRANCISCO C. LOYOLA, LOR N/O LOYOLA, CAN# LARIA LOYOLA, NICAN#RO LOYOLA, FLORA LOYOLA, T R SITA L. AL/ONA, $IC NT LOYOLA, ROSARIO L. LONTOC, S RAFIN LOYOLA, RO. RTO LOYOLA, .I.IANO LOYOLA, PURITA LOYOLA, ST LA LOYOLA, ST R #ANICO, #UAR#O #ANICO, M LITA #ANICO, M RC #ITA #ANICO, HON STO #ANICO, #ANT #ANICO, RLIN#A #ANICO#OMINGU / -,7-,3,!*," +y T O#ORO #OMINGU / a!" . $ RLY ANN #OMINGU /, FR N CA.IGAN a!" ISI#RO CA.IGAN, *espondents. AL. RTO L. .AUTISTA -,7-,3,!*," +y F LICI#A# G. .AUTISTA, AGN S .. /ULU TA, AYR N .. AL.A, %OS PH ANTHONY G. .AUTISTA, ANN-%AN T G. .AUTISTA a!" ALFR #O L. .AUTISTA, Enwilling *espondents. 0E4 S ., # L CASTILLO, J.9 4ourts, not being omniscient, can only strive to determine what actually and truly transpired based on the evidence before it and the imperfect rules that were designed to assist in establishing the truth in disputed situations. 0espite the difficulties in ascertaining the truth, the courts must ultimately decide. n civil cases, its decision must rest on preponderance of admissible evidence. This petition for review assails the 1ebruary 88, 899: 0ecision& and the %uly @, 899: *esolution8 of the 4ourt of Appeals 54A6 in 4A=).*. 4A. ,o. F$&9:. The 4A partially granted the appeal before it and modified the %une 88, &''' 0ecision; of the *egional Trial 4ourt 5*T46 of 4avite, "ranch 89, which ordered the partition of two parcels of land among the seven sets of plaintiffs 5respondents herein6. Factual Antecedents This case originated from a suit for partition and damages concerning the two parcels of land denominated as <ot ,os. @;9 and (@' of the 4armona cadastre. <ot ,o. @;9, with an area of &@,F(( s7uare meters, was owned by *emigia "aylon who was married to %anuario <oyola. <ot ,o. (@', with an area of &9,8@( s7uare meters was owned by %anuario <oyola, the husband of *emigia "aylon. %anuario and *emigia had seven children, namely 4onrado, %ose, "enGamin, 4andida, Soledad, 4risteta and Encarnacion, all surnamed <oyola. The administration of the said lots was entrusted to Encarnacion <oyola="autista. All the heirs of %anuario and *emigia received their shares in the fruits of the subGect properties during EncarnacionBs administration thereof. -ith the latterBs death on September &:, &'F', administration of the subGect properties was assumed by her daughter, Amelia "autista=3ebron, who, after some time, started withholding the shares of 4andida and the heirs of 4onrado. "y the time partition of the said properties was formally demanded on ,ovember $, &''9, 4andida was the only one still living among the children of %anuario and *emigia. The rest were survived and represented by their respective descendants and children, to wit# &. 4onrado <oyola, by his children, *uben <oyola, now substituted by his heirs, namely, %osefina, Edgardo, Evelyn, +arina, Aure, 4oraDon and %oven 1rancisco, all surnamed <oyola, and respondents <orenDo <oyola, 4andelaria <oyola, 1lora <oyola, ,icardo <oyola, Teresita <oyola= AlonDa, Aicente <oyola and *osario <oyola=<ontocI 8. %ose <oyola, by his children, respondents Serafin <oyola, "ibiano <oyola, *oberto <oyola, !urita <oyola=<ebrudo and Estela <oyolaI

;. "enGamin <oyola, by his children, respondents 1ranco <oyola, Angelo <oyola, *afael <oyola, Senen <oyola, !erla <oyola=Abad, +a. Aenus <oyola=*on7uillo, Armando <oyola as well as his daughter=in=law by his son, Eduardo <oyola, respondent 4armen 3ermosaI $. Soledad <oyola, by her children, respondents Ester 0anico, Eduardo 0anico, +ercedita 0anico, 3onesto 0anico, Emelita 0anico and 0ante 0anicoI :. 4risteta <oyola, by her children, respondents Efren 4abigan and sidro 4abiganI and F. Encarnacion <oyola="autista, by her son, respondent Alfredo "autista, by petitioner Amelia "autista=3ebron, and by her daughter=in=law by her son, Alberto "autista, respondent 1elicidad "autista, and the latterBs children, respondents AnGanet, Agnes, Ayren and %oseph Anthony, all surnamed "autista. 1or petitionerBs failure to heed their formal demand, respondents filed with the *T4 of mus, 4avite, "ranch 89, the complaint for partition and damages from which the instant suit stemmed. -hile manifesting her conformity to the partition demanded by her co=heirs, petitioner claimed in her amended answer that 4andida and the heirs of 4onrado have already relin7uished their shares in consideration of the financial support extended them by her mother, Encarnacion. n the pre=trial order, the trial court conse7uently limited the issue to be resolved to the veracity of the aforesaid waiver or assignment of shares claimed by petitioner. Trial on the merits then ensued. -hile conceding their receipt of financial assistance from Encarnacion, 4andida and the heirs of 4onrado maintained that ade7uate recompense had been effectively made when they worked without pay at the formerBs rice mill and household or, in the case of 4armelita Aguinaldo= +anabo, when she subse7uently surrendered her earnings as a public school teacher to her said aunt. Ruling of the Regional Trial Court .n %une 88, &''', the trial court rendered a 0ecision granting the partition sought. The dispositive portion of the 0ecision states# -3E*E1.*E, in view of the foregoing, Gudgment is hereby rendered ordering the partition of the following real properties, to wit# &. The parcel of land known as <ot @;9 of the 4armona 4adastre with an area of &@,F(( s7. meters more of lessI and 8. the parcel of land known as <ot (@' of the 4armona 4adastre with an area of &9,8@( s7. meters, more of less among all the seven 5@6 sets of plaintiffs in seven 5@6 e7ual parts. n this regard, the parties are directed within thirty 5;96 days from receipt hereof to make the partition of the two 586 lots among themselves should they agree, and thereafter, to submit in 4ourt their deed of partition for its confirmation. S. .*0E*E0.$ Ruling of the Court of Appeals !etitioner, the defendant in the case before the *T4, appealed the 0ecision to the 4A. The 4A found the petitioner entitled to participate in the partition of the subGect properties. t stated that petitionerBs inadvertent exclusion from the partition of the subGect properties arose from the trial courtBs use of the phrase "seven 5@6 sets of plaintiffs" in the dispositive portion of the appealed 0ecision instead of the more accurate "seven 5@6 sets ofheirs."

The 4A however, like the trial court, found that petitioner was not able to prove the existence of the waiver or assignment of their shares by 4andida and the heirs of 4onrado. The dispositive portion of the 0ecision states# -3E*E1.*E, the appeal is PARTIALLY GRANT # and the appealed %une 88, &''' decision is, accordingly,MO#IFI # to include appellantBs participation in the partition of the subGect parcels as one of the heirs of Encarnacion <oyola="autista. The rest is AFFIRM # in toto.: The 4A denied the motion for reconsideration filed by petitioner. 3ence, petitioner elevated the case to us via the present petition for review. I336,3 !etitioner raises the following issues#

-3ET3E* N N N T3E A!!E<<ATE 4.E*T E**E0 , A11 *+ ,) T3E *E< ,) .1 T3E T* A< 4.E*T T3AT T3E "E*0E, .1 !*..1 -AS S3 1TE0 T. 0E1E,0A,T=A!!E<<A,T A+E< A ". 3E"*., A,0 T3AT T3E <ATTE* 1A <E0 T. SE"STA,T ATE 3E* 4<A + - T3 !*E!.,0E*A,4E .1 EA 0E,4E.

-3ET3E* N N N T3E A!!E<<ATE 4.E*T E**E0 , A11 *+ ,) T3E *E< ,) .1 T3E T* A< 4.E*T T3AT A S!.ESE !*ESE,T 4A,,.T *E< ,KE S3 T3E S3A*ES , T3E !A*4E<S .1 <A,0 1 T - << 0E!* AE + ,.* 43 <0*E, .1 T3E * 3E*E0 TA*2 * )3TS.

-3ET3E* N N N T3E A!!E<<ATE 4.E*T E**E0 , A11 *+ ,) T3E *E< ,) .1 T3E T* A< 4.E*T T3AT ,. 4.,4*ETE !*..1 EA 0E,4 ,) T3E SA<E .* ASS ),+E,T .1 S3A*ES .1 4A,0 0A <.2.<A=A)E ,A<0. A,0 4.,*A0. <.2.<A , T3E T-. !A*4E<S .1 <A,0 , 1AA.* .1 !ET T .,E*BS +.T3E*, E,4A*,A4 ., <.2.<A="AET STA, 3A0 "EE, !*ESE,TE0 "2 !ET T .,E* 0E* ,) T3E T* A< 0ES! TE T3E EN STE,4E .1 !A*.< EA 0E,4E "2 -A2 .1 A, EN4E!T ., T. T3E STATETE .1 1*AE0S. A -3ET3E* N N N T3E A!!E<<ATE 4.E*T 4.++ TTE0 A *EAE*S "<E E**.* , ,.T 4.,S 0E* ,) T3AT 4A,0 0A <.2.<A=A)E ,A<0. A,0 T3E 3E *S .1 4.,*A0. <.2.<A A*E "A**E0 "2 EST.!!E< , ASSE*T ,) T3AT T3E2 A*E ST << E,T T<E0 T. S3A*E , T3E KEEST .,E0 !A*4E<S .1 <A,0.F Petitioner's Arguments !etitioner contends that she has no affirmative allegation to prove, hence, the burden of proof is on respondents and not on her. And if at all, she has proven that 4andida and the heirs of 4onrado have relin7uished their respective shares. She further contends that ownership of inherited properties does not fall under Articles ;8& and ;8; of the 4ivil 4ode and thus, the properties inherited by the children of 4onrado can be alienated by their mother, Aictorina, in favor of petitionerBs mother.

!etitioner also contends that her parol evidence proved the alleged executed agreement of waiver of shares in the two subGect inherited properties in consideration of the educational and other financial support extended by Encarnacion to 4andida and 4onradoBs respective families.1avvphi1 1inally, petitioner posits that 4andida and the heirs of 4onrado are estopped by laches from asserting their entitlement to shares in the subGect properties. Respondents' Arguments .n the other hand, respondents argue that 4andida and the heirs of 4onrado have not relin7uished their shares in the litigated properties. They insist that the alleged agreement of relin7uishment of shares cannot be proved by parol evidence. They also contend that all the issues raised are factual in nature, and the findings of fact of the 4A are final and conclusive and thus, may not be the subGect of review by the Supreme 4ourt, absent any of the recogniDed exceptions to the said rule. O6- R645!: The petition has no merit. Burden of Proof *ule &;& of the *ules of 4ourt states# Section &. "urden of !roof.= "urden of proof is the duty of a party to present evidence on the facts in issue necessary to establish his )4a5? or defense by the amount of evidence re7uired by law. 5Emphasis supplied6 1rom the above provision it is clear that the defendant, not only the plaintiff, also has a burden of proof. The plaintiffs have the duty to establish their claims. And, it is the defendants who have the duty to establish their defenses. 4hildren of the deceased, like 4andida and her siblings, are compulsory heirs who are entitled to a share in the properties of the deceased. Art. '(9 of the 4ivil 4ode states# "The children of the deceased shall always inherit from him in their own right, dividing the inheritance in e7ual shares." The heirs of 4onrado are also heirs of *emigia and %anuario, being the children of a child of *emigia and %anuarioI and as such are entitled to their shares in the estate of *emigia and %anuario.@ !etitioner has admitted in her answer that respondents are heirs of *emigia and %anuarioI( and that the two subGect properties were left behind by *emigia and %anuario.' "An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not re7uire proof."&9 3ence, we find no error committed by the 4A when it affirmed the ruling of the trial court that the burden was on petitioner to establish her affirmative defense of waiver or sale of the shares of 4andida and the heirs of 4onrado. The defense of petitioner is that 4andida and the heirs of 4onrado have waived or sold their shares in the subGect properties. This alleged fact is denied by the respondents. 3ence, this is the fact that is at issue and this alleged fact has to be proven by petitioner, who is the one who raised the said alleged fact. The burden of proof of thedefense of waiver or sale is on petitioner. -hether petitioner has been able to prove the said fact is undoubtedly a 7uestion of fact, not of law. t involves the weighing and calibration of the evidence presented. n the absence of any of the exceptions that call for the 4ourt to do so, the 4ourt will not disturb the factual findings of the *T4 that were affirmed by the 4A in the present case.

