Sales Cases (2017-2018) ni Treeng
6. ID.; ID.; ID.; BALING FOR GENERAL MARKET.
Art. 1467. A contract for the delivery at a certain price of an
article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the
same is on hand at the time or not, is a contract of sale, but if
the goods are to be manufactured specially for the customer
and upon his special order, and not for the general market, it is
a contract for a piece of work.
INCHAUSTI & CO., Plaintiff-Appellant, v. ELLIS
CROMWELL, Collector of Internal
Revenue, Defendant-Appellee.
Haussermann, Cohn & Fisher, for Appellant.
Acting Attorney-General Harvey, for Appellee.
SYLLABUS
1. TAXATION; SALE OF HEMP; TAXABLE
VALUE. Where it is admitted by the parties that
it is customary to sell hemp in the market baled and
not loose, it will be presumed that the price at which
hemp is quoted in the market is the price of baled
hemp; and that prices stipulated in contracts for the
purchase and sale of hemp include the cost and
expense of baling where the contracts are silent
upon that subject.
2. ID.; ID.; ID.; BALING EXPENSE PART OF
PRICE. Under such conditions the cost and
expense of baling the hemp is a part of the
purchase price and subject to a tax imposed by law
on the gross amount of sales of the dealers, and is
not a sum paid for work, labor, and materials
performed and furnished by the vendor for the
vendee.
3. ID.; ID.; ID.; "PRICE" DEFINED. The word
"price" signifies the sum stipulated as the
equivalent 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.
4. ID.; ID.; ID.; DISTINCTION BETWEEN SALE
AND CONTRACT FOR LABOR AND MATERIALS.
The distinction between a contract of sale and
one for work, labor, and materials, is tested by the
inquiry whether the thing transferred is one not in
existence and which would never have existed but
for the order of the party desiring to acquire it, or a
thing which would have existed and been the
subject of sale to some other person, even if the
order had not been given.
5. ID.; ID.; ID.; FUTURE SALES. When 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. It is otherwise where
the article would not have been made but for the
agreement; and where the article ordered by the
purchase is exactly such as the vendor makes and
keeps on hand for sale to anyone, and no change
or modification of it is made at the vendees
request, it is a contract of sale even though it be
entirely made after and in consequence of the
vendees order for it.
In this case the baling was done for the general
market and was not something done by the plaintiff
as a result of the particular contract between him
and his vendee.
DECISION
MORELAND, J.:
This is an appeal by the plaintiff from a judgment of
the Court of First Instance of the city of Manila, the
Hon. Simplicio del Rosario 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:jgc:chanrobles.com.ph
"III. 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.
"IV. 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
rattan; that the operation of baling hemp is
designated among merchants by the word
prensaje.
"V. That in all sales of hemp by the plaintiff firm,
whether for its own account or on commission for
others, the price is quoted to the buyer at so much
per picul, no mention being made of baling; 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 Philippine
Islands, a charge, the amount of which depends
upon the then prevailing rate, is to be made against
the buyer under the denomination of prensaje.
That this charge is made in the same manner in all
cases, even when the operation of baling 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 B, respectively, and made a part
hereof.
"VI. That the amount of the charge made against
hemp buyers by the plaintiff firm and other sellers
of hemp under the denomination of prensaje
during the period involved in this litigation was
P1.75 per bale; that the average cost of the rattan
and matting used on each bale of hemp is fifteen
(15) centavos and that the average total cost of
baling hemp is one (1) peso per bale.
"VII. That insurance companies in the Philippine
Islands, in estimating the insurable value of hemp
always add to the quoted price of same the charge
made by the seller under the denomination of
prensaje.

"VIII. That the average weight of a bale of hemp is
two (2) piculs (126.5 kilograms).
"IX. That between the first day of January, 1905,
and the 31st day of March, 1910, the plaintiff firm,
in accordance with the custom mentioned in
paragraph V hereof, collected and received, under
the denomination of prensaje, 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 P380,124.35; and
between the 1st day of October, 1908, and the 1st
day of March, 1910, collected for the account of the
owners of hemp sold by the plaintiff firm in Manila
on commission, and under the said denomination of
prensaje, in addition to the price expressly agreed
upon for said hemp, sums aggregating P31,080.
"X. 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 prensaje.
"XI. That the plaintiff has always paid to the
defendant or to his predecessor in the office of the
Collector of Internal Revenue the tax collectible
under the provisions of section 139 of Act No. 1189
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 prensaje.
"XII. That on the 29th day of April, 1910, the
defendant, acting in his official capacity as Collector
of Internal Revenue of the Philippine Islands, made
demand in writing upon the plaintiff firm for the
payment within the period of five (5) days of the
sum of P1,370.68 as a tax of one-third of one per
cent on the sums of money mentioned in
Paragraph IX hereof, and which the said defendant
claimed to be entitled to receive, under the
provisions of the said section 139 of Act No. 1189,
upon the said sums of money so collected from
purchasers of hemp under the denomination of
prensaje.
"XIII. That on the 4th day of May, 1910, the plaintiff
firm paid to the defendant under protest the said
sum of P1,370.69, and on the same date appealed
to the defendant as Collector of Internal Revenue,
against the ruling by which the plaintiff firm was
required 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 P1,370.68 or any part
thereof.
"XIV. Upon the facts above set forth it is contended
by the plaintiff that the tax of P1,370.68 assessed
by the defendant upon the aggregate sum of said
charges made against said purchasers of hemp by
the plaintiff during the period in question, under the
denomination of prensaje as aforesaid, namely,
P411,204.35, 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
Sales Cases (2017-2018) ni Treeng
said sum of P1,370.68 paid to him under protest,
together with all interest thereon at the legal rate
since its payment. and the costs of this action.
"Upon the facts above stated it is the contention of
the defendant that the said charge made under the
denomination of prensaje 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 139 of Act No. 1189 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 thereof; and that the defendant should
have judgment against plaintiff for his costs."cralaw
virtua1aw library
Under these facts we are of the opinion that the
judgment of the court below was right. It is one of
the stipulations in the statement of facts that it is
customary to sell hemp in bales, and that the price
quoted 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
quantity of hemp it would be the understanding,
without words, that such hemp would be delivered
in bales, and that the purchase price would include
the cost and expense of baling. In 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. In the sales made
by the plaintiff, which are the basis of the
controversy here, there were no services performed
by him for his vendee. There was agreement that
services should be performed. Indeed, 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. He
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
equivalent 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.
It is quite 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. It is quite possible also that such
vendor of the plaintiff may have received the same
hemp from his vendor in baled form, that he paid
the additional cost of baling as a part of the
purchase price which he paid. In such case the
plaintiff performed no service whatever for his
vendee, nor did, the plaintiffs vendor perform any
service for him.
The distinction between a contract of sale and one
for work, labor, and materials is tested by the

inquiry whether the thing transferred is one not in
existence and which never would have existed but
for the order of the party desiring to acquire it, or a
thing which would have existed and been the
subject of sale to some other person. even if the
order had not been given. (Groves v. Buck, 3 Maule
& S., 178; Towers v. Osborne, 1 Strange, 506;
Benjamin on Sales, 90.) It 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 question had been
consummated. It 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. When 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. It is otherwise when
the article is made pursuant to agreement. (Lamb v.
Crafts, 12 Met., 353; Smith v. N. Y. C. Ry. Co., 4
Keyes, 180; Benjamin on Sales, 98.) Where labor is
employed on the materials of the seller he can not
maintain an action for work and labor. (Atkinson v.
Bell, 8 Barn. & C., 277; Lee v. Griffin, 30 L. J. N. S.
Q. B., 252; Prescott v. Locke, 51 N. H., 94.) If 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 defendants request, it is a contract of sale,
even though it may be entirely made after, and in
consequence of, the defendants order for it.
(Garbutt v. Watson, 5 Barn. & Ald., 613; Gardner v.
Joy, 9 Met., 177; Lamb v. Crafts, 12 Met., 353;
Waterman v. Meiks, 4 Cush., 497; Clark v. Nichols,
107 Mass., 547; May v. Ward, 134 Mass., 127;
Abbott v. Gilchrist, 38 Me., 260; Crocket v.
Scribner, 64 Me., 105; Pitkin v. Noyes, 48 N. H.,
294; Prescott v. Locke, 51 N. H., 94; Ellison v.
Brigham, 38 Vt., 64.) It has been held in
Massachusetts 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
requires some alteration, modification, or
adaptation to the buyers wishes or purposes.
(Mixer v. Howarth, 21 Pick., 205.) It 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. But 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. (Goddard
v. Binney, 115 Mass., 450.)
It 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. It is
undoubted that the plaintiff prepared his hemp for
the general market. This would be necessary One
who exposes goods for sale in the market must
have them in marketable form. The hemp in
question 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. It was precisely the same contract
that was made by every other seller of hemp,
Sales Cases (2017-2018) ni Treeng
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. It is
conceded in the case that 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 that 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. It is indisputable that, if the
plaintiff had bought the hemp in question already
baled, and that that was the hemp the sale of which
formed the subject 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. It 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 139 [Act No. 1189] of the Internal Revenue
Law provides that:jgc:chanrobles.com.ph
"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 Philippine Islands, and that this
tax shall be assessed on the actual selling price at
which every such merchant or manufacturer
disposes of his commodities."cralaw virtua1aw
library
The operation of baling undoubtedly augments the
value of the goods. We agree that there can be no
question that, if the value of the hemp were not
augmented to the amount of P1.75 per bale by said
operation, the purchaser would not pay that sum. If
one buys a bale of hemp at a stipulated price of
P20, well knowing that there is an agreement on his
part, express or implied, to pay an additional
amount of P1.75 for that bale, he considers the
bale of hemp worth P21.75. It 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.
By force of the custom prevailing among hemp
dealers in the Philippine Islands, 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. Whether 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
insist thereafter that the seller shall furnish him with
unbaled hemp. It is undoubted that the vendees, in
the sales referred to in the case at bar, would have
had no right, after having made their contracts, to
 Sales Cases (2017-2018) ni Treeng
insist on the delivery of loose hemp with the
purpose in view themselves to perform the baling
and thus save 75 centavos per bale. It is
unquestioned 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 process of baling.

We are of the opinion that the judgment appealed

from must be affirmed, without special finding as to
costs, and it is so ordered.

CELESTINO CO & COMPANY, petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE,
respondent.
Celestino Co & Company is a duly registered
general copartnership doing business under the
trade name of "Oriental Sash Factory". From 1946
to 1951 it paid percentage taxes of 7 per cent on
the gross receipts of its sash, door and window
factory, in accordance with section one hundred
eighty-six of the National Revenue Code imposing
taxes on sale of manufactured articles. However in
1952 it began to claim liability only to the
contractor's 3 per cent tax (instead of 7 per cent)
under section 191 of the same Code; and having
failed to convince the Bureau of Internal Revenue,
it brought the matter to the Court of Tax Appeals,
where it also failed. Said the Court:
To support his contention that his client is an
ordinary contractor . . . counsel presented . . .
duplicate copies of letters, sketches of doors and
windows and price quotations supposedly sent by
the manager of the Oriental Sash Factory 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 Oriental Sash
Factory does not manufacture ready-made doors,
sash and windows for the public but only upon
special order of its select customers. . . . I 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 "Oriental Sash Factory
(Celestino Co & Company, Prop.) 926 Raon St.
Quiapo, Manila, Tel. No. 33076, Manufacturers of
all kinds of doors, windows, sashes, furniture, etc.
used season-dried and kiln-dried lumber, of the
best quality workmanships" solely for the purpose
of supplying the needs for doors, windows and
sash of its special and limited customers. One ill
note that petitioner has chosen for its tradename
and has offered itself to the public as a "Factory",
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 sizes for the average
home. Moreover, as shown from the investigation
of petitioner's book of accounts, during the period
from January 1, 1952 to September 30, 1952, it
sold sash, doors and windows worth P188,754.69. I
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.
Sales Cases (2017-2018) ni Treeng
Even if we were to believe petitioner's 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 191 of the national Internal Revenue Code.
there are no less than fifty occupations enumerated
in the aforesaid section of the national Internal
Revenue Code subject 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. (Payton vs. City of
Anadardo 64 P. 2d 878, 880, 179 Okl. 68).
Having thus eliminated the feasibility off taxing
petitioner as a contractor under 191 of the national
Internal Revenue Code, 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 186
of the same code, as the respondent Collector of
Internal Revenue has in fact been doing the
Oriental Sash Factory was established in 1946.
The percentage tax imposed in section 191 of our
Tax Code is generally a tax on the sales of
services, in contradiction with the tax imposed in
section 186 of the same Code which is a tax on the
original sales of articles by the manufacturer,
producer or importer. (Formilleza's Commentaries
and Jurisprudence on the National Internal
Revenue Code, Vol. II, p. 744). The fact that the
articles sold are manufactured by the seller does
not exchange the contract from the purview of
section 186 of the National Internal Revenue Code
as a sale of articles.
There was a strong dissent; 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
Celestino Co & Company 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.