Shares of Minor Children The minor children of 4onrado inherited by representation in the properties of their grandparents *emigia and %anuario. These children, not their mother Aictorina, were the co=owners of the inherited properties. Aictorina had no authority or had acted beyond her powers in conveying, if she did indeed convey, to the petitionerQs mother the undivided share of her minor children in the property involved in this case. "The powers given to her by the laws as the natural guardian covers only matters of administration and cannot include the power of disposition. She should have first secured the permission of the court before she alienated that portion of the property in 7uestion belonging to her minor children."&& n a number of cases, where the guardians, mothers or grandmothers, did not seek court approval of the sale of properties of their wards, minor children, the 4ourt declared the sales void.&8 Although the 4A inaccurately cited Articles ;8& and ;8; of the 4ivil 4ode, its conclusion that Aictorina had no capacity to relin7uish her childrenBs shares in the inherited properties was, nevertheless, correct. !idence of Sale"#ai!er of Shares in Real Properties .n this factual issue too, we find no reason to disturb the finding of the 4A affirming that of the *T4 that petitioner failed to prove by preponderance of evidence her alleged fact of relin7uishment, by sale or waiver, of the shares of 4andida and the heirs of 4onrado. Again, the court has no duty to delve into and weigh the pieces of evidence presented by the parties and passed upon by both the *T4 and the 4A with consistent conclusions on this matter and absent the other exceptions to the general rule. ,evertheless, we did so, but find no error in the findings of the *T4 and the 4A on this issue. The very sketchy and partly hearsay testimony of petitioner was resoundingly rebutted by the testimonies of the respondents. The hearsay letter of Soledad, self=serving entries of relin7uishment in the notebook of accounts and tampered notebook of educational expenses hinting at a relin7uishment of shares cannot be given weight. +oreover, these were refuted by the presentation of document embodying the notariDed extraGudicial partition establishing no such relin7uishment. The evidence does not preponderate in favor of petitioner. Absent a preponderance of evidence on the fact in issue of relin7uishment of shares, then 4andida and the heirs of 4onrado, as admitted heirs of *emigia and %anuario, are entitled to their shares in the two subGect properties. $aches <aches is the failure of or neglect for an unreasonable and unexplained length of time to do that which by exercising due diligence, could or should have been done earlier, or to assert a right within reasonable time, warranting a presumption that the party entitled thereto has either abandoned it or declined to assert it.&; n the present case, the book of accounts, showing the record of receipts of some heirs of their shares, has repeated entries in AmeliaBs handwriting that 4andida and the heirs of 4onrado are no longer entitled to shares in the fruits of the properties in litigation because they have sold or given their share in the said properties to Encarnacion. These entries only prove that Amelia no longer recogniDed the entitlement of 4andida and the heirs of 4onrado to their respective shares. t is relevant to note however that the entries in the book of accounts started only on %uly &@, &'(F. 3ence, there is definite proof of non=recognition by petitioner of 4andida and the heirs of 4onradoBs entitlement to shares in the subGect properties starting only on %uly &@, &'(F. "efore this time, during the administration of the properties by Encarnacion <oyola= "autista and some undetermined number of years after her death, 4andida and the heirs of 4onrado were proven to have been receiving their shares in the fruits of the subGect properties.

.n record is the written demand letter for partition of the litigated properties signed by 4andida and the heirs of 4onrado dated ,ovember $, &''9. The complaint for partition was subse7uently filed on 1ebruary 8;, &'';. 1rom %uly &@, &'(F, to ,ovember $, &''9 only $ years have elapsed. Even from %uly &@, &'(F to 1ebruary 8;, &''; Gust six years have passed. 4onsidering that the parties are closely related to each other and considering also that the parties are many different heirs, some of whom reside outside the !hilippines, the passage of six years before the respondents asked for partition through the court is not unreasonable. -e find respondents not guilty of laches. WH R FOR the petition for review is # NI #. The 1ebruary 88, 899: 0ecision and the %uly @, 899: *esolution of the 4ourt of Appeals in 4A=).*. 4A. ,o. F$&9: are AFFIRM #. 4osts against petitioner. S. .*0E*E0.

G.R. No. L-35'02 May 29, 19'3 #OMINGO #. RU.IAS, plaintiff=appellant, vs. ISAIAS .ATILL R, defendant=appellee. 9regorio >& *ubias for plaintiff'appellant&

4icente *& +csay for defendant'appellee& T HANA , J.:

n this appeal certified by the 4ourt of Appeals to this 4ourt as involving purely legal 7uestions, we affirm the dismissal order rendered by the loilo 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 7uestion filed by 1rancisco +ilitante, plaintiffBs vendor and predecessor interest, had been dismissed by decision of &':8 of the land registration court as affirmed by final Gudgment in &':( of the 4ourt 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 &'F$, the loilo court of first instance had in another case of eGectment likewise upheld by final Gudgment defendantBs "better right to possess the land in 7uestion . having been in the actual possession thereof under a claim of title many years before 1rancisco +ilitante sold the land to the plaintiff." 1urthermore, even assuming that +ilitante had anything to sell, the deed of sale executed in &':F 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 5ultimately decided adversely against +ilitante by the 4ourt of AppealsB &':( Gudgment affirming the lower courtBs dismissal of +ilitanteBs application for registration6 was properly declared inexistent and void by the lower court, as decreed by Article &$9' in relation to Article &$'& of the 4ivil 4ode. The appellate court, in its resolution of certification of 8: %uly &'@8, gave the following backgrounder of the appeal at bar# .n August ;&, &'F$, plaintiff 0omingo 0. *ubias, a lawyer, filed a suit to recover the ownership and possession of certain portions of lot under !su=''@'& located in "arrio )eneral <una, "arotac AieGo, loilo which he bought from his father=in=law, 1rancisco +ilitante in &':F against its present occupant defendant, saias "atiller, who illegally entered said portions of the lot on two occasions J in &'$: and in &':'. !laintiff prayed also for damages and attorneys fees. 5pp. &=@, *ecord on Appeal6. n 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 7uestion and for the alleged malicious institution of the complaint he claims he has suffered moral damages in the amount of ! 8,999.99, as well as the sum of !:99.99 for attorneyBs fees. ... .n 0ecember ', &'F$, the trial court issued a pre=trial order, after a pre=trial conference between the parties and their counsel which order reads as follows.. B-hen this case was called for a pre=trial conference today, the plaintiff appeared assisted by himself and Atty. )regorio +. *ubias. The defendant also appeared, assisted by his counsel Atty. Aicente *. Acsay. A. 0uring 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# &. That 1rancisco +ilitante claimed ownership of a parcel of land located in the "arrio of )eneral <una, municipality of "arotac AieGo province of loilo, which he caused to be

surveyed on %uly &(=;&, &';$, whereby he was issued a plan !su=''@'& 5Exhibit """6. 5The land claimed contained an area of &@&#;:F& hectares.6 8. "efore the war with %apan, 1rancisco +ilitante filed with the 4ourt of 1irst nstance of loilo an application for the registration of the title of the land technically described in psu= ''@'& 5Exh. """6opposed by the ?irector of -ands, the ?irector of 0orestry and other oppositors. 3owever, during the war with %apan, the record of the case was lost before it was heard, so after the war 1rancisco +ilitante petitioned this court to reconstitute the record of the case. The record was reconstituted on the 4ourt of the 1irst nstance of loilo and docketed as -and 3ase @o& *'1!2, 9-*8 *ec& @o& 27"2#. The 4ourt of 1irst nstance heard the land registration case on ,ovember &$, &':8, and after the trial this court dismissed the application for registration. The appellant, 1rancisco +ilitante, appealed from the decision of this 4ourt to the 4ourt of Appeals where the case was docketed as 4A=)* ,o. &;$'@=*.. ;. Pending the disposal of the appeal in 4A=)* ,o. &;$'@=* and more particularly on June 1", 1!21, 0rancisco >ilitante sold to the plaintiff, ?omingo *ubias the land technically described in psu=''@'& 5Exh. "A"6. The sale was duly recorded in the .ffice of the *egister of 0eeds for the province of loilo as Entry ,o. &;F9' on %uly &&, &'F9 5Exh. "A=&"6. 5,.TE# As per deed of sale, Exh. A, what +ilitante purportedly sold to plaintiff=appellant, his son=in=law, for the sum of P#,%%%&%% was "a parcel of untitled land having an area .f &$$.'9@8 hectares ... surveyed under !su ''@'& ... 5and6 subGect to the exclusions made by me, under 5case6 3+'i57! , -and *egistration 3ase @o& *'1!2, 9&-&*&8& @o& 27"2#, 4ourt of 1irst nstance of the province of loilo. These exclusions referred to portions of the original area of over &@& hectares originally claimed by +ilitante as applicant, but which he expressly recogniDed during the trial to pertain to some oppositors, such as the "ureau of !ublic -orks and "ureau of 1orestry 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 3ourt of +ppeals' decision of ## September 1!2" confirming the land registration courtBs dismissal of +ilitanteBs application for registration.6 $. .n September 88,&':( the 4ourt of appeals in 4A=).*. ,o. &;$'@=* promulgated its Gudgment confirming the decision of this 4ourt in <and 4ase ,o. *=F':, )<*. *ec. ,o. :$(:8 which dismissed the application for *egistration filed by 1rancisco +ilitante 5Exh. " "6. :. 0omingo *ubias declared the land described in Exh. B"B for taxation purposes under Tax 0ec. ,o. (:(: 5Exh. "4"6 for &':@I Tax 0ec. ,os. ':;; 5Exh. "4=&"6 and &99&' 5Exh. "4= ;"6for the year &'F&I Tax 0ec. ,o. '(F( 5Exh. "4=8"6 for the year &'F$, paying the land taxes under Tax 0ec. ,o. (:(: and ':;; 5Exh. "0", "0=&", ")=F"6. F. 1rancisco +ilitante immediate predecessor=in=interest of the plaintiff, has also declared the land for taxation purposes under Tax 0ec. ,o. :&@8 in &'$9 5Exh. "E"6 for &'$:I under Tax 0ec. ,o. T=(F 5Exh. "E=&"6 for &'$(I under Tax 0ec. ,o. @&88 5Exh. "8"6, and paid the land taxes for &'$9 5Exhs. ")" and ")=@"6, for &'$: $F 5Exh. ")=&"6 for &'$@ 5Exh. ")=8"6, for &'$@ / &'$( 5Exh. ")=;"6, for &'$( 5Exh. ")=$"6, and for &'$( and &'$' 5Exh. ")=:"6. @. Tax 0eclaration ,o. 8$;$ in the name of <iberato 0emontaHo for the land described therein 5Exh. "1"6 was cancelled by Tax. 0ec. ,o. :&@8 of 1rancisco +ilitante 5Exh. "E"6. <iberato 0emontaHo paid the land tax under Tax 0ec. ,o. 8$;$ on 0ec. 89, &';' for the years &';( 5:9O6 and &':' 5Exh. "3"6. (. The defendant had declared for taxation purposes <ot ,o. 8 of the !su=&::8$& under Tax 0ec. ,ot. (:(; for &':@ and a portion of <ot ,o. 8, !su=&::8$&, for &'$: under Tax 0ec.

,o. (:($ 5Exh. "8=A" Tax ,o. (:(; 5Exh. "8"6 was revised by Tax 0ec. ,o. '$'( in the name of the defendant 5Exh. "8=""6 and Tax 0ec. ,o. (:($ 5Exh. "8=A"6 was cancelled by Tax 0ec. ,o. ':($ also in the name of the defendant 5Exh. "8=4"6. The defendant paid the land taxes for <ot 8, !su=&::8$&, on ,ov. ', &'F9 for the years &'$: and &'$F, for the year &':9, and for the year &'F9 as shown by the certificate of the treasurer 5Exh. ";"6. The defendant may present to the 4ourt other land taxes receipts for the payment of taxes for this lot. '. The land claimed by the defendant as his own was surveyed on %une F and @,&':F, and a planapproved by ?irector of -and on @ovember 12, 1!21 was issued, identified as Psu 122#71 A6)h& =2=B. &9. .n April 88, &'F9, the plaintiff filed forcible 6ntry and ?etainer case against saias "atiller in the %ustice of the !eace 4ourt of "arotac AieGo !rovince of loilo 5Exh. "$"6 to which the defendant saias "atiller riled his answer on August 8', &'F9 5Exh. "$=A"6. The >unicipal 3ourt of "arotac AieGo after trial, decided the case on >ay 1%, 1!11 in favor of the defendant and against the plaintiff 5Exh. "$=""6. The plaintiff appealed from the decision of the +unicipal 4ourt of "arotac AieGo which was docketed in this 4ourt as 4ivil 4ase ,o. :@:9 on %une ;, &'F&, to which the defendant, saias "atiller, on %une &;, &'F& filed his answer 5Exh. "$=4"6. And this 3ourt after the trial& decided the case on @ovember #1, 1!17, in favor of the defendant, /saias :atiller and against the plaintiff 5Exh. "$=0"6. 5,.TE# As per Exh. $=", which is the loilo court of first instance decision of 8F ,ovember &'F$dismissing plaintiffBs therein complaint for eGectment against defendant, the iloilo court expressly found "that plaintiffBs complaint is un.ustified, intended to harass the defendant" and "that the defendant, saias "atiller, has a better right to possess the land in 7uestion described in !su &::8$& 5Exh. ";"6, saias "atiller having been in the actual physical possession thereof under a claim of title many years before 0rancisco >ilitante sold the land to the plaintiff'hereby dismissing plaintiff's complaint and ordering the plaintiff to pay the defendant attorneyBs fees ...."6 ". 0uring the trial of this case on the merit, the plaintiff will prove by competent evidence the following# &. That the land he purchased from 1rancisco +ilitante under Exh. "A" was formerly owned and possessed by <iberato 0emontaHo but that on September F, &'&' the land was sold at public auction by virtue of a Gudgment in a 4ivil 4ase entitled =6dw J& Pflieder plaintiff vs& -iberato ?emontaCo 0rancisco :alladeros and 9regorio Dulo, defendants=, of which 2ap !ongco was the purchaser 5Exh. "&=;"6. The sale was registered in the .ffice of the *egister of 0eeds of loilo on August $, &'89, under !rimary Entry ,o. F' 5Exh. "&"6, and a definite 0eed of Sale was executed by 4onstantino A. 4anto, provincial Sheriff of loilo, on %an. &', &';$ in favor of 2ap !ongco 5Exh. " "6, the sale having been registered in the .ffice of the *egister of 0eeds of loilo on 1ebruary &9, &';$ 5Exh. "&=&"6. 8. .n September 88, &';$, 2ap !ongco sold this land to 1rancisco +ilitante as evidenced by a notarial deed 5Exh. "%"6 which was registered in the *egistry of 0eeds on +ay &;, &'$9 5Exh. "%=&"6. ;. That plaintiff suffered damages alleged in his complaint. 4. 0efendants, on the other hand will prove by competent evidence during the trial of this case the following facts# &. That lot ,o. 8 of the !su=&::8 it 5Exh. B:B6 was originally owned and possessed by 1elipe "atiller, grandfather of the defendant "asilio "atiller, on the death of the former in &'89, as