Perhaps the following paragraph represents in brief
the appellant's position in this Court:
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 Don Toribio Teodoro & Sons,
Inc., for instance, are not in existence and which
never would have existed but for the order of the
party desiring it; and since petitioner's 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 191 of the Tax Code and
NOT under section 185 of the same Code."
(Appellant's brief, p. 11-12).
But 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 Don Toribio Teodoro &
Sons Inc. 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 equipped to do so.
That the doors and windows must meet desired
specifications is neither here nor there. If these
specifications do not happen to be of the kind
habitually manufactured by appellant special
forms for sash, mouldings of panels it would not
accept the order and no sale is made. If they do,
the transaction would be no different from a
purchasers of manufactured goods held is stock for
sale; they are bought because they meet the
specifications desired by the purchaser.
Nobody will say that when a sawmill cuts lumber in
accordance with the peculiar specifications of a
customer-sizes not previously held in stock for sale
to the public-it thereby becomes an employee or
servant of the customer,1 not the seller of lumber.
The same consideration applies to this sash
manufacturer.
The Oriental Sash Factory does nothing more than
sell the goods that it mass-produces or habitually
makes; sash, panels, mouldings, frames, cutting
them to such sizes and combining them in such
forms as its customers may desire.
On the other hand, petitioner's idea of being a
contractor doing construction jobs is untenable.
Sales Cases (2017-2018) ni Treeng
Nobody would regard the doing of two window
panels a construction work in common parlance.2
Appellant invokes Article 1467 of the New Civil
Code 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.
It is at once apparent that the Oriental Sash Factory
did not merely sell its services to Don Toribio
Teodoro & Co. (To take one instance) because it
also sold the materials. The truth of the matter is
that it sold materials ordinarily manufactured by it
sash, panels, mouldings to Teodoro & Co.,
although in such form or combination as suited the
fancy of the purchaser. Such new form does not
divest the Oriental Sash Factory of its character as
manufacturer. Neither does it take the transaction
out of the category of sales under Article 1467
above quoted, because although the Factory does
not, in the ordinary course of its business,
manufacture and keep on stock doors of the kind
sold to Teodoro, it could stock and/or probably had
in stock the sash, mouldings and panels it used
therefor (some of them at least).
In our opinion when this Factory accepts a job that
requires the use of extraordinary or additional
equipment, or involves services not generally
performed by it-it thereby contracts for a piece of
work filing special orders within the meaning of
Article 1467. The orders herein exhibited were not
shown to be special. They were merely orders for
work nothing is shown to call them special
requiring 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. Would a factory do
business performing only special, extraordinary or
peculiar merchandise?
Anyway, supposing for the moment that the
transactions were not sales, they were neither
lease of services nor contract jobs by a contractor.
But as the doors and windows had been admittedly
 Sales Cases (2017-2018) ni Treeng
"manufactured" by the Oriental Sash Factory, such
transactions could be, and should be taxed as
"transfers" thereof under section 186 of the
National Revenue Code.

The appealed decision is consequently affirmed. So

ordered.

COMMISSIONER OF INTERNAL REVENUE,
petitioner,
vs.
ARNOLDUS CARPENTRY SHOP, INC. and
COURT OF TAX APPEALS, respondents.
Assailed in this petition is the decision of the Court
of Tax Appeals in CTA case No. 3357 entitled
"ARNOLDUS CARPENTRY SHOP, INC. v.
COMMISSIONER OF INTERNAL REVENUE."
The facts are simple.
Arnoldus Carpentry Shop, Inc. (private respondent
herein) is a domestic corporation which has been in
existence since 1960. It has for its secondary
purpose the "preparing, processing, buying, selling,
exporting, importing, manufacturing, trading and
dealing in cabinet shop products, wood and metal
home and office furniture, cabinets, doors,
windows, etc., including their component parts and
materials, of any and all nature and description"
(Rollo, pp. 160-161). These furniture, cabinets and
other woodwork were sold locally and exported
abroad.
For this business venture, private respondent kept
samples or models of its woodwork on display from
where its customers may refer to when placing their
orders.
Sometime in March 1979, the examiners of the
petitioner Commissioner of Internal Revenue
conducted an investigation of the business tax
liabilities of private respondent pursuant to Letter of
Authority No. 08307 NA dated November 23, 1978.
As per the examination, the total gross sales of
private respondent for the year 1977 from both its
local and foreign dealings amounted to
P5,162,787.59 (Rollo. p. 60). From this amount,
private respondent reported in its quarterly
percentage tax returns P2,471,981.62 for its gross
local sales. The balance of P2,690,805.97, which is
52% of the total gross sales, was considered as its
gross export sales (CTA Decision, p. 12).
Based on such an examination, BIR examiners
Honesto A. Vergel de Dios and Voltaire Trinidad
made a report to the Commissioner classifying
private respondent as an "other independent
contractor" under Sec. 205 (16) [now Sec. 169 (q)]
of the Tax Code. The relevant portion of the report
reads:
Examination of the records show that per purchase
orders, which are hereby attached, of the
Sales Cases (2017-2018) ni Treeng
taxpayer's customers during the period under
review, subject corporation should be considered a
contractor and not a manufacturer. The corporation
renders service in the course of an independent
occupation representing the will of his employer
only as to the result of his work, and not as to the
means by which it is accomplished, (Luzon
Stevedoring Co. v. Trinidad, 43 Phil. 803). Hence,
in the computation of the percentage tax, the 3%
contractor's tax should be imposed instead of the
7% manufacturer's tax. [Rollo, p. 591 (Emphasis
supplied.)
xxx xxx xxx
As a result thereof, the examiners assessed private
respondent for deficiency tax in the amount of
EIGHTY EIGHT THOUSAND NINE HUNDRED
SEVENTY TWO PESOS AND TWENTY THREE
CENTAVOS ( P88,972.23 ). Later, on January 31,
1981, private respondent received a letter/notice of
tax deficiency assessment inclusive of charges and
interest for the year 1977 in the amount of ONE
HUNDRED EIGHT THOUSAND SEVEN
HUNDRED TWENTY PESOS AND NINETY TWO
CENTAVOS ( P 108,720.92 ). This tax deficiency
was a consequence of the 3% tax imposed on
private respondent's gross export sales which, in
turn, resulted from the examiners' finding that
categorized private respondent as a contractor
(CTA decision, p.2).
Against this assessment, private respondent filed
on February 19, 1981 a protest with the petitioner
Commissioner of Internal Revenue. In the protest
letter, private respondent's manager maintained
that the carpentry shop is a manufacturer and
therefor entitled to tax exemption on its gross
export sales under Section 202 (e) of the National
Internal Revenue Code. He explained that it was
the 7% tax exemption on export sales which
prompted private respondent to exploit the foreign
market which resulted in the increase of its foreign
sales to at least 52% of its total gross sales in 1977
(CTA decision, pp. 1213).
On June 23, 1981, private respondent received the
final decision of the petitioner stating:
It is the stand of this Office that you are considered
a contractor an not a manufacturer. Records show
that you manufacture woodworks only upon
previous order from supposed manufacturers and
only in accordance with the latter's own design,
model number, color, etc. [Rollo p. 64] (Emphasis
supplied.)
On July 22, 1981, private respondent appealed to
the Court of Tax Appeals alleging that the decision