his sole heir. saias "atiller succeeded his father , "asilio "atiller, in the ownership and possession of the land in the year &';9, 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. 8. 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. ;. That <ot ,o. 8, !su &::8$&, the subGect of 0ree Patent application of the defendant has beenapproved. $. The damages suffered by the defendant, as alleged in his counterclaim."B 1 The appellate court further related the developments of the case, as follows# .n August &@, &'F:, defendantBs counsel manifested in open court that before any trial on the merit of the case could proceed he would file a motion to dismiss plaintiffBs complaint which he did, alleging that plaintiff does not have cause of action against him because the property in dispute which he 5plaintiff6 allegedly bought from his father=in=law, 1rancisco +ilitante was the subGect matter of <*4 ,o. F': filed in the 41 of loilo, which case was brought on appeal to this 4ourt and docketed as 4A=).*. ,o. &;$'@=* in which aforesaid case plaintiff was the counsel on record of his father=in=law, 1rancisco +ilitante. nvoking Arts. &$9' and &$'& of the 4ivil 4ode which reads# BArt. &$9'. The following contracts are inexistent and void from the beginning# xxx xxx xxx 5@6 Those expressly prohibited by law. BA*T. &$'&. The following persons cannot ac7uire any purchase, even at a public auction, either in person of through the mediation of another# . xxx xxx xxx 5:6 Justices, .udges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of .ustice, the property and rights of in litigation or levied upon an execution before the court within whose Gurisdiction or territory they exercise their respective functionsI this prohibition includes the act of ac7uiring an assignment and shall apply tolawyers, with respect to the property and rights which may be the obGect of any litigation in which they may take part by virtue of their profession.B defendant claims that plaintiff could not have ac7uired any interest in the property in dispute as the contract he 5plaintiff6 had with 1rancisco +ilitante was inexistent and void. 5See pp. 88=;&, *ecord on Appeal6. !laintiff strongly opposed defendantBs motion to dismiss claiming that defendant can not invoke Articles &$9' and &$'& of the 4ivil 4ode as Article &$88 of the same 4ode provides that BThe defense of illegality of contracts is not available to third persons whose interests are not directly affectedB 5See pp. ;8=;: *ecord on Appeal6. 8n 8ctober 1", 1!12, the lower court issued an order disclaiming plaintiffs complaint 5pp. $8=$', *ecord on Appeal.6 n the aforesaid order of dismissal the lower court practically agreed with defendantBs contention that the contract 5Exh. A6 between plaintiff and 1rancism +ilitante was null and void. n due season plaintiff filed a motion for reconsideration 5pp. :9=

:F *ecord on Appeal6 which was denied by the lower court on %anuary &$, &'FF 5p. :@, *ecord on Appeal6. 3ence, this appeal by plaintiff from the orders of .ctober &(, &'F: and %anuary &$, &'FF. !laintiff=appellant imputes to the lower court the following errors# B&. The lower court erred in holding that the contract of sale between the plaintiff=appellant and his father=in=law, 1rancisco +ilitante, Sr., now deceased, of the property covered by !lan !su=''@'&, 5Exh. "A"6 was void, not voidable because it was made when plaintiff=appellant was the counsel of the latter in the <and *egistration case. B8. The lower court erred in holding that the defendant=appellee is an interested person to 7uestion the validity of the contract of sale between plaintiff=appellant and the deceased, 1rancisco +ilitante, Sr. B;. 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 7uestion. B$. The lower court erred in dismissing the complaint of the plaintiff=appellant.B The appellate court concluded that plaintiffs "assignment of errors gives rise to two 586 legal posers J 5&6 whether or not the contract of sale between appellant and his father=in=law, the late 1rancisco +ilitante over the property subGect of !lan !su=''@'& was void because it was made when plaintiff was counsel of his father=in=law in a land registration case involving the property in disputeI and 586 whether or not the lower court was correct in entertaining defendant=appelleeBs motion to dismiss after the latter had already filed his answer and after he 5defendant6 and plaintiff=appellant had agreed on some matters in a pre=trial conference. 3ence, its elevation of the appeal to this 4ourt as involving pure 7uestions of law. t 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 adGudication 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 1rancisco +ilitanteBs predecessors, supra, 3 actually are already made of record in thestipulated facts and admitted e)hibits. The chain of +ilitanteBs alleged title and right to the land as supposedly traced back to <iberato 0emontaHo was actually asserted by +ilitante 5and his vendee, lawyer and son=in=law, herein plaintiff6 in the land registration case and re.ected by the loilo land registration court which dismissed +ilitanteBs application for registration of the land. Such dismissal, as already stated, was affirmed by the final Gudgment in &':( of the 4ourt of Appeals. & The four points on which defendant on his part reserved the presentation of evidence at the trial dealing with his and his ancestorsB continuous, open, public and peaceful possession in the concept of owner of the land and the 0irector of <andsB 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 eGectment case wherein the loilo court of first instance recogniDed the superiority of defendantBs right to the land as against plaintiff. ,o error was therefore committed by the lower court in dismissing plaintiffBs complaint upon defendantBs motion after the pre=trial.

&. The stipulated facts and exhibits of record indisputably established plaintiffBs lack of cause of action and Gustified the outright dismissal of the complaint. !laintiffBs claim of ownership to the land in 7uestion was predicated on the sale thereof for !8,999.99 made in &':F by his father=in= law, 1rancisco +ilitante, in his favor, at a time when +ilitanteBs application for registration thereof had already been dismissed by the loilo land registration court and was pending appeal in the 4ourt of Appeals. -ith the 4ourt of AppealsB &':( final Gudgment affirming the dismissal of +ilitanteBs application for registration, the lack of any rightful claim or title of +ilitante to the land was conclusively and decisively Gudicially determined. 3ence, there was no right or title to the land that could be transferred or sold by +ilitanteBs purported sale in &':F in favor of plaintiff. +anifestly, then plaintiffBs 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. 8. ,o error could be attributed either to the lower courtBs holding that the purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article &$'&, paragraph 5:6 of the !hilippine 4ivil 4ode, reproduced supraI 6 and that conse7uently, plaintiffBs purchase of the property in litigation from his client 5assuming that his client could sell the same since as already shown above, his clientBs claim to the property was defeated and reGected6 was void and could produce no legal effect, by virtue of Article &$9', paragraph 5@6 of our 4ivil 4ode which provides that contracts "expressly prohibited or declared void by lawB are "inexistent and that "5T6hese contracts cannot be ratified. ,either can the right to set up the defense of illegality be waived." The &'&& case of Eolfson vs& 6state of >artinez ' relied upon by plaintiff as holding that a sale of property in litigation to the party litigantBs lawyer "is not void but voidable at the election of the vendor" was correctly held by the lower court to have been superseded by the later &'8' case of ?irector of -ands vs& +bagat. ( n this later case of Abagat, the 4ourt expressly cited two antecedent cases involving the same transaction of purchase of property in litigation by the lawyer which was expressly declared invalid under Article &$:' of the 4ivil 4ode of Spain 5of which Article &$'& of our 4ivil 4ode of the !hilippines is the counterpart6 upon challenge thereof not by the vendor=client but by the adverse parties against whom the lawyer was to enforce his rights as vendee thus ac7uired. These two antecedent cases thus cited in Abagat clearly superseded 5without so expressly stating the previous ruling in Eolfson# The spouses, %uan Soriano and Aicente +acaraeg, were the owners of twelve parcels of land. Aicenta +acaraeg died in ,ovember, &'9', leaving a large number of collateral heirs but no descendants. <itigation between the surviving husband, %uan Soriano, and the heirs of Aicenta immediately arose, and the herein appellant Sisenando !alarca acted as SorianoBs lawyer. .n +ay 8, &'&(, Soriano executed a deed for the aforesaid twelve parcels of land in favor of Sisenando !alarca and on the following day, +ay ;, &'&(, !alarca filed an application for the registration of the land in the deed. +fter hearing, the 3ourt of 0irst /nstance declared that the deed was invalid by virtue of the provisions of article 172! of the 3ivil 3ode, which prohibits lawyers and solicitors from purchasing property rights involved in any litigation in which they take part by virtue of their profession& The application for registration was conse,uently denied, and upon appeal by Palarca to the Supreme 3ourt, the .udgement of the lower court was affirmed by a decision promulgated @ovember 11,1!#2. 5).*. ,o. 8$;8', !alarca vs. 0irector of <ands, not reported.6 n the meantime cadastral case ,o. ;9 of the !rovince of Tarlac was instituted, and on August 8&, &'8;, Eleuteria +acaraeg, as administratrix of the estate of Aicente +acaraeg, filed claims for the parcels in 7uestion. "uenaventura <avitoria administrator of the estate of %uan Soriano, did likewise and so did Sisenando !alarca. n a decision dated %une 8&, &'8@, the 4ourt of 1irst nstance, %udge 4arballo presiding, rendered Gudgment in favor of

!alarea and ordered the registration of the land in his name. Fpon appeal to this court by the administration of the estates of Juan Soriano and 4icente >acaraeg, the .udgment of the court below was reversed and the land ad.udicated to the two estates as con.ugal property of the deceased spouses. 5).*. ,o. 8(88F, 0irector of <ands vs. Abagat, promulgated +ay 8&, &'8(, not reported.6 9 n the very case of +bagat itself, the 4ourt, again affirming the invalidity and nullity of the lawyerBs 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 !alarca is a lawyer and is presumed to know the law. 3e must, therefore, from the beginning, have been well aware of the defect in his title and is, conse7uently, a possessor in bad faith." As already stated, Eolfson and +bagat were decided with relation to Article &$:' of the 4ivil 4ode of Spain then adopted here, until it was superseded on August ;9, &':9 by the 4ivil 4ode of the !hilippines whose counterpart provision is Article &$'&. Article &$'& of our 4ivil 4ode 5like Article &$:' of the Spanish 4ivil 4ode6 prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control over the property, from ac7uiring such property in their trust or control either directly or indirectly and "even at a public or Gudicial auction," as follows# 5&6 guardiansI 586 agentsI 5;6 administratorsI 5$6 public officers and employeesI Gudicial officers and employees, prosecuting attorneys, and lawyersI and 5F6 others especially dis7ualified by law. n Eolfson which involved the sale and assignment of a money Gudgment by the client to the lawyer, -olfson, whose right to so purchase the Gudgment was being challenged by the Gudgment debtor, the 4ourt, through %ustice +oreland, then expressly reserved decision on "whether or not the Gudgment in 7uestion actually falls within the prohibition of the article" and held only that the saleBs "voidability can not be asserted by one not a party to the transaction or his representative," citing from +anresa 10 that "546onsidering the 7uestion from the point of view of the civil law, the view taken by the code, we must limit ourselves to classifying as void all acts done contrary to the express prohibition of the statute. ,ow then# As the code does not recogniDe such nullity by the mere operation of law, the nullity of the acts hereinbefore referred to must be asserted by the person having the necessary legal capacity to do so and decreed by a competent court." 11 The reason thus given by +anresa in considering such prohibited ac7uisitions under Article &$:' of the Spanish 4ivil 4ode as merely voidable at the instance and option of the vendor and not void J "that the 4ode does not recogniDe such nullity de pleno derecho" J is no longer true and applicable to our own !hilippine 4ivil 4ode whichdoes recogniDe the absolute nullity of contracts "whose cause, obGect, or purpose is contrary to law, morals, good customs, public order or public policy" or which are "e)pressly prohibited or declared void by law" and declares such contracts "ine)istent and void from the beginning." 12 The Supreme 4ourt of Spain and modern authors have likewise veered from +anresaBs view of the Spanish codal provision itself. n its sentencia of && %une &'FF, the Supreme 4ourt of Spain ruled that the prohibition of Article &$:' of the Spanish 4ivil 4ode is based on public policy, that violation of the prohibition contract cannot be validated by confirmation or ratification, holding that# ... la prohibicion 7ue el articulo &$:' del 4.4. establece respecto a los administradores y apoderados, la cual tiene conforme a la doctrina de esta Sala, contendia entre otras, en S. de 8@=:=&':', 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 &$:' of the Spanish 4ivil 4ode 5Article &$'& of our 4ivil 4ode6 as a matter of public order and policy as applied by the Supreme 4ourt of Spain to administrators and agents in its above cited decision should certainly apply with greater reason to Gudges, Gudicial officers, fiscals and lawyers under paragraph : of the codal article. 4iting the same decisions of the Supreme 4ourt of Spain, )ullon "allesteros, his "4urso de 0erecho 4ivil, 54ontratos Especiales6" 5+adrid, &'F(6 p. &(, affirms that, with respect to Article &$:', Spanish 4ivil 4ode#. Kue caracter tendra la compra 7ue se realice por estas personasC !orsupuesto no cabe duda de 7ue el caso 5art.6 &$:', $9 y :9, la nulidad esabsoluta por7ue el motivo de la prohibicion es de orden publico. 1& !ereD )onDales in such view, stating that "0ado el caracter prohibitivo delprecepto, la conse7uencia de la infraccion es la nulidad radical y ex lege." 15 4astan, 7uoting +anresaBs own observation that. "El fundamento do esta prohibicion es clarisimo. ,o sa trata con este precepto tan solo de guitar la ocasion al fraudeI persiguese, ademasel proposito de rodear a las personas ,ue intervienen en la administrcionde .usticia de todos los retigios ,ue necesitan pora e.ercer su ministerio librandolos de toda suspecha, ,ue aun,ue fuere in fundada, redundura endescredito de la institucion." 16 arrives at the contrary and now accepted view that "!uede considerace en nuestro derecho ine)istente 'o radicalmente nulo el contrato en los siguentes cases# a6 ...I b6 cuando el contrato se ha celebrado en violacion de una prescripcion 'o prohibicion legal, fundada sobre motivos de orden publico5hipotesis del art. $ del codigo6 ..." 1' t is noteworthy that 4altanBs rationale for his conclusion that fundamental consideration of public policy render void and inexistent such expressly prohibited purchase 5e.g. by public officers and employees of government property intrusted to them and by Gustices, Gudges, fiscals and lawyers of property and rights in litigation and submitted to or handled by them, under Article &$'&, paragraphs 5$6 and 5:6 of our 4ivil 4ode6 has been adopted in a new article of our 4ivil 4ode, viD, Article &$9' declaring such prohibited contracts as "ine)istent and void from the beginning." 1( ndeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification. n his aspect, the permanent dis7ualification of public and Gudicial officers and lawyers grounded on public policy differs from the first three cases of guardians, agents and administrators 5Article &$'&, 4ivil 4ode6, 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 obGect which was illegal at the time of the first contract, may have already become lawful at the time of the ratification or second contractI or the service which was impossible may have become possibleI 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 e)ecutionI 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=appellantBs motion to dismiss on the ground of nullity of plaintiffBs alleged purchase of the land, since its Guridical effects and plaintiffBs alleged cause of action founded thereon were being asserted against defendant=appellant. The principles governing the nullity of such prohibited contracts and Gudicial declaration of their nullity have been well restated by Tolentino in his treatise on our 4ivil 4ode, as follows# !arties Affected. J +ny person may invoke the in e)istence of the contract whenever Guridical 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 reinvindicatoriaI and any

prossessor may refuse to deliver it to the transferee, who cannot enforce the contract. 4reditors may attach property of the debtor which has been alienated by the latter under a void contractI a mortgagee can allege the inexistence of a prior encumbranceI a debtor can assert the nullity of an assignment of credit as a defense to an action by the assignee. Action .n 4ontract. J Even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has already been fulfilled. ,obody can take the law into his own handsI 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 Gudgment, however, will retroact to the very day when the contract was entered into. f the void contract is still fully executory, no party need bring an action to declare its nullityI but if any party should bring an action to enforce it, the other party can simply set up the nullity as a defense.20 A44.*0 ,)<2, the order of dismissal appealed from is hereby affirmed, with costs in all instances against plaintiff=appellant. So ordered.

G.R. No. 1&3369

No=,?+,- 2', 2002

L OPOL#O C. L ONAR#O, -,7-,3,!*," +y 253 "a6:2*,- M R NCIANA L ONAR#O, petitioner, vs. $IRGINIA TORR S MARA$ILLA a!" L ONOR C. NA#AL, a3 A"?5!53*-a*-5),3 o1 *2, 3*a*, o1 MARIANO TORR S, a3 36+3*5*6*," +y F NA#AL $ NTURINA, respondents. 0E4 S ., YNAR S-SANTIAGO, J.:

This is a petition for review seeking to set aside the decision& dated ,ovember 8F, &''' and the resolution8 dated +ay &', 8999 of the 4ourt of Appeals; in 4A=).*. 4A ,o. :8';8, which affirmed the order$ of the *egional Trial 4ourt of !asay 4ity, "ranch , dismissing petitionerQs complaint : for "0elivery of !ossession of !roperty, .wnerQs 0uplicate 4ertificate of Title, *entals and 0amages," in 4ivil 4ase ,o. ';=&98(8. The instant controversy stemmed from a dispute over a &,&:&.(9 s7uare meter lot, located in !asay 4ity, covered by Transfer 4ertificate of Title ,o. 8;:: 5;$:&:6,F and registered in the name of +ariano Torres y 4havarria, the predecessor=in=interest of respondents. !etitioner claims that he is the lawful owner of the disputed lot, having purchased it on September 8', &'@8 from a certain Eusebio <eonardo *oxas,@ who in turn ac7uired the same lot by purchase on August 8(, &'@8 from +ariano Torres y 4havarria.( .n September &$, &'@8, Eusebio <eonardo *oxas sent a letter=re7uest' to the *egister of 0eed of !asay 4ity asking for the registration of the deed of sale allegedly executed in his favor by +ariano Torres y 4havarria. The letter was entered in the *egisterQs !rimary "ook under Entry ,o. ::@(9, Aol. A. The .ffice of the *egister of 0eeds, however, did not register the deed as it was awaiting the final disposition of a pending case&9 between +ariano Torres y 4havarria and a certain 1rancisco E. 1ernandeD involving title of the lot.&& ncidentally, the said case was decided in favor of +ariano Torres y 4havarria, which decision became final and executory on September 8&, &'@8.&8 .n .ctober F, &'@8, petitioner likewise asked the *egister of 0eeds to register the deeds of sale dated August 8(, &'@8 and the September 8', &'@8 involving Transfer 4ertificate of Title ,o. 8;:: 5;$:&:6, and to issue the corresponding transfer certificate of title in his name.&; !etitioner did not present the ownerQs duplicate copy of Transfer 4ertificate of Title ,o. 8;:: 5;$:&:6, which remained in the possession of respondents. !etitionerQs letter=re7uest was entered in the !rimary "ooks of the *egister of 0eeds under Entry ,o. ::':8, A.:, on .ctober &', &'@8. The *egister of 0eeds, however, certified that the original copy of T4T ,o. 8;:: 5;$:&:6, could not be retrieved or located in the office of the *egister of 0eeds of !asay, hence, the re7uested registration could not be effected.&$ .n ,ovember &;, &'@8, petitioner executed an affidavit of adverse claim&: over T4T ,o. 8;:: 5;$:&:6 which was entered in the !rimary "ook under Entry ,o. :F9;', Aol. :, on ,ovember &:, &'@8. .n +ay &(, &'';, the *egister of 0eeds of !asay 4ity was able to retrieve the original copy of T4T ,o. 8;:: 5;$:&:6.&F .n +ay 89, &'';, petitioner caused the annotation of his affidavit of adverse claim on T4T ,o. 8;:: 5;$:&:6,&@and asked the respondents to deliver possession of the ownerQs duplicate copy of T4T ,o. 8;:: 5;$:&:6. -hen the latter ignored his demand, petitioner filed on September F, &''; a complaint for "0elivery of !ossession of !roperty, .wnerQs 0uplicate 4ertificate of Title, *entals and 0amages." !etitioner alleged that he filed the case against respondents only in &''; because he was living abroad.&( n their Answer, respondents countered that since &';( up to the present, the lot in 7uestion has been registered in the name of the late +ariano Torres y 4havarria, their predecessor=in=interest, and that they have been in material possession thereof in the concept of owners. n the settlement of the estate of +ariano Torres y 4havarria, who died on August ;9, &'@$,&' his widow, *osario ,adal, and his natural child, Airginia Torres +aravilla, ac7uired the disputed lot by succession.89 After the demise of *osario ,adal, sometime in %anuary &''9, her share in the said lot was inherited by her sister, <eonor ,adal, who was appointed as special administratrix of the estate of *osario ,adal.8& Subse7uently, <eonor ,adal was also appointed administratrix of the estate of +ariano Torres y 4havarria.88 *espondents maintain that they have been in open and peaceful possession of the said property and that it was only in &''; when they came to know of the alleged claim of petitioners over the same property. *espondents contended further that the deeds of sale dated August 8(, &'@8 and September 8', &'@8 are falsified documents and that the signature of +ariano Torres y 4havarria on the August 8(, &'@8 deed of

absolute sale was a forgery. .n 1ebruary 8(, &''$, respondents filed a motion to dismiss8; the complaint on the grounds of# 5&6 non=payment of the correct docket feesI 586 prescriptionI and 5;6 laches. The motion to dismiss was denied on %uly 8:, &'':. +eanwhile, <eonor ,adal died on .ctober 8;, &'':, and was substituted by 1e ,adal Aenturina on %anuary &', &''F.8$ .n motion of respondents, the trial court reconsidered its order of %uly 8:, &'':, and issued an order on 1ebruary &, &''F, dismissing petitionerQs complaint on the ground of prescription and laches. 0issatisfied, petitioner appealed to the 4ourt of Appeals which affirmed the assailed order on ,ovember 8F, &'''. The motion for reconsideration was denied on +ay &', 8999. 3ence, the instant petition contending that the 4ourt of Appeals erred in holding that#

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1 T3E .* ) ,A< 4.!2 .1 T3E T4T -AS <.STL+ SS ,) , T3E 1 <ES .1 T3E *E) STE* .1 0EE0S, !ET T .,E* S3.E<0 3AAE 1 <E0 A !ET T ., 1.* *E4.,ST TET ., .1 T3E T T<EI A !ET T .,E*QS ,A4T ., 1.* 8& 2EA*S T. E,1.*4E 3 S * )3TS ., T3E 0EE0S 5EN3S. 8 A,0 $6 +A0E *ES!.,0E,TS "E< AE T3AT 3E 3A0 A"A,0.,E0 3 S * )3TS ., T3E !*.!E*T2I and, A <A43ES 3A0 .!E*ATE0 ,.T- T3STA,0 ,) T3AT !ET T .,E* -*.TE T3E *E) STE* .1 0EE0S .1 !ASA2 4 T2 5EN3. (6 A,0 T3E <ATTE* *E!< E0 T3AT *E) ST*AT ., 4.E<0 ,.T "E E11E4TE0 "E4AESE T3E T T<E -AS + SS ,) 5EN3. '6.8: The issue in the instant case is whether or not petitionerQs action is barred by prescription and laches. The 4ourt of Appeals ruled that petitionerQs cause of action is founded on the deed of absolute sale allegedly executed by respondentsQ predecessor=in=interest on August 8(, &'@8, which purportedly conveyed the disputed lot to Eusebio <eonardo *oxas, and the deed of sale dated September 8', &'@8, whereby the latter sold the same lot to petitioner. "eing an action based on written contracts, petitionerQs complaint falls under Article &&$$8F of the 4ivil 4ode, which provides that an action upon a written contract shall prescribe in ten years from the time the right of action accrued. Since petitioner brought the instant case only on September F, &'';, or 8& years from the time his supposed right of action accrued on

September 8', &'@8, i.e., the date of execution of the contract conveying to him the 7uestioned lot, his action was clearly barred by the statute of limitations. !etitioner, on the other hand, contends that the applicable provision is Article &&$&8@ and not &&$$ of the 4ivil 4ode because his action is one for recovery of possession of real property which prescribes in thirty years. The contention is without merit. !etitionerQs action is actually an action for specific performance, i&e., to enforce the deed of absolute sale allegedly executed in his favor. t is a fundamental principle that ownership does not pass by mere stipulation but by delivery. The delivery of a thing constitutes a necessary and indispensable re7uisite for the purpose of ac7uiring the ownership of the same by virtue of a contract.8( Ender Article &$'( of the 4ivil 4ode, when the sale is made through a public instrument, the execution thereof shall be e7uivalent to the delivery of the thing which is the obGect of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. Thus, the execution of the contract is only a presumptive, not conclusive delivery which can be rebutted by evidence to the contrary, as when there is failure on the part of the vendee to take material possession of the land subGect of the sale in the concept of a purchaser=owner.8' n the case at bar, it is not disputed that the lot in 7uestion was never delivered to petitioner notwithstanding the alleged execution of a deed of absolute sale. 1rom &'@8 to &'';, petitioner neither had, nor demanded, material possession of the disputed lot. t was the respondents who have been in control and possession thereof in the concept of owners since &';( up to the present. t follows that ownership of the lot was never transferred to petitioner. 3ence, he can not claim that the instant case is an accion reivindicatoria or an action to recover ownership and full possession of the property which, in the first place, never came into his possession for lack of the re7uisite delivery. Thus, in ?anguilan v& /ntermediate +ppellate 3ourt,;9 where the re7uisite delivery was not effected, the 4ourt held that# Since in this Gurisdiction it is a fundamental and elementary principle that ownership does not pass by mere stipulation but only by delivery 54ivil 4ode, Art. &9':I 1idelity and Surety 4o. v. -ilson, ( !hil. :&6, and the execution of a public document does not constitute sufficient delivery where the property involved is in the actual and adverse possession of third persons 5Addison v. 1elix, ;( !hil. $9$I +asallo v. 4esar, ;' !hil. &;$6, it becomes incontestable that even if included in the contract, the ownership of the property in dispute did not pass... ,ot having become the owner for lack of delivery, >one? cannot presume to recover the property from its present possessors. >The? action, therefore, is not one of revindicacion, but one against >the? vendor for specific performance of the sale ... 4learly, the case filed by petitioner was an action for specific performance of a written contract of sale which, pursuant to Article &&$$ of the 4ivil 4ode, prescribes in &9 years from the accrual of the right of action. n a contract of sale, there is a reciprocal obligation to pay the purchase price and the corresponding delivery of the thing sold, which obligations give rise to a right of action in case of breach.;& 3ere, petitionerQs right of action for specific performance or rescission arose when delivery of the thing sold was not effected on September 8', &'@8, despite the payment of the purchase price. 3ence, from &'@8 to &'';, when petitioner filed the instant case, 8& years had elapsed barring the institution of petitionerQs action which is definitely beyond the &9 year prescriptive period. !etitionerQs claim that the prescriptive period was tolled when he registered his adverse claim with the *egister of 0eeds is untenable. n 9arbin v& 3ourt of +ppeals, et al&,;8 wherein an action for annulment of a deed of sale was dismissed on the ground of prescription and laches, the 4ourt held that the registration of an adverse claim does not toll the running of the prescriptive period, thus# x x x the title of the defendant must be upheld for failure or the neglect of the plaintiffs for an unreasonable and unexplained length of time of more than fifteen 5&:6 years since they registered their adverse claim, or for a period of more than three 5;6 decades since the execution of the deed of sale in their favor upon which their adverse claim is based, to do that which, by exercising diligence, could or should have been