of the Commissioner was contrary to law and the
facts of the case.
On April 22, 1985, respondent Court of Tax
Appeals rendered the questioned decision holding
that private respondent was a manufacturer thereby
reversing the decision of the petitioner.
Hence, this petition for review wherein petitioner
raises the sole issue of. Whether or not the Court of
Tax Appeals erred in holding that private
respondent is a manufacturer and not a contractor
and therefore not liable for the amount of
P108,720.92, as deficiency contractor's tax,
inclusive of surcharge and interest, for the year
1977.
The petition is without merit.
1. Private respondent is a "manufacturer" as
defined in the Tax Code and not a "contractor"
under Section 205(e) of the Tax Code as petitioner
would have this Court decide.
(a) Section 205 (16) [now Sec. 170 (q)] of the
Tax Code defines "independent contractors" as:
... persons (juridical and natural) not enumerated
above (but not including individuals subject to the
occupation tax under Section 12 of the Local Tax
Code) whose activity consists essentially of the
sale of all kinds of services for a fee regardless of
whether or not the performance of the service calls
for the exercise or use of the physical or mental
faculties of such contractors or their employees.
(Emphasis supplied.)
Private respondent's business does not fall under
this definition.
Petitioner contends that the fact that private
respondent "designs and makes samples or
models that are 'displayed' or presented or
'submitted' to prospective buyers who 'might
choose' therefrom" signifies that what private
respondent is selling is a kind of service its shop is
capable of rendering in terms of woodwork skills
and craftsmanship (Brief for Petitioner, p. 6). He
further stresses the point that if there are no orders
placed for goods as represented by the sample or
model, the shop does not produce anything; on the
other hand, if there are orders placed, the shop
goes into fall production to fill up the quantity
ordered (Petitioner's Brief, p. 7).
The facts of the case do not support petitioner's
claim. Petitioner is ignoring the fact that private
Sales Cases (2017-2018) ni Treeng
respondent sells goods which it keeps in stock and
not services. As the respondent Tax Court had
found:
xxx xxx xxx
Petitioner [private respondent herein] claims, and
the records bear petitioner out, that it had a ready
stock of its shop products for sale to its foreign and
local buyers. As a matter of fact, the purchase
orders from its foreign buyers showed that they
ordered by referring to the models designated by
petitioner. Even purchases by local buyers for
television cabinets (Exhs. '2 to13', pp. 1-13, BIR
records) were by orders for existing models except
only for some adjustments in sizes and accessories
utilized.
With regard to the television cabinets, petitioner
presented three witnesses its bookkeeper,
production manager and manager who testified that
samples of television cabinets were designed and
made by petitioner, from which models the
television companies such as Hitachi National and
others might choose, then specified whatever
innovations they desired. If found to be saleable,
some television cabinets were manufactured for
display and sold to the general public. These
cabinets were not exported but only sold locally.
(t.s.n., pp. 2235, February 18,1982; t.s.n., pp. 7-10,
March 25, 1982; t.s.n., pp. 3-6, August 10, 1983.)
xxx xxx xxx
In the case of petitioner's other woodwork products
such as barometer cases, knife racks, church
furniture, school furniture, knock down chairs, etc.,
petitioner's above-mentioned witnesses testified
that these were manufactured without previous
orders. Samples were displayed, and if in stock,
were available for immediate sale to local and
foreign customers. Such testimony was not
contradicted by respondent (petitioner herein). And
in all the purchase orders presented as exhibits,
whether from foreign or local buyers, reference was
made to the model number of the product being
ordered or to the sample submitted by petitioner.
Respondent's examiners, in their memorandum to
the Commissioner of Internal Revenue, stated that
petitioner manufactured only upon previous orders
from customers and "only in accordance with the
latter's own design, model number, color, etc."
(Exh. '1', p. 27, BIR records.) Their bare statement
that the model numbers and designs were the
customers' own, unaccompanied by adequate
evidence, is difficult to believe. It ignores commonly
accepted and recognized business practices that it
is not the customer but the manufacturer who
furnishes the samples or models from which the

customers select when placing their orders, The
evidence adduced by petitioner to prove that the
model numbers and designs were its own is more
convincing [CTA decision, pp. 6-8.] (Emphasis
supplied)
xxx xxx xxx
This Court finds no reason to disagree with the Tax
Court's finding of fact. It has been consistently held
that while the decisions of the Court of Tax Appeals
are appealable to the Supreme Court, the former's
finding of fact are entitled to the highest respect.
The factual findings can only be disturbed on the
part of the tax court [Collector of Intern. al Revenue
v. Henderson, L-12954, February 28, 1961, 1
SCRA 649; Aznar v. Court of Tax Appeals, L-
20569, Aug. 23, 1974, 58 SCRA 519; Raymundo v.
de Joya, L-27733, Dec. 3, 1980, 101 SCRA 495;
Industrial Textiles Manufacturing Co. of the Phils. ,
Inc. v. Commissioner of Internal Revenue, L-27718
and L-27768, May 27,1985,136 SCRA 549.]
(b) Neither can Article 1467 of the New Civil
Code help petitioner's cause. Article 1467 states:
A contract for the delivery at a certain price of an
article Which the vendor in the ordinary course of
his business manufactures or procures for the -
general market, whether the same is on hand at the
time or not, is a contract of sale, but if the goods
are to be manufactured specially for the customer
and upon his special order, and not for the general
market, it is a contract for a piece of work.
Petitioner alleged that what exists prior to any order
is but the sample model only, nothing more, nothing
less and the ordered quantity would never have
come into existence but for the particular order as
represented by the sample or model [Brief for
Petitioner, pp. 9-101.]
Petitioner wants to impress upon this Court that
under Article 1467, the true test of whether or not
the contract is a piece of work (and thus classifying
private respondent as a contractor) or a contract of
sale (which would classify private respondent as a
manufacturer) is the mere existence of the product
at the time of the perfection of the contract such
that if the thing already exists, the contract is of
sale, if not, it is work.
This is not the test followed in this jurisdiction. As
can be clearly seen from the wordings of Art. 1467,
what determines whether the contract is one of
work or of sale is whether the thing has been
manufactured specially for the customer and upon
his special order." Thus, if the thing is specially
done at the order of another, this is a contract for a
Sales Cases (2017-2018) ni Treeng
piece of work. If, on the other hand, the thing is
manufactured or procured for the general market in
the ordinary course of one's business, it is a b
contract of sale.
Jurisprudence has followed this criterion. As held in
Commissioner of Internal Revenue v. Engineering
Equipment and Supply Co. (L-27044 and L-27452,
June 30, 1975, 64 SCRA 590, 597), "the distinction
between a contract of sale and one for work, labor
and materials is tested by the inquiry whether the
thing transferred is one not in existence and which
never would have existed but for the order of the
party desiring to acquire it, or a thing which would
have existed and has been the subject of sale to
some other persons even if the order had not been
given." (Emphasis supplied.) And in a BIR ruling,
which as per Sec. 326 (now Sec. 277) of the Tax
Court the Commissioner has the power to make
and which, as per settled jurisprudence is entitled
to the greatest weight as an administrative view
[National Federation of Sugar Workers (NFSW) v.
Ovejera, G.R. No. 59743, May 31, 1982, 114 SCRA
354, 391; Sierra Madre Trust v. Hon. Sec. of
Agriculture and Natural Resources, Nos. 32370 and
32767, April 20, 1983,121 SCRA 384; Espanol v.
Chairman and Members of the Board of
Administrators, Phil. Veterans Administration, L-
44616, June 29, 1985, 137 SCRA 3141, "one who
has ready for the sale to the general public finished
furniture is a manufacturer, and the mere fact that
he did not have on hand a particular piece or
pieces of furniture ordered does not make him a
contractor only" (BIR Ruling No. 33-1, series of
1960). Likewise,
xxx xxx xxx
When the vendor enters into a contract for the
delivery of an article which in the ordinary course of
his business he manufactures or procures for the
general market at a price certain (Art. 1458) such
contract is one of sale even if at the time of
contracting he may not have such article on hand.
Such articles fall within the meaning of "future
goods" mentioned in Art. 1462, par. 1. [5 Padilla,
Civil Law: Civil Code Annotated 139 (1974)
xxx xxx xxx
These considerations were what precisely moved
the respondent Court of Tax Appeals to rule that
'the fact that [private respondent] kept models of its
products... indicate that these products were for
sale to the general public and not for special
orders,' citing Celestino Co and Co. v. Collector of
Internal Revenue [99 Phil, 841 (1956)]. (CTA
Decision, pp. 8-9.)

Petitioner alleges that the error of the respondent
Tax Court was due to the 'heavy albeit misplaced
and indiscriminate reliance on the case of Celestino
Co and Co. v. Collector of Internal Revenue [99
Phil. 841, 842 (1956)] which is not a case in point' 1
Brief for Petitioner, pp. 14-15). The Commissioner
of Internal Revenue made capital of the difference
between the kinds of business establishments
involved a FACTORY in the Celestino Co case and
a CARPENTRY SHOP in this case (Brief for
Petitioner, pp. 14-18). Petitioner seems to have
missed the whole point in the former case.
True, the former case did mention the fact of the
business concern being a FACTORY, Thus:
xxx xxx xxx
... I 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 "Oriental Sash Factory
(Celestino Co and Company, Prop.) 926 Raon St.,
Quiapo, Manila, Tel. No. 33076, Manufacturers of
all kinds of doors, windows, sashes furniture, etc.
used season dried and kiln-dried lumber, of the
best quality workmanship" solely for the purpose of
supplying the need for doors, windows and sash of
its special and limited customers. One will note that
petitioner has chosen for its trade name and has
offered itself to the public as a FACTORY, 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 ready-made doors and
windows of standard sizes for the average home.
[Emphasis supplied.]
xxx xxx xxx
However, these findings were merely attendant
facts to show what the Court was really driving at
the habituality of the production of the goods
involved for the general public.
In the instant case, it may be that what is involved
is a CARPENTRY SHOP. But, in the same vein,
there are also attendant facts herein to show
habituality of the production for the general public.
In this wise, it is noteworthy to again cite the
findings of fact of the respondent Tax Court:
xxx xxx xxx
Sales Cases (2017-2018) ni Treeng
Petitioner [private respondent herein] claims, and
the records bear petitioner out, that it had a ready
stock of its shop products for sale to its foreign and
local buyers. As a matter of fact, the purchase
orders from its foreign buyers showed that they
ordered by referring to the models designed by
petitioner. Even purchases by local buyers for
television cabinets... were by orders for existing
models. ...
With regard to the television cabinets, petitioner
presented three witnesses... who testified that
samples of television cabinets were designed and
made by petitioner, from which models the
television companies ... might choose, then
specified whatever innovations they desired. If
found to be saleable, some television cabinets were
manufactured for display and sold to the general
public.
xxx xxx xxx
In the case of petitioner's other woodwork
products... these were manufactured without
previous orders. Samples were displayed, and if in
stock, were available for immediate sale to local
and foreign customers. (CTA decision, pp. 6-8.1
[Emphasis supplied.]
(c) The private respondent not being a
"contractor" as defined by the Tax Code or of the
New Civil Code, is it a 'manufacturer' as countered
by the carpentry shop?
Sec. 187 (x) [now Sec. 157 (x)] of the Tax Code
defines a manufacturer' as follows:
"Manufacturer" includes every person who by
physical or chemical process alters the exterior
texture or form or inner substance of any raw
material or manufactured or partially manufactured
product in such manner as to prepare it for a
special use or uses to which it could not have been
in its original condition, or who by any such process
alters the quality or any such raw material or
manufactured or partially manufactured product so
as to reduce it to marketable shape or prepare it for
any of the uses of industry, or who by any such
process combines any such raw material or
manufactured or partially manufactured products
with other materials or products of the same or
different kinds and in such manner that the finished
product of such process or manufacture can be put
to a special use or uses to which such raw material
or manufactured or partially manufactured products
in their original condition would not have been put,
and who in addition alters such raw material or
manufactured or partially manufactured products,
or combines the same to produce such finished