done earlier. 1or it is this negligence or omission to assert a right within reasonable time that is construed that plaintiffs had abandoned their right to claim ownership under the deed of sale, or declined to assert it. Thus, when a person slept on his rights for 8( years from the time of the transaction, before filing the action, amounts to laches which cannot be excused even by ignorance resulting from inexcusable negligence 5Ada. de <ima v. Tiu, :8 S4*A :&F >&'@9?6. n the same vein, the annotation on +ay 89, &''; of the ,ovember &;, &'@8 affidavit of adverse claim on T4T ,o. 8;:: 5;$:&:6 afforded no protection to petitioner for the same reason that said belated assertion of his alleged right over the property is barred by prescription and laches. +oreover, the affidavit of adverse claim registered by petitioner in &'@8 was ineffective. The law enforced at the time petitioner filed an adverse claim was Section &&9, of Act $'F,;; also known as the <and *egistration Act, 5now Section @9;$ of !.0. ,o. &:8', or the !roperty *egistration 0ecree;:6, which stated# Sec. &&9. -hoever claims any part or interest in registered land adverse to the registered owner, arising subse7uent to the date of the original registration, may, if no other provision is made in this Act for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom ac7uired, and a reference to the volume and page of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimantBs residence and designate a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim, and the court, upon a petition of any party in interest, shall grant a speedy hearing upon the 7uestion of the validity of such adverse claim and shall enter such decree therein as Gustice and e7uity may re7uire. f the claim is adGudged to be invalid, the registration shall be cancelled. f in any case the court after notice and hearing shall find that a claim thus registered was frivolous or vexatious, it may tax the adverse claimant double or treble costs in its discretion. n Junio v& ?e los Santos, et al&,;F an action for cancellation of an adverse claim, the 4ourt ruled that the procedure for registration of voluntary instruments, like a deed of sale, is laid down in Section :@;@ of Act $'F. "ut where the vendor refused to deliver to the vendee the ownerQs duplicate certificate of title, which title must be presented in order that the deed of conveyance may be registered and the corresponding transfer certificate of title may be issued,;( the vendee may file with the *egister of 0eeds an adverse claim under Section &&9 of Act ,o. $'F. 1or an adverse claim to be valid, it must be shown that a demand was made on the vendor and that the latter refused to surrender the ownerQs duplicate certificate of title.;' n instant case, it was not shown that +ariano Torres y 4havarria, the registered owner of the disputed lot, refused to surrender the ownerQs duplicate certificate of title, nor that petitioner demanded the surrender thereof. n the affidavit of adverse claim registered by petitioner he merely stated# "'. That in the meantime the herein 5AE,0EE6 <E.!.<0. 4. <E.,A*0. has no means to get or secure the aforementioned .wner>Q?s 0uplicate 4opy of Title ,o. 8;:: 5;$:&:6 !asay 4ity *egistry .ffice, from the said !arties, he 5<eopoldo 4. <eonardo6 hereby re7uests the *egister of 0eeds of !asay 4ity to annotate whatever rights and interest on the .* ) ,A< 4E*T 1 4ATE .1 T T<E ,o. 8;:: 5;$:&:6, !asay *egistry .ffice, in the name of +A* A,. 4. T.**ES as a ,otice of Adverse 4laim5s6 in favor of <E.!.<0. 4. <E.,A*0. to any third partyLiesI" 1or lack of the re7uisite unGustified refusal of the registered owner to surrender the ownerQs duplicate certificate of title, the affidavit of adverse claim registered by petitioner is not valid. <ikewise, there is no merit in petitionerBs assertion that the prescriptive period should commence to run only on +ay &(, &''; when the original copy of Transfer 4ertificate of Title ,o. 8;:: 5;$:&:6 was retrieved by the *egister of 0eeds. The loss of the original title will not prevent petitionerQs pursuit to enforce his right. .therwise stated, the recovery of the original title or the reconstitution thereof is not the only means by which petitioner could protect his right. Ender Article &&:: of the 4ivil 4ode = ">t?he prescription of actions is interrupted when they are filed in court, when there is a written extraGudicial demand by the creditors, and when there is any written acknowledgement of the debt by the debtor." !etitioner therefore may pursue

either Gudicial or extraGudicial means manifesting his interest in the 7uestioned property in order to interrupt the prescriptive period. 4ertainly, petitionerQs action filed on September F, &''; is barred by the &9 year prescriptive period from the accrual of his alleged right of action on September 8', &'@8. n the same vein, said action is barred by laches having allowed 8& years to lapse before enforcing his alleged right. <aches is defined as failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence could or should have been done earlier. t is negligence or omission to assert a right within a reasonable time, warranting presumption that the party entitled to assert it has abandoned it or has declined to assert it.$9 Tempus enim modus tollendi obligationes et actiones, ,uia tempus currit contra desides et sui .uris contemptores U 1or time is a means of dissipating obligations and actions, because time runs against the slothful and careless of their own rights.$& WH R FOR , in view of all the foregoing, the instant petition is 0E, E0. The ,ovember 8F, &''' decision and the +ay &', 8999 resolution of the 4ourt of Appeals in 4A=).*. 4A ,o. :8';8, which sustained the 1ebruary &, &''F order of the *egional Trial 4ourt of !asay 4ity, "ranch , dismissing petitionerQs complaint in 4ivil 4ase ,o. ';=&98(8 on the ground of prescription and laches, is A11 *+E0. S. .*0E*E0.

G.R. No. 1'15(6

%a!6a-y 25, 2010

NATIONAL POW R CORPORATION, !etitioner, vs. PRO$INC OF ;U /ON a!" MUNICIPALITY OF PAG.ILAO, *espondent. *ES.<ET ., .RION, J.:

The petitioner ,ational !ower 4orporation 5,apocor6 filed the present motion for reconsideration& of the 4ourtQs 0ecision of %uly &:, 899', in which we denied ,apocorQs claimed real property tax exemptions. 1or the resolution of the motion, we deem it proper to provide first a background of the case. "A4M)*.E,0 1A4TS The !rovince of KueDon assessed +irant !agbilao 4orporation 5+irant6 for unpaid real property taxes in the amount of !&.: "illion for the machineries located in its power plant in !agbilao, KueDon. ,apocor, which entered into a "uild=.perate=Transfer 5".T6 Agreement 5entitled Energy 4onversion Agreement6 with +irant, was furnished a copy of the tax assessment. ,apocor 5nota bene, not +irant6 protested the assessment before the <ocal "oard of Assessment Appeals 5<"AA6, claiming entitlement to the tax exemptions provided under Section 8;$ of the <ocal )overnment 4ode 5<)46, which states# Section 8;$. Exemptions from *eal !roperty Tax. U The following are exempted from payment of the real property tax# xxxx 5c6 All machineries and e7uipment that are actually, directly, and exclusively used by local water districts and government=owned or Ucontrolled corporations engaged in the supply and distribution of water andLor generation and transmission of electric powerI xxxx 5e6 +achinery and e7uipment used for pollution control and environmental protection. xxxx Assuming that it cannot claim the above tax exemptions, ,apocor argued that it is entitled to certain tax privileges, namely# a. the lower assessment level of &9O under Section 8&(5d6 of the <)4 for government=owned and controlled corporations engaged in the generation and transmission of electric power, instead of the (9O assessment level for commercial properties imposed in the assessment letterI and b. an allowance for depreciation of the subGect machineries under Section 88: of the <)4. n the 4ourtQs 0ecision of %uly &:, 899', we ruled that ,apocor is not entitled to any of these claimed tax exemptions and privileges on the basis primarily of the defective protest filed by the ,apocor. -e found that ,apocor did not file a valid protest against the realty tax assessment because it did not possess the re7uisite legal standing. -hen a taxpayer fails to 7uestion the assessment before the <"AA, the assessment becomes final, executory, and demandable, precluding the taxpayer from 7uestioning the correctness of the assessment or from invoking any defense that would reopen the 7uestion of its liability on the merits.8 Ender Section 88F of the <)4,; any owner or person having legal interest in the property may appeal an assessment for real property taxes to the <"AA. Since Section 8:9 adopts the same language in enumerating who may pay the tax, we e7uated those who are liable to pay the tax to the same entities who may protest the tax assessment. A person legally burdened with the obligation to pay for the tax imposed on the property has the legal interest in the property and the personality to protest the tax assessment.

To prove that it had legal interest in the taxed machineries, ,apocor relied on#. &. the stipulation in the ".T Agreement that authoriDed the transfer of ownership to ,apocor after 8: yearsI 8. its authority to control and supervise the construction and operation of the power plantI and ;. its obligation to pay for all taxes that may be incurred, as provided in the ".T Agreement. ,apocor posited that these indicated that +irant only possessed naked title to the machineries. -e denied the first argument by ruling that legal interest should be one that is actual and material, direct and immediate, not simply contingent or expectant.$ -e disproved ,apocorQs claim of control and supervision under the second argument after reading the full terms of the ".T Agreement, which, contrary to ,apocorQs claims, granted +irant substantial power in the control and supervision of the power plantQs construction and operation.: 1or the third argument, we relied on the 4ourtQs rulings in "aguio v. "usuegoF and <im v. +anila.@ n these cases, the 4ourt essentially declared that contractual assumption of tax liability alone is insufficient to make one liable for taxes. The contractual assumption of tax liability must be supplemented by an interest that the party assuming the liability had on the propertyI the person from whom payment is sought must have also ac7uired the beneficial use of the property taxed. n other words, he must have the use and possession of the property U an element that was missing in ,apocorQs case. -e further stated that the tax liability must be a liability that arises from law, which the local government unit can rightfully and successfully enforce, not the contractual liability that is enforceable only between the parties to the contract. n the present case, the !rovince of KueDon is a third party to the ".T Agreement and could thus not exact payment from ,apocor without violating the principle of relativity of contracts.( 4orollarily, for reasons of fairness, the local government units cannot be compelled to recogniDe the protest of a tax assessment from ,apocor, an entity against whom it cannot enforce the tax liability. At any rate, even if the 4ourt were to brush aside the issue of legal interest to protest, ,apocor could still not successfully claim exemption under Section 8;$ 5c6 of the <)4 because to be entitled to the exemption under that provision, there must be actual, direct, and exclusive use of machineries. ,apocor failed to satisfy these re7uirements. T3E +.T ., 1.* *E4.,S 0E*AT ., Although ,apocor insists that it is entitled to the tax exemptions and privileges claimed, the primary issue for the 4ourt to resolve, however, is to determine whether ,apocor has sufficient legal interest to protest the tax assessment because without the re7uisite interest, the tax assessment stands, and no claim of exemption or privilege can prevail. Section 88F of the <)4, as mentioned, limits the right to appeal the local assessorQs action to the owner or the person having legal interest in the property. ,apocor posits that it is the beneficial owner of the subGect machineries, with +irant retaining merely a naked title to secure certain obligations. Thus, it argues that the ".T Agreement is a mere financing agreement and is similar to the arrangement authoriDed under Article &:9; of the 4ivil 4ode, which declares# Art. &:9;. -hen there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer.

-here goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. "ut, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the sellerBs property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. xxxx !ursuant to this arrangement, +irantQs ownership over the subGect machineries is merely a security interest, given only for the purpose of ensuring the performance of ,apocorQs obligations. ,apocor additionally contends that its contractual assumption liability 5through the ".T Agreement6 for all taxes vests it with sufficient legal interest because it is actually, directly, and materially affected by the assessment. -hile its motion for reconsideration was pending, ,apocor filed a +otion to *efer the 4ase to the 4ourt En "anc considering that "the issues raised have far=reaching conse7uences in the power industry, the countryQs economy and the daily lives of the 1ilipino people, and since it involves the application of real property tax provision of the <)4 against ,apocor, an exempt government instrumentality." ' Also, the !hilippine ndependent !ower !roducers Association, nc. 5! !!A6 filed a +otion for <eave to ntervene and a +otion for *econsideration=in= ntervention. ! !!A is a non=stock corporation comprising of privately=owned power generating companies which includes Tea+ Energy 4orporation 5Tea+ Energy6, successor of +irant. ! !!A is claiming interest in the case since any decision here will affect the other members of ! !!A, all of which have executed similar ".T agreements with ,apocor. T3E 4.E*TQS *E< ,) At the outset, we resolve to deny the referral of the case to the 4ourt en banc. -e do not find the reasons raised by ,apocor meritorious enough to warrant the attention of the members of the 4ourt en banc, as they are merely reiterations of the arguments it raised in the petition for review on certiorari that it earlier filed with the 4ourt.&9 -ho may appeal a real property tax assessment <egal interest is defined as interest in property or a claim cogniDable at law, e7uivalent to that of a legal owner who has legal title to the property.&& )iven this definition, ,apocor is clearly not vested with the re7uisite interest to protest the tax assessment, as it is not an entity having the legal title over the machineries. t has absolutely no solid claim of ownership or even of use and possession of the machineries, as our %uly &:, 899' 0ecision explained. A ".T agreement is not a mere financing arrangement. n ,apocor v. 4"AA&8 U a case strikingly similar to the one before us, we discussed the nature of ".T agreements in the following manner# The underlying concept behind a ".T agreement is defined and described in the ".T law as follows# :uild'operate'and'transfer U A contractual arrangement whereby the proGect proponent undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The proGect proponent operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated and incorporated in the contract to enable the proGect proponent to recover its investment, and operating and maintenance expenses in the proGect. The proGect proponent transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty 5:96 years x x x x.