products for the purpose of their sale or distribution
to others and not for his own use or consumption.
It is a basic rule in statutory construction that when
the language of the law is clear and unequivocal,
the law must be taken to mean exactly what it says
[Banawa et al. v. Mirano et al., L-24750, May 16,
1980, 97 SCRA 517, 533].
The term "manufacturer" had been considered in its
ordinary and general usage. The term has been
construed broadly to include such processes as
buying and converting duck eggs to salted eggs
('balut") [Ngo Shiek v. Collector of Internal
Revenue, 100 Phil. 60 (1956)1; the processing of
unhusked kapok into clean kapok fiber [Oriental
Kapok Industries v. Commissioner of Internal
Revenue, L-17837, Jan. 31, 1963, 7 SCRA 132]; or
making charcoal out of firewood Bermejo v.
Collector of Internal Revenue, 87 Phil. 96 (1950)].
2. As the Court of Tax Appeals did not err in
holding that private respondent is a "manufacturer,"
then private respondent is entitled to the tax
exemption under See. 202 (d) and (e) mow Sec.
167 (d) and (e)] of the Tax Code which states:
Sec. 202. Articles not subject to percentage
tax on sales. The following shall be exempt from
the percentage taxes imposed in Sections 194,
195, 196, 197, 198, 199, and 201:
xxx xxx xxx
(d) Articles shipped or exported by the
manufacturer or producer, irrespective of any
shipping arrangement that may be agreed upon
which may influence or determine the transfer of
ownership of the articles so exported.
(e) Articles sold by "registered export producers" to
(1) other" registered export producers" (2)
"registered export traders' or (3) foreign tourists or
travelers, which are considered as "export sales."
The law is clear on this point. It is conceded that as
a rule, as argued by petitioner, any claim for tax
exemption from tax statutes is strictly construed
against the taxpayer and it is contingent upon
private respondent as taxpayer to establish a clear
right to tax exemption [Brief for Petitioners, p. 181.
Tax exemptions are strictly construed against the
grantee and generally in favor of the taxing
authority [City of Baguio v. Busuego, L-29772,
Sept. 18, 1980, 100 SCRA 1161; they are looked
upon with disfavor [Western Minolco Corp. v.
Commissioner Internal Revenue, G.R. No. 61632,
Aug. 16,1983,124 1211. They are held strictly
Sales Cases (2017-2018) ni Treeng
against the taxpayer and if expressly mentioned in
the law, must at least be within its purview by clear
legislative intent [Commissioner of Customs v.
Phil., Acetylene Co., L-22443, May 29, 1971, 39
SCRA 70, Light and Power Co. v. Commissioner of
Customs, G.R. L-28739 and L-28902, March 29,
1972, 44 SCRA 122].
Conversely therefore, if there is an express mention
or if the taxpayer falls within the purview of the
exemption by clear legislative intent, then the rule
on strict construction will not apply. In the present
case the respondent Tax Court did not err in
classifying private respondent as a "manufacturer".
Clearly, the 'latter falls with the term 'manufacturer'
mentioned in Art. 202 (d) and (e) of the Tax Code.
As the only question raised by petitioner in relation
to this tax exemption claim by private respondent is
the classification of the latter as a manufacturer,
this Court affirms the holding of respondent Tax
Court that private respondent is entitled to the
percentage tax exemption on its export sales.
There is nothing illegal in taking advantage of tax
exemptions. When the private respondent was still
exporting less and producing locally more, the
petitioner did not question its classification as a
manufacturer. But when in 1977 the private
respondent produced locally less and exported
more, petitioner did a turnabout and imposed the
contractor's tax. By classifying the private
respondent as a contractor, petitioner would
likewise take away the tax exemptions granted
under Sec. 202 for manufacturers. Petitioner's
action finds no support in the applicable law.
WHEREFORE, the Court hereby DENIES the
Petition for lack of merit and AFFIRMS the Court of
Tax Appeals decision in CTA Case No. 3357.
SO ORDERED.

ENGINEERING & MACHINERY CORPORATION,
petitioner, vs. COURT OF APPEALS and
PONCIANO L. ALMEDA, respondents.
DECISION
PANGANIBAN, J.:
Is a contract for the fabrication and installation of a
central air-conditioning system in a building, one of
sale or for a piece of work? What is the prescriptive
period for filing actions for breach of the terms of
such contract?
These are the legal questions brought before this
Court in this Petition for review on certiorari under
Rule 45 of the Rules of Court, to set aside the
Decision[1] of the Court of Appeals[2] in CA-G.R.
No. 58276-R promulgated on November 28, 1978
(affirming in toto the decision[3] dated April 15,
1974 of the then Court of First Instance of Rizal,
Branch II,[4] in Civil Case No. 14712, which
ordered petitioner to pay private respondent the
amount needed to rectify the faults and deficiencies
of the air-conditioning system installed by petitioner
in private respondents building, plus damages,
attorneys fees and costs).
By a resolution of the First Division of this Court
dated November 13, 1995, this case was
transferred to the Third. After deliberating on the
various submissions of the parties, including the
petition, record on appeal, private respondents
comment and briefs for the petitioner and the
private respondent, the Court assigned the writing
of this Decision to the undersigned, who took his
oath as a member of the Court on October 10,
1995.
The Facts
Pursuant to the contract dated September 10, 1962
between petitioner and private respondent, the
former undertook to fabricate, furnish and install the
air-conditioning system in the latters building along
Buendia Avenue, Makati in consideration of
P210,000.00. Petitioner was to furnish the
materials, labor, tools and all services required in
order to so fabricate and install said system. The
system was completed in 1963 and accepted by
private respondent, who paid in full the contract
price.
On September 2, 1965, private respondent sold the
building to the National Investment and
Development Corporation (NIDC). The latter took
possession of the building but on account of NIDCs
noncompliance with the terms and conditions of the
deed of sale, private respondent was able to secure
judicial rescission thereof. The ownership of the
building having been decreed back to private
Sales Cases (2017-2018) ni Treeng
respondent, he re-acquired possession sometime
in 1971. It was then that he learned from some
NIDC employees of the defects of the air-
conditioning system of the building.
Acting on this information, private respondent
commissioned Engineer David R. Sapico to render
a technical evaluation of the system in relation to
the contract with petitioner. In his report, Sapico
enumerated the defects of the system and
concluded that it was not capable of maintaining
the desired room temperature of 76F - 2F (Exhibit
C)[5]
On the basis of this report, private respondent filed
on May 8, 1971 an action for damages against
petitioner with the then Court of First Instance of
Rizal (Civil Case No. 14712). The complaint alleged
that the air-conditioning system installed by
petitioner did not comply with the agreed plans and
specifications. Hence, private respondent prayed
for the amount of P2 10,000.00 representing the
rectification cost, P100,000.00 as damages and
P15,000.00 as attorneys fees.
Petitioner moved to dismiss the complaint, alleging
that the prescriptive period of six months had set in
pursuant to Articles 1566 and 1567, in relation to
Article 1571 of the Civil Code, regarding the
responsibility of a vendor for any hidden faults or
defects in the thing sold.
Private respondent countered that the contract
dated September 10, 1962 was not a contract of
sale but a contract for a piece of work under Article
1713 of the Civil Code. Thus, in accordance with
Article 1144 (1) of the same Code, the complaint
was timely brought within the ten-year prescriptive
period.
In its reply, petitioner argued that Article 1571 of the
Civil Code providing for a six-month prescriptive
period is applicable to a contract for a piece of work
by virtue of Article 1714, which provides that such a
contract shall be governed by the pertinent
provisions on warranty of title and against hidden
defects and the payment of price in a contract of
sale.[6]
The trial court denied the motion to dismiss. In its
answer to the complaint, petitioner reiterated its
claim of prescription as an affirmative defense. It
alleged that whatever defects might have been
discovered in the air-conditioning system could
have been caused by a variety of factors, including
ordinary wear and tear and lack of proper and
regular maintenance. It pointed out that during the
one-year period that private respondent withheld
final payment, the system was subjected to very
rigid inspection and testing and corrections or