Ender this concept, it is the proGect proponent who constructs the proGect at its own cost and subse7uently operates and manages it. The proponent secures the return on its investments from those using the proGectQs facilities through appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated. At the end of the fixed term agreed upon, the proGect proponent transfers the ownership of the facility to the government agency. Thus, the government is able to put up proGects and provide immediate services without the burden of the heavy expenditures that a proGect start up re7uires.1avvphi1 A reading of the provisions of the partiesQ ".T Agreement shows that it fully conforms to this concept. .y 5*3 ,C7-,33 *,-?3, .PPC 2a3 )o?74,*, oD!,-3257 E +o*2 4,:a4 a!" +,!,15)5a4 E o1 *2, 7-oF,)*, 5!)46"5!: *2, ?a)25!,-5,3 a!" ,G657?,!* 63,", 36+F,)* o!4y *o *2, *-a!31,- o1 *2,3, 7-o7,-*5,3 D5*2o6* )o3* *o NAPOCOR a1*,- *2, 4a73, o1 *2, 7,-5o" a:-,," 67o!. As agreed upon, "!!4 provided the funds for the construction of the power plant, including the machineries and e7uipment needed for power generationI thereafter, it actually operated and still operates the power plant, uses its machineries and e7uipment, and receives payment for these activities and the electricity generated under a defined compensation scheme. ,otably, "!!4 U as owner=user U is responsible for any defect in the machineries and e7uipment. xxxx That some kind of "financing" arrangement is contemplated U in the sense that the private sector proponent shall initially shoulder the heavy cost of constructing the proGectQs buildings and structures and of purchasing the needed machineries and e7uipment U is undeniable. The arrangement, however, goes beyond the simple provision of funds, since the private sector proponent not only constructs and buys the necessary assets to put up the proGect, but operates and manages it as well during an agreed period that would allow it to recover its basic costs and earn profits. n other words, the private sector proponent goes into business for itself, assuming risks and incurring costs for its account. f it receives support from the government at all during the agreed period, these are pre=agreed items of assistance geared to ensure that the ".T agreementQs obGectives U both for the proGect proponent and for the government U are achieved. n this sense, a .OT a--a!:,?,!* 53 365 :,!,-53 a!" 53 "511,-,!* 1-o? *2, 636a4 15!a!)5!: a--a!:,?,!*3 where funds are advanced to a borrower who uses the funds to establish a proGect that it owns, subGect only to a collateral security arrangement to guard against the nonpayment of the loan. t is different, too, from an arrangement where a government agency borrows funds to put a proGect from a private sector=lender who is thereafter commissioned to run the proGect for the government agency. n the latter case, the government agency is the owner of the proGect from the beginning, and the lender=operator is merely its agent in running the proGect. f the ".T Agreement under consideration departs at all from the concept of a ".T proGect as defined by law, it is only in the way "!!4Qs cost recovery is achievedI instead of selling to facility users or to the general public at large, the generated electricity is purchased by ,A!.4.* which then resells it to power distribution companies. This deviation, however, is dictated, more than anything else, by the structure and usages of the power industry and does not change the ".T nature of the transaction between the parties. 4onsistent with the ".T concept and as implemented, .PPC E *2, oD!,--?a!a:,--o7,-a*o- o1 *2, 7-oF,)* E 53 *2, a)*6a4 63,- o1 5*3 ?a)25!,-5,3 a!" ,G657?,!*. .PPCH3 oD!,-3257 a!" 63, o1 *2, ?a)25!,-5,3 a!" ,G657?,!* a-, a)*6a4, "5-,)*, a!" 5??,"5a*,, D254, NAPOCORH3 53 )o!*5!:,!* a!", a* *253 3*a:, o1 *2, .OT A:-,,?,!*, !o* 36115)5,!* *o 3677o-* 5*3 )4a5? 1o- *aC ,C,?7*5o!. Thus, the 4TA committed no reversible error in denying ,A!.4.*Qs claim for tax exemption. >Emphasis supplied.? )iven the special nature of a ".T agreement as discussed in the cited case, we find Article &:9; inapplicable to define the contract between ,apocor and +irant, as it refers only to ordinary contracts of sale. -e thus declared in Tatad v. )arcia&; that under ".T agreements, the private corporationsLinvestors are the owners of the facility or machinery concerned. Apparently, even ,apocor and +irant recogniDe this principleI Article 8.&8 of their ".T Agreement provides that "until the Transfer 0ate, >+irant? shall, directly

or indirectly, own the !ower Station and all the fixtures, fitting, machinery and e7uipment on the Site x x x. >+irant? shall operate, manage, and maintain the !ower Station for the purpose of converting fuel of ,apocor into electricity." +oreover, if ,apocor truly believed that it was the owner of the subGect machineries, it should have complied with Sections 898 and 89F of the <)4 which obligates owners of real property to# a. file a sworn statement declaring the true value of the real property, whether taxable or exemptI&$ and b. file sufficient documentary evidence supporting its claim for tax exemption.&: -hile a real property ownerQs failure to comply with Sections 898 and 89F does not necessarily negate its tax obligation nor invalidate its legitimate claim for tax exemption, ,apocorQs omission to do so in this case can be construed as contradictory to its claim of ownership of the subGect machineries. That it assumed liability for the taxes that may be imposed on the subGect machineries similarly does not clothe it with legal title over the same. -e do not believe that the phrase "person having legal interest in the property" in Section 88F of the <)4 can include an entity that assumes another personQs tax liability by contract. A review of the provisions of the <)4 on real property taxation shows that the phrase has been repeatedly adopted and used to define an entity# a. in whose name the real property shall be listed, valued, and assessedI&F b. who may be summoned by the local assessor to gather information on which to base the market value of the real propertyI&@ c. who may protest the tax assessment before the <"AA&( and may appeal the latterQs decision to the 4"AAI&' d. who may be liable for the idle land tax,89 as well as who may be exempt from the sameI8& e. who shall be notified of any proposed ordinance imposing a special levy, 88 as well as who may obGect the proposed ordinanceI8; f. who may pay the real property taxI8$ g. who is entitled to be notified of the warrant of levy and against whom it may be enforcedI8: h. who may stay the public auction upon payment of the delin7uent tax, penalties and surchargeI8F and i. who may redeem the property after it was sold at the public auction for delin7uent taxes.8@ 1or the 4ourt to consider an entity assuming another personQs tax liability by contract as a person having legal interest in the real property would extend to it the privileges and responsibilities enumerated above. The framers of the <)4 certainly did not contemplate that the listing, valuation, and assessment of real property can be made in the name of such entityI nor did they intend to make the warrant of levy enforceable against it. nsofar as the provisions of the <)4 are concerned, this entity is a party foreign to the operation of real property tax laws and could not be clothed with any legal interest over the property apart from its assumed liability for tax. The rights and obligations arising from the ".T Agreement between ,apocor and +irant were of no legal interest to the tax collector U the !rovince of KueDon U which is charged with the performance of independent duties under the <)4.8(

Some authorities consider a person whose pecuniary interests is or may be adversely affected by the tax assessment as one who has legal interest in the property 5hence, possessed of the re7uisite standing to protest it6, citing 4ooleyQs <aw on Taxation.8' The reference to this foreign material, however, is misplaced. The tax laws of the Enited States deem it sufficient that a personQs pecuniary interests are affected by the tax assessment to consider him as a person aggrieved and who may thus avail of the Gudicial or administrative remedies against it. As opposed to our <)4, mere pecuniary interest is not sufficientI our law has re7uired legal interest in the property taxed before any administrative or Gudicial remedy can be availed. The right to appeal a tax assessment is a purely statutory rightI whether a person challenging an assessment bears such a relation to the real property being assessed as to entitle him the right to appeal is determined by the applicable statute U in this case, our own <)4, not ES federal or state tax laws. n light of our ruling above, ! !!AQs motion to intervene and motion for reconsideration=in=intervention is already mooted. ! !!A as an organiDation of independent power producers is not an interested party insofar as this case is concerned. Even if Tea+ Energy, as +irantQs successor, is included as one of its members, the motion to intervene and motion for reconsideration=in=intervention can no longer be entertained, as it amounts to a protest against the tax assessment that was filed without the complying with Section 8:8 of the <)4, a matter that we shall discuss below. +ost importantly, our 0ecision has not touched or affected at all the contractual stipulations between ,apocor and its ".T partners for the formerQs assumption of the tax liabilities of the latter. !ayment under protest is re7uired before an appeal to the <"AA can be made Apart from ,apocorQs failure to prove that it has sufficient legal interest, a further review of the records revealed another basis for disregarding ,apocorQs protest against the assessment. The <"AA dismissed ,apocorQs petition for exemption for its failure to comply with Section 8:8 of the <)4;9re7uiring payment of the assailed tax before any protest can be made. Although the 4"AA ultimately dismissed ,apocorQs appeal for failure to meet the re7uirements for tax exemption, it agreed with ,apocorQs position that "the protest contemplated in Section 8:8 5a6 is applicable only when the taxpayer is 7uestioning the reasonableness or excessiveness of an assessment. t presupposes that the taxpayer is subGect to the tax but is disputing the correctness of the amount assessed. t does not apply where, as in this case, the legality of the assessment is put in issue on account of the taxpayerQs claim that it is exempt from tax." The 4TA en banc agreed with the 4"AAQs discussion, relying mainly on the cases of Ty v. Trampe;& and .livareD v. +ar7ueD.;8 -e disagree. The cases of Ty and .livareD must be placed in their proper perspective. The petitioner in Ty v. Trampe 7uestioned before the trial court the increased real estate taxes imposed by and being collected in !asig 4ity effective from the year &''$, premised on the legal 7uestion of whether or not !residential 0ecree ,o. '8& 5!0 '8&6 was repealed by the <)4. !0 '8& re7uired that the schedule of values of real properties in the +etropolitan +anila area shall be prepared Gointly by the city assessors in the districts created thereinI while Section 8&8 of the <)4 stated that the schedule shall be prepared by the provincial, city or municipal assessors of the municipalities within the +etropolitan +anila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the Sanggunian concerned. The private respondents assailed TyQs act of filing a prohibition petition before the trial court contending that Ty should have availed first the administrative remedies provided in the <)4, particularly Sections 8:8 5on payment under protest before the local treasurer6 and 88F 5on appeals to the <"AA6. The 4ourt, through former 4hief %ustice Artemio !anganiban, declared that Ty correctly filed a petition for prohibition before the trial court against the assailed act of the city assessor and treasurer. The administrative protest proceedings provided in Section 8:8 and 88F will not apply. The protest contemplated under Section 8:8 is re7uired where there is a 7uestion as to the reasonableness or correctness of the amount assessed. 3ence, if a taxpayer disputes the reasonableness of an increase in a

real property tax assessment, he is re7uired to "first pay the tax" under protest. .therwise, the city or municipal treasurer will not act on his protest. Ty however was 7uestioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. These were not 7uestions merely of amounts of the increase in the tax but attacks on the very validity of any increase. +oreover, Ty was raising a legal 7uestion that is properly cogniDable by the trial courtI no issues of fact were involved. n enumerating the power of the <"AA, Section 88' declares that "the proceedings of the "oard shall be conducted solely for the purpose of ascertaining the facts x x x." Appeals to the <"AA 5under Section 88F6 are therefore fruitful only where 7uestions of fact are involved. .livareD v. +ar7ueD, on the other hand, involved a petition for certiorari, mandamus, and prohibition 7uestioning the assessment and levy made by the 4ity of !araHa7ue. .livareD was seeking the annulment of his realty tax delin7uency assessment. +ar7ueD assailed .livareDQ failure to first exhaust administrative remedies, particularly the re7uirement of payment under protest. .livareD replied that his petition was filed to 7uestion the assessorQs authority to assess and collect realty taxes and therefore, as held in Ty v. Trampe, the exhaustion of administrative remedies was not re7uired. The 4ourt however did not agree with .livareDQs argument. t found that there was nothing in his petition that supported his claim regarding the assessorQs alleged lack of authority. -hat .livareD raised were the following grounds# "5&6 some of the taxes being collected have already prescribed and may no longer be collected as provided in Section &'$ of the <ocal )overnment 4ode of &''&I 586 some properties have been doubly taxedLassessedI 5;6 some properties being taxed are no longer existentI 5$6 some properties are exempt from taxation as they are being used exclusively for educational purposesI and 5:6 some errors are made in the assessment and collection of taxes due on petitionersQ properties, and that respondents committed grave abuse of discretion in making the improper, excessive and unlawful the collection of taxes against the petitioner." The .livareD petition filed before the trial court primarily involved the correctness of the assessments, which is a 7uestion of fact that is not allowed in a petition for certiorari, prohibition, and mandamus. 3ence, we declared that the petition should have been brought, at the very first instance, to the <"AA, not the trial court. <ike .livareD, ,apocor, by claiming exemption from realty taxation, is simply raising a 7uestion of the correctness of the assessment. A claim for tax exemption, whether full or partial, does not 7uestion the authority of local assessor to assess real property tax. This may be inferred from Section 89F which states that# SE4. 89F. !roof of Exemption of *eal !roperty from Taxation. = Every person by or for whom real property is declared, who shall claim tax exemption for such property under this Title shall file with the provincial, city or municipal assessor within thirty 5;96 days from the date of the declaration of real property sufficient documentary evidence in support of such claim including corporate charters, title of ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage deeds, and similar documents. f the re7uired evidence is not submitted within the period herein prescribed, the property shall be listed as taxable in the assessment roll. 3owever, if the property shall be proven to be tax exempt, the same shall be dropped from the assessment roll. >Emphasis provided? "y providing that real property not declared and proved as tax=exempt shall be included in the assessment roll, the above=7uoted provision implies that the local assessor has the authority to assess the property for realty taxes, and any subse7uent claim for exemption shall be allowed only when sufficient proof has been adduced supporting the claim. Since ,apocor was simply 7uestioning the correctness of the assessment, it should have first complied with Section 8:8, particularly the re7uirement of payment under protest. ,apocorQs failure to prove that this re7uirement has been complied with thus renders its administrative protest under Section 88F of the <)4 without any effect. ,o protest shall be entertained unless the taxpayer first pays the tax. t was an ill=advised move for ,apocor to directly file an appeal with the <"AA under Section 88F without first paying the tax as re7uired under Section 8:8. Sections 8:8 and 88F provide successive administrative remedies to a taxpayer who 7uestions the correctness of an assessment. Section 88F, in declaring that

"any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city, or municipal assessor in the assessment of his property may x x x appeal to the "oard of Assessment Appeals x x x," should be read in conGunction with Section 8:8 5d6, which states that "in the event that the protest is denied x x x, the taxpayer may avail of the remedies as provided for in 4hapter ;, Title , "ook of the <)4 >4hapter ; refers to Assessment Appeals, which includes Sections 88F to 8;&?. The "action" referred to in Section 88F 5in relation to a protest of real property tax assessment6 thus refers to the local assessorQs act of denying the protest filed pursuant to Section 8:8. -ithout the action of the local assessor, the appellate authority of the <"AA cannot be invoked. ,apocorQs action before the <"AA was thus prematurely filed. 1or the foregoing reasons, we 0E,2 the petitionerQs motion for reconsideration. S. .*0E*E0.

G.R. No. L-20601

F,+-6a-y 2(, 1966

.UTUAN SAWMILL, INC., petitioner, vs. HON. COURT OF TAI APP ALS, T AL., respondents. ?avid 9& @itafan for the petitioner& 8ffice of the Solicitor 9eneral for the respondents& R Y S, %...L., J.:

Appeal from a decision of the 4ourt of Tax Appeals, in its 4TA 4ase ,o. 'F:, ordering petitioner herein, "utuan Sawmill, nc., to pay respondent 4ommissioner of nternal *evenue the sum of !;F,&9@.@$ as deficiency sales tax and surcharge due on its sales of logs to buyers in %apan from %anuary ;&, &':& to %une (, &':;. The facts, as found and stated by the lower court in its decision, are in full accord with the evidences presented thereinI hence, we 7uote them hereunder# . . . that during the period from %anuary ;&, &':& to %une (, &':;, it sold logs to %apanese firms at prices 1." Aessel +agallanes, Agusan 5in some cases 1." Aessel, ,asipit, also in Agusan6I that the 1." prices included costs of loading, wharfage stevedoring and other costs in the !hilippinesI that the 7uality, 7uantity and measurement specifications of the logs were certified by the "ureau of 1orestryI that the freight was paid by the %apanese buyersI and the payments of the logs were effected by means of irrevocable letters of credit in favor of petitioner and payable through the !hilippine ,ational "ank or any other bank named by it. Epon investigation by the "ureau of nternal *evenue, it was ascertained that no sales tax return was filed by the petitioner and neither did it pay the corresponding tax on the sales. .n the basis of agent Antonio +oleBs report dated September &@, &':@, respondent, on August 8@, &':(, determined against petitioner the sum of !$9,99$.9& representing sales tax, surcharge and compromise penalty on its sales >tax, surcharge and compromise penalty on its sales? of logs from %anuary &':& to %une &':; pursuant to Sections &(;, &(F and 89' of the ,ational nternal *evenue 4ode 5Exhibit "E", p. &$, 4TA rec. / p. &$, " * rec.6. And in conse7uence of a reinvestigation, respondent, on ,ovember F, &':(, amended the amount of the previous assessment to !;(,'&@.@$ 5Exh. "1", p. :8, " * rec.6. Subse7uent re7uests for reconsideration of the amended assessment having been denied 5Exh. ")", p. ::, " * rec.I Exh. "3", pp. @:=@F, " * rec.# Exh. " ", pp. @'=(9, " * rec.I Exh. "%", p. (&, " * rec.6, petitioner filed the instant petition for review on ,ovember @, &'F9. .n the bases of the above=7uoted findings and circumstances, the lower court upheld the legality and correctness of the amended assessment of the sales tax and surcharge, ruling that the sales in 7uestion, in the light of our previous decisions&, were domestic or "local" sales, and, therefore, subGect to sales tax under the provision of section &(F of the Tax 4ode, as amended by *epublic Acts ,os. ::( and :'$I and that the assessment thereof was made well within the ten=year period prescribed by Section ;;85a6 of the same 4ode, since petitioner herein omitted to file its sales tax returns for the years &':&, &':8 and &':;, and this omission was discovered only on September &@, &':@. The imposition of the compromise penalty was, however, eliminated therefrom for want of agreement between the taxpayer and the 4ollector 5now 4ommissioner6 of nternal *evenue. A motion to reconsider said decision having been denied, petitioner herein interposed the present appeal before this 4ourt. The issues presented in this appeal are# whether or not petitioner herein is liable to pay the :O sales tax as then prescribed by Section &(F of the Tax 4ode on its sales of logs to the %apanese buyersI and whether or not the assessment thereof was made within the prescriptive period provided by law therefor.1GwphH1&CIt .n the first issue, petitioner herein insists that the circumstances enumerated in the above finding, which this 4ourt had, in previous decisions 53f& footnote >&?6, considered as determinative of the place of transfer of ownership of the logs sold, for purposes of taxation, are not in themselves evidentiary indications to show that the parties intended the title of the logs to pass to the %apanese buyers in %apan. Thus, it points out that the "1."" feature of the sales contract was made only to fix its price and not to fix the place of deliveryI that the re7uirement of certification of 7uality, 7uantity, and measurement specifications of the logs by local authorities was done to comply with local laws, rules, and regulations, and was not a part of the sales arrangementI that the payment of freight by the %apanese buyers is not an uncommon feature of "1."" shipmentsI and that the payment of prices by means of irrevocable letters of credit is but a common

established business practice to secure payment of the price to the seller. t also insists that, even assuming that the "1."" feature of the disputed sales determines thesitus of transfer of ownership, the same is merely a prima facie presumption which yields to contrary proof such as that the logs were made deliverable to the "order of the shipper" and the logs were shipped at the risk of the shipper, which circumstances, if considered, would negate the above implications. 3ence, petitioner herein contends that the disputed sales were consummated in %apan, and, therefore, not subGect to the taxing Gurisdiction of our )overnment. The above contentions of petitioner are devoid of merit. n a decided case with practically identical set of facts obtaining in the case at bar, this 4ourt declared# . . . it is admitted that the agreed price was "1...". Agusan", thus indicating, although prima facie, that the parties intended the title to pass to the buyer upon delivery of the logs in AgusanI on board the vessels that took the goods to %apan. +oreover, said prima facie proof was bolstered up by the following circumstances, namely# &. rrevocable letters of credit were opened by the %apanese buyers in favor of the petitioners. 8. !ayment of freight charges of every shipment by the %apanese buyers. ;. The %apanese buyers chartered the ships that carried the logs they purchased from the !hilippines to %apan. $. The %apanese buyers insured the shipment of logs and collected the insurance coverage in case of loss in transit. :. The petitioner collected the purchase price of every shipment of logs by surrendering the covering letter of credit, bill of lading, which was indorsed in blank, tally sheet, invoice and export entry, to the corresponding bank in +anila of the %apanese agent bank with whom the %apanese buyers opened letters of credit. F. n case of natural defects in logs shipped to the buyers discovered in %apan, instead of returning such defective logs, accepted them, but were granted a corresponding credit based on the contract price. @. The logs purchased by the %apanese buyers were measured by a representative of the 0irector of 1orestry and such measurement was final, thereby making the )overnment of the !hilippines a sort of agent of the %apanese buyers. Epon the foregoing facts and authority of :islig A:ayB -umber 3o&, /nc& vs& 3ollector of /nternal *evenue, ).*. ,o. <=&;&(F 5%anuary 8(, &'F&6, >isamis -umber 3o&, /nc& vs& 3ollector of /nternal *evenue 5:F .ff. )aD. :&@6 andEestern >indanao -umber ?evelopment 3o&, /nc& vs& 3ourt of Ta) +ppeals, et al& 5).*. ,o. <=&&@&9, %une ;9, &':(6, it is clear that said export sales had been consummated in the !hilippines and were, accordingly, subGect to sales tax therein." 5Taligaman <umber 4o., nc. vs. 4ollector of nternal *evenue, ).*. ,o. <=&:@&F, +arch ;&, &'F86. -ith respect to petitionerBs contention that there are proofs to rebut the prima facie finding and circumstances that the disputed sales were consummated here in the !hilippines, we find that the allegation is not borne out by the law or the evidence. That the specification in the bill of lading to the effect that the goods are deliverable to the order of the seller or his agent does not necessarily negate the passing of title to the goods upon delivery to the carrier is clear from the second part of paragraph 8 of Article &:9; of the 4ivil 4ode of the !hilippines 5which appellantBs counsel improperly omits from his citation6#

-here goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. "ut, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the sellersBs property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. +oreover, it has been "a settled rule that in petitions to review decisions of the 4ourt of Tax Appeals, only 7uestions of law may be raised and may be passed upon by this 4ourt" 5)utierreD vs. 4ourt of Tax Appeals / 4ollector of nternal *evenue vs. )utierreD, ).*. ,os. <=@';( / <='@@&, +ay 8&, &':@, cited in SancheD vs. 4ommissioner of 4ustoms, ).*. ,o. <=(::F, September ;9, &':@6I and it having been found that there is no proof to substantiate the foregoing contention of petitioner, the same should also be ruled as devoid of merit. .n the second issue, petitioner avers that the filing of its income tax returns, wherein the proceeds of the disputed sales were declared, is substantial compliance with the re7uirement of filing a sales tax return, and, if there should be deemed a return filed, Section ;;&, and not Section ;;85a6, of the Tax 4ode providing for a five=year prescriptive period within which to make an assessment and collection of the tax in 7uestion from the time the return was deemed filed, should be applied to the case at bar. Since petitioner filed its income tax returns for the years &':&, &':8 and &':;, and the assessment was made in &':@ only, it further contends that the assessment of the sales tax corresponding to the years &':& and &':8 has already prescribed for having been made outside the five=year period prescribed in Section ;;& of the Tax 4ode and should, therefore, be deducted from the assessment of the deficiency sales tax made by respondent. The above contention has already been raised and reGected as not meritorious in a previous case decided by this 4ourt. Thus, we held that an income tax return cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Section ;;& of the Tax 4ode, and that the taxpayer must file a return for the particular tax re7uired by law in order to avail himself of the benefits of Section ;;& of the Tax 4odeI otherwise, if he does not file a return, an assessment may be made within the time stated in Section ;;85a6 of the same 4ode 5"isaya <and Transportation 4o., nc. vs. 4ollector of nternal *evenue / 4ollector of nternal *evenue vs. "isaya <and Transportation 4o., nc., ).*. ,os. <= &8&99 / <=&&(&8, +ay 8', &':'6. The principle enunciated in this last cited case is applicable by analogy to the case at bar. t being undisputed that petitioner failed to file a return for the disputed sales corresponding to the years &':&, &':8 and &':;, and this omission was discovered only on September &@, &':@, and that under Section ;;85a6 of the Tax 4ode assessment thereof may be made within ten 5&96 years from and after the discovery of the omission to file the return, it is evident that the lower court correctly held that the assessment and collection of the sales tax in 7uestion has not yet prescribed. -herefore, the decision appealed from should be, as it is hereby affirmed, with costs against petitioner. G.R. No. L-21263 A7-54 30, 1965

LAWY RS COOP RATI$ PU.LISHING COMPANY, plaintiff=appellee, vs. P RF CTO A. TA.ORA, defendant=appellant. Paredes, Poblador, 3ruz and @azareno for plaintiff'appellee& Tabora and 3oncon for defendant'appellant& .AUTISTA ANG LO, J.:

.n +ay ;, &'::, !erfecto A. Tabora bought from the <awyers 4ooperative !ublishing 4ompany one complete set of American %urisprudence consisting of $( volumes with &':$ pocket parts, plus one set of American %urisprudence, )eneral ndex, consisting of $ volumes, for a total price of !&,F@:.:9 which, in addition to the cost of freight of !F.'9, makes a total of !&,F(8.$9. Tabora made a partial payment of !;99.99, leaving a balance of !&,;(8.$9. The books were duly delivered and receipted for by Tabora on +ay &:, &':: in his law office gnacio "uilding, ,aga 4ity. n the midnight of the same date, however, a big fire broke out in that locality which destroyed and burned all the buildings standing on one whole block including at the law office and library of Tabora As a result, the books bought from the company as above stated, together with TaboraBs important documents and papers, were burned during the conflagration. This unfortunate event was immediately reported by Tabora to the company in a letter he sent on +ay 89, &'::. .n +ay 8;, the company replied and as a token of goodwill it sent to Tabora free of charge volumes @:, @F, @@ and @( of the !hilippine *eports. As Tabora failed to pay he monthly installments agreed upon on the balance of the purchase price notwithstanding the long time that had elapsed, the company demanded payment of the installments due, and having failed, to pay the same, it commenced the present action before the 4ourt of 1irst nstance of +anila for the recovery of the balance of the obligation. !laintiff also prayed that defendant be ordered to pay 8:O of the amount due as li7uidated damages, and the cost of action. 0efendant, in his answer, pleaded force ma.eure as a defense. 3e alleged that the books bought from the plaintiff were burned during the fire that broke out in ,aga 4ity on +ay &:, &'::, and since the loss was due to force ma.eure he cannot be held responsible for the loss. 3e prayed that the complaint be dismissed and that he be awarded moral damages in the amount of !&:,999.99. After due hearing, the court a ,uo rendered Gudgment for the plaintiff. t ordered the defendant to pay the sum of !&,;(8.$9, with legal interest thereon from the filing of the complaint, plus a sum e7uivalent to 8:O of the total amount due as li7uidated damages, and the cost of action. 0efendant took the case to the 4ourt of Appeals, but the same is now before us by virtue of a certification issued by that 4ourt that the case involves only 7uestions of law. Appellant bought from appellee one set of American %urisprudence, including one set of general index, payable on installment plan. t was provided in the contract that "title to and ownership of the books shall remain with the seller until the purchase price shall have been fully paid. <oss or damage to the books after delivery to the buyer shall be borne by the buyer." The total price of the books, including the cost of freight, amounts to !&,F(8.$9. Appellant only made a down payment of !;99.99 thereby leaving a balance of !&,;(8.$9. This is now the import of the present action aside from li7uidated damages. Appellant now contends that since it was agreed that the title to and the ownership of the books shall remain with the seller until the purchase price shall have been fully paid, and the books were burned or destroyed immediately after the transaction, appellee should be the one to bear the loss for, as a result, the loss is always borne by the owner. +oreover, even assuming that the ownership of the books were transferred to the buyer after the perfection of the contract the latter should not answer for the loss since the same occurred through force ma.eure. 3ere, there is no evidence that appellant has contributed in any way to the occurrence of the conflagration.1GwphH1&CIt This contention cannot be sustained. -hile as a rule the loss of the obGect of the contract of sale is borne by the owner or in case of force ma.eure the one under obligation to deliver the obGect is exempt from liability, the application of that rule does not here obtain because the law on the contract entered into on the matter argues against it. t is true that in the contract entered into between the parties the seller agreed that the ownership of the books shall remain with it until the purchase price shall have been fully paid, but such stipulation cannot make the seller liable in case of loss not only because such was agreed merely to secure the performance by the buyer of his obligation but in the very contract it was expressly agreed that the "loss

or damage to the books after delivery to the buyer shall be borne by the buyer." Any such stipulation is sanctioned by Article &:9$ of our 4ivil 4ode, which in part provides# 5&6 -here delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyerBs risk from the time of such delivery. ,either can appellant find comfort in the claim that since the books were destroyed by fire without any fault on his part he should be relieved from the resultant obligation under the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event. This is because this rule only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. 3ere these 7ualifications are not present. The obligation does not refer to a determinate thing, but is pecuniary in nature, and the obligor bound himself to assume the loss after the delivery of the goods to him. n other words, the obligor agreed to assume any risk concerning the goods from the time of their delivery, which is an exception to the rule provided for in Article &8F8 of our 4ivil 4ode. Appellant likewise contends that the court a ,uo erred in sentencing him to pay attorneyBs fees. This is merely the result of a misapprehension for what the court a ,uo ordered appellant to pay is not 8:O of the amount due as attorneyBs fees, but as li7uidated damages, which is in line with an express stipulation of the contract. -e believe, however, that the appellant should not be made to pay any damages because his denial to pay the balance of the account is not due to bad faith. -3E*E1.*E, the decision appealed from is modified by eliminating that portion which refers to li7uidated damages. ,o costs.

G.R. No. L-1(536

Ma-)2 31, 1965

%OS .. A/NAR, plaintiff=appellant, vs. RAFA L YAP#IANGCO, defendant=appelleeI T O#ORO SANTOS, intervenor=appellee.

0lorentino >& 9uanlao for plaintiff'appellant& *afael Dapdiangco in his own behalf as defendant'appellee& -orenzo Sumulong, *& :& <ilao and :& S& 0elipe for intervenor'appellee& R GALA, J.: This is an appeal, on purely legal 7uestions, from a decision of the 4ourt of 1irst nstance of KueDon 4ity, "ranch A, declaring the intervenor=appellee, Teodoro Santos, entitled to the possession of the car in dispute. The records before this 4ourt disclose that sometime in +ay, &':', Teodoro Santos advertised in two metropolitan papers the sale of his 1.*0 1A *<A,E :99. n the afternoon of +ay 8(, &':', a certain <. 0e 0ios, claiming to be a nephew of Aicente +arella, went to the Santos residence to answer the ad. 3owever, Teodoro Santos was out during this call and only the latterBs son, rineo Santos, received and talked with 0e 0ios. The latter told the young Santos that he had come in behalf of his uncle, Aicente +arella, who was interested to buy the advertised car. .n being informed of the above, Teodoro Santos instructed his son to see the said Aicente +arella the following day at his given address# &F$8 4risostomo Street, Sampaloc, +anila. And so, in the morning of +ay 8', &':', rineo Santos went to the above address. At this meeting, +arella agreed to buy the car for !&$,@99.99 on the understanding that the price would be paid only after the car had been registered in his name. rineo Santos then fetched his father who, together with <. 0e 0ios, went to the office of a certain Atty. %ose !adolina where the deed of the sale for the car was executed in +arellaBs favor. The parties to the contract thereafter proceeded to the +otor Aehicles .ffice in KueDon 4ity where the registration of the car in +arellaBs name was effected. Ep to this stage of the transaction, the purchased price had not been paid. 1rom the +otor Aehicles .ffice, Teodoro Santos returned to his house. 3e gave the registration papers and a copy of the deed of sale to his son, rineo, and instructed him not to part with them until +arella shall have given the full payment for the car. rineo Santos and <. 0e 0ios then proceeded to &F$8 4risostomo Street, Sampaloc, +anila where the former demanded the payment from Aicente +arella. +arella said that the amount he had on hand then was short by some !8,999.99 and begged off to be allowed to secure the shortage from a sister supposedly living somewhere on ADcarraga Street, also in +anila. Thereafter, he ordered <. 0e 0ios to go to the said sister and suggested that rineo Santos go with him. At the same time, he re7uested the registration papers and the deed of sale from rineo Santos on the pretext that he would like to show them to his lawyer. Trusting the good faith of +arella, rineo handed over the same to the latter and thereupon, in the company of <. 0e 0ios and another unidentified person, proceeded to the alleged house of +arellaBs sister. At a place on ADcarraga, rineo Santos and <. 0e 0ios alighted from the car and entered a house while their unidentified companion remained in the car. .nce inside, <. 0e 0ios asked rineo Santos to wait at the sala while he went inside a room. That was the last that rineo saw of him. 1or, after a considerable length of time waiting in vain for 0e 0ios to return, rineo went down to discover that neither the car nor their unidentified companion was there anymore. )oing back to the house, he in7uired from a woman he saw for <. 0e 0ios and he was told that no such name lived or was even known therein. -hereupon, rineo Santos rushed to &F$8 4risostomo to see +arella. 3e found the house closed and +arella gone. 1inally, he reported the matter to his father who promptly advised the police authorities. That very same day, or on the afternoon of +ay 8', &':' Aicente +arella was able to sell the car in 7uestion to the plaintiff=appellant herein, %ose ". ADnar, for !&:,999.99. nsofar as the above incidents are concerned, we are bound by the factual finding of the trial court that %ose ". ADnar ac7uired the said car from Aicente +arella in good faith, for a valuable consideration and without notice of the defect appertaining to the vendorBs title.

-hile the car in 7uestion was thus in the possession of %ose ". ADnar and while he was attending to its registration in his name, agents of the !hilippine 4onstabulary seiDed and confiscated the same in conse7uence of the report to them by Teodoro Santos that the said car was unlawfully taken from him. n due time, %ose ". ADnar filed a complaint for replevin against 4aptain *afael 2apdiangco, the head of the !hilippine 4onstabulary unit which seiDed the car in 7uestion 4laiming ownership of the vehicle, he prayed for its delivery to him. n the course of the litigation, however, Teodoro Santos moved and was allowed to intervene by the lower court. At the end of the trial, the lower court rendered a decision awarding the disputed motor vehicle to the intervenor=appellee, Teodoro Santos. n brief, it ruled that Teodoro Santos had been unlawfully deprived of his personal property by Aicente +arella, from whom the plaintiff=appellant traced his right. 4onse7uently, although the plaintiff=appellant ac7uired the car in good faith and for a valuable consideration from Aicente +arella, the said decision concluded, still the intervenor=appellee was entitled to its recovery on the mandate of Article ::' of the ,ew 4ivil 4ode which provides# A*T. ::'. The possession of movable property ac7uired in good faith is e7uivalent to title. ,evertheless, one who lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. f the possessor of a movable lost or of which the owner has been unlawfully deprived, has ac7uired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. 1rom this decision, %ose ". ADnar appeals. The issue at bar is one and simple, to wit# "etween Teodoro Santos and the plaintiff=appellant, %ose ". ADnar, who has a better right to the possession of the disputed automobileC -e find for the intervenor=appellee, Teodoro Santos. The plaintiff=appellant accepts that the car in 7uestion originally belonged to and was owned by the intervenor=appellee, Teodoro Santos, and that the latter was unlawfully deprived of the same by Aicente +arella. 3owever, the appellant contends that upon the facts of this case, the applicable provision of the 4ivil 4ode is Article &:9F and not Article ::' as was held by the decision under review. Article &:9F provides# A*T. &:9F. -here the seller of goods has a voidable title thereto, but his, title has not been voided at the time of the sale, the buyer ac7uires a good title to the goods, provided he buys them in good faith, for value, and without notice of the sellerBs defect of title. The contention is clearly unmeritorious. Ender the afore7uoted provision, it is essential that the seller should have a voidable title at least. t is very clearly inapplicable where, as in this case, the seller had no title at all. Aicente +arella did not have any title to the property under litigation because the same was never delivered to him. 3e sought ownership or ac7uisition of it by virtue of the contract. Aicente +arella could have ac7uired ownership or title to the subGect matter thereof only by the delivery or tradition of the car to him. Ender Article @&8 of the 4ivil 4ode, "ownership and other real rights over property are ac7uired and transmitted by law, by donation, by testate and intestate succession, and in conse7uence of certain contracts, by tradition." As interpreted by this 4ourt in a host of cases, by this provision, ownership is not transferred by contract merely but by tradition or delivery. 4ontracts only constitute titles or rights to the

transfer or ac7uisition of ownership, while delivery or tradition is the mode of accomplishing the same 5)onDales v. *oGas, &F !hil. :&I .ceGo, !ereD and 4o. v. nternational "ank, ;@ !hil. F;&, 1idelity and 0eposit 4o. v. -ilson, ( !hil. :&I MuenDle / Streiff v. -acke / 4handler, &$ !hil. F&9I Easton v. 0iaD 4o., ;8 !hil. &(96. 1or the legal ac7uisition and transfer of ownership and other property rights, the thing transferred must be delivered, inasmuch as, according to settled Gurisprudence, the tradition of the thing is a necessary and indispensable re7uisite in the ac7uisition of said ownership by virtue of contract. 5-alter <aston v. E. 0iaD / 4o. / the !rovincial Sheriff of Albay, supra.6 So long as property is not delivered, the ownership over it is not transferred by contract merely but by delivery. 4ontracts only constitute titles or rights to the transfer or ac7uisition of ownership, while delivery or tradition is the method of accomplishing the same, the title and the method of ac7uiring it being different in our law. 5)onDales v. *oxas, &F !hil. :&6 n the case on hand, the car in 7uestion was never delivered to the vendee by the vendor as to complete or consummate the transfer of ownership by virtue of the contract. t should be recalled that while there was indeed a contract of sale between Aicente +arella and Teodoro Santos, the former, as vendee, took possession of the subGect matter thereof by stealing the same while it was in the custody of the latterBs son. There is no ade7uate evidence on record as to whether rineo Santos voluntarily delivered the key to the car to the unidentified person who went with him and <. 0e 0ios to the place on ADcarraga where a sister of +arella allegedly lived. "ut even if rineo Santos did, it was not the delivery contemplated by Article @&8 of the 4ivil 4ode. 1or then, it would be indisputable that he turned it over to the unidentified companion only so that he may drive rineo Santos and 0e 0ios to the said place on ADcarraga and not to vest the title to the said vehicle to him as agent of Aicente +arella. Article @&8 above contemplates that the act be coupled with the intent of delivering the thing. 5&9 +anresa &;86 The lower court was correct in applying Article ::' of the 4ivil 4ode to the case at bar, for under it, the rule is to the effect that if the owner has lost a thing, or if he has been unlawfully deprived of it, he has a right to recover it, not only from the finder, thief or robber, but also from third persons who may have ac7uired it in good faith from such finder, thief or robber. The said article establishes two exceptions to the general rule of irrevindicability, to wit, when the owner 5&6 has lost the thing, or 586 has been unlawfully deprived thereof. n these cases, the possessor cannot retain the thing as against the owner, who may recover it without paying any indemnity, except when the possessor ac7uired it in a public sale. 50el *osario v. <ucena, ( !hil. :;:I Aarela v. 1innick, ' !hil. $(8I Aarela v. +atute, ' !hil. $@'I Arenas v. *aymundo, &' !hil. $F. Tolentino, id., Aol. , p. 8F&.6 n the case of 3ruz v& Pahati, et al&, :8 ..). ;9:; this 4ourt has already ruled that J Ender Article ::' of the new 4ivil 4ode, a person illegally deprived of any movable may recover it from the person in possession of the same and the only defense the latter may have is if he has ac7uired it in good faith at a public sale, in which case, the owner cannot obtain its return without reimbursing the price paid therefor. n the present case, plaintiff has been illegally deprived of his car through the ingenious scheme of defendant " to enable the latter to dispose of it as if he were the owner thereof. !laintiff, therefore, can still recover possession of the car even if it is in the possession of a third party who had ac7uired it in good faith from defendant ". The maxim that "no man can transfer to another a better title than he had himself" obtains in the civil as well as in the common law. 5E.S. v. Sotelo, 8( !hil. &$@6 1inally, the plaintiff=appellant here contends that inasmuch as it was the intervenor=appellee who had caused the fraud to be perpetrated by his misplaced confidence on Aicente +arella, he, the intervenor= appellee, should be made to suffer the conse7uences arising therefrom, following the e7uitable principle to

that effect. Suffice it to say in this regard that the right of the owner to recover personal property ac7uired in good faith by another, is based on his being dispossessed without his consent. The common law principle that where one of two innocent persons must suffer by a fraud perpetrated by another, the law imposes the loss upon the party who, by his misplaced confidence, has enabled the fraud to be committed, cannot be applied in a case which is covered by an express provision of the new 4ivil 4ode, specifically Article ::'. "etween a common law principle and a statutory provision, the latter must prevail in this Gurisdiction. 54ruD v. !ahati, supra6 E!., A<< T3E 1.*E). ,), the instant appeal is hereby dismissed and the decision of the lower court affirmed in full. 4osts against the appellant.