modifications effected by petitioner. It interposed a
compulsory counterclaim suggesting that the
complaint was filed to offset the adverse effects of
the judgment in Civil Case No. 71494, Court of First
Instance of Manila, involving the same parties,
wherein private respondent was adjudged to pay
petitioner the balance of the unpaid contract price
for the air-conditioning system installed in another
building of private respondent, amounting to
P138,482.25.
Thereafter, private respondent filed an ex-parte
motion for preliminary attachment on the strength of
petitioners own statement to the effect that it had
sold its business and was no longer doing business
in Manila. The trial court granted the motion and,
upon private respondents posting of a bond of
P50,000.00, ordered the issuance of a writ of
attachment.
In due course, the trial court rendered a decision
finding that petitioner failed to install certain parts
and accessories called for by the contract, and
deviated from the plans of the system, thus
reducing its operational effectiveness to the extent
that 35 window-type units had to be installed in the
building to achieve a fairly desirable room
temperature. On the question of prescription, the
trial court ruled that the complaint was filed within
the ten-year prescriptive period although the
contract was one for a piece of work, because it
involved the installation of an air-conditioning
system which the defendant itself manufactured,
fabricated, designed and installed.
Petitioner appealed to the Court of Appeals, which
affirmed the decision of the trial court. Hence, it
instituted the instant petition.
The Submissions of the Parties
In the instant Petition, petitioner raised three
issues. First, it contended that private respondents
acceptance of the work and his payment of the
contract price extinguished any liability with respect
to the defects in the air-conditioning system.
Second, it claimed that the Court of Appeals erred
when it held that the defects in the installation were
not apparent at the time of delivery and acceptance
of the work considering that private respondent was
not an expert who could recognize such defects.
Third, it insisted that, assuming arguendo that there
were indeed hidden defects, private respondents
complaint was barred by prescription under Article
1571 of the Civil Code, which provides for a six-
month prescriptive period.
Private respondent, on the other hand, averred that
the issues raised by petitioner, like the question of
whether there was an acceptance of the work by
Sales Cases (2017-2018) ni Treeng
the owner and whether the hidden defects in the
installation could have been discovered by simple
inspection, involve questions of fact which have
been passed upon by the appellate court.
The Courts Ruling
The Supreme Court reviews only errors of law in
petitions for review on certiorari under Rule 45. It is
not the function of this Court to re-examine the
findings of fact of the appellate court unless said
findings are not supported by the evidence on
record or the judgment is based on a
misapprehension of facts.[7]
The Court has consistently held that the factual
findings of the trial court, as well as the Court of
Appeals, are final and conclusive and may not be
reviewed on appeal. Among the exceptional
circumstances where a reassessment of facts
found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on
speculation, surmises or conjectures; when the
inference made is manifestly absurd, mistaken or
impossible; when there is grave abuse of discretion
in the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the
findings went beyond the issues of the case and
the same are contrary to the admissions of both
appellant and appellee. After a careful study of the
case at bench, we find none of the above grounds
present to justify the re-evaluation of the findings of
fact made by the courts below.[8]
We see no valid reason to discard the factual
conclusions of the appellate court. x x x (I)t is not
the function of this Court to assess and evaluate all
over again the evidence, testimonial and
documentary, adduced by the parties, particularly
where, such as here, the findings of both the trial
court and the appellate court on the matter
coincide.[9] (Italics supplied)
Hence, the first two issues will not be resolved as
they raise questions of fact.
Thus, the only question left to be resolved is that of
prescription. In their submissions, the parties
argued lengthily on the nature of the contract
entered into by them, viz., whether it was one of
sale or for a piece of work.
Article 1713 of the Civil Code defines a contract for
a piece of work thus:
By the contract for a piece of work the contractor
binds himself to execute a piece of work for the
employer, in consideration of a certain price or
 Sales Cases (2017-2018) ni Treeng
compensation. The contractor may either employ
only his labor or skill, or also furnish the material.
Art. 1714. If the contractor agrees to produce the
work from material furnished by him, he shall
deliver the thing produced to the employer and
A contract for a piece of work, labor and materials
transfer dominion over the thing. This contract shall
may be distinguished from a contract of sale by the
be governed by the following articles as well as by
inquiry as to whether the thing transferred is one
the pertinent provisions on warranty of title and
not in existence and which would never have
against hidden defects and the payment of price in
existed but for the order of the person desiring
a contract of sale.
it.[10] In such case, the contract is one for a piece
of work, not a sale. On the other hand, if the thing
subject of the contract would have existed and
Art. 1715. The contractor shall execute the work in
been the subject of a sale to some other person
such a manner that it has the qualities agreed upon
even if the order had not been given, then the
and has no defects which destroy or lessen its
contract is one of sale.[11]
value or fitness for its ordinary or stipulated use.
Should the work be not of such quality, the
employer may require that the contractor remove
Thus, Mr. Justice Vitug[12] explains that
the defect or execute another work. If the contractor
fails or refuses to comply with this obligation, the
employer may have the defect removed or another
A contract for the delivery at a certain price of an work executed, at the contractors cost.
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
The provisions on warranty against hidden defects,
time or not is a contract of sale, but if the goods are
referred to in Art. 1714 above-quoted, are found in
to be manufactured specially for the customer and
Articles 1561 and 1566, which read as follows:
upon his special order, and not for the general
market, it is a contract for a piece of work (Art.
1467, Civil Code). The mere fact alone that certain
Art. 1561. The vendor shall be responsible for
articles are made upon previous orders of
warranty against the hidden defects which the thing
customers will not argue against the imposition of
sold may have, should they render it unfit for the
the sales tax if such articles are ordinarily
use for which it is intended, or should they diminish
manufactured by the taxpayer for sale to the public
its fitness for such use to such an extent that, had
(Celestino Co vs. Collector, 99 Phil. 841).
the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it;
but said vendor shall not be answerable for patent
To Tolentino, the distinction between the two
defects or those which may be visible, or for those
contracts depends on the intention of the parties.
which are not visible if the vendee is an expert who,
Thus, if the parties intended that at some future
by reason of his trade or profession, should have
date an object has to be delivered, without
known them.
considering the work or labor of the party bound to
deliver, the contract is one of sale. But if one of the
parties accepts the undertaking on the basis of
xxx xxx xxx
some plan, taking into account the work he will
employ personally or through another, there is a
contract for a piece of work.[13]
Art. 1566. The vendor is responsible to the vendee
for any hidden faults or defects in the thing sold,
even though he was not aware thereof.
Clearly, the contract in question is one for a piece
of work. It is not petitioners line of business to
manufacture air-conditioning systems to be sold off-
the-shelf. Its business and particular field of This provision shall not apply if the contrary has
expertise is the fabrication and installation of such been stipulated, and the vendor was not aware of
systems as ordered by customers and in the hidden faults or defects in the thing sold.
accordance with the particular plans and
specifications provided by the customers. Naturally,
the price or compensation for the system The remedy against violations of the warranty
manufactured and installed will depend greatly on against hidden defects is either to withdraw from
the particular plans and specifications agreed upon the contract (redhibitory action) or to demand a
with the customers. proportionate reduction of the price (accion quanti
minoris), with damages in either case.[14]

The obligations of a contractor for a piece of work

are set forth in Articles 1714 and 1715 of the Civil In Villostas vs. Court of Appeals,[15] we held that,
Code, which provide: while it is true that Article 1571 of the Civil Code
provides for a prescriptive period of six months for

a redhibitory action, a cursory reading of the ten
preceding articles to which it refers will reveal that
said rule may be applied only in case of implied
warranties; and where there is an express warranty
in the contract, as in the case at bench, the
prescriptive period is the one specified in the
express warranty, and in the absence of such
period, the general rule on rescission of contract,
which is four years (Article 1389, Civil Code) shall
apply.[16]
Consistent with the above discussion, it would
appear that this suit is barred by prescription
because the complaint was filed more than four
years after the execution of the contract and the
completion of the air-conditioning system.
Sales Cases (2017-2018) ni Treeng
Aside from the above defects, the following were
noted not installed although provided in the
specifications.
1. Face and by-pass damper of G.I. sheets No. 16.
This damper regulates the flow of cooled air
depending on room condition.
2. No fresh air intake provision were provided which
is very necessary for efficient comfort cooling.
3. No motor to regulate the face and by-pass
damper.

4. Liquid level indicator for refrigerant not provided.

However, a close scrutiny of the complaint filed in
the trial court reveals that the original action is not
really for enforcement of the warranties against
5. Suitable heat exchanger is not installed. This is
hidden defects, but one for breach of the contract
an important component to increase refrigeration
itself. It alleged[17] that the petitioner, in the
efficiency.
installation of the air-conditioning system did not
comply with the specifications provided in the
written agreement between the parties, and an
evaluation of the air-conditioning system as 6. Modulating thermostat not provided.
installed by the defendant showed the following
defects and violations of the specifications of the
agreement, to wit: 7. Water treatment device for evaporative
condenser was not provided.

GROUND FLOOR:
8. Liquid receiver not provided by sight glass.

A. RIGHT WING:
B. LEFT WING:

Equipped with Worthington Compressor, Model

2VC4 directly driven by an Hp Elm electric motor Worthington Compressor Model 2VC4 is installed
1750 rmp, 3 phase, 60 cycles, 220 volts, complete complete with 15 Hp electric motOr, 3 phase, 220
with starter evaporative condenser, circulating volts 60 cycles with starter.
water pump, air handling unit air ducts.

Defects Noted:
Defects Noted:

Same as right wing. except No. 4. All other defects

1. Deteriorated evaporative condenser panels, coils on right wing are common to the left wing.
are full of scales and heavy corrosion is very
evident.
SECOND FLOOR: (Common up to EIGHT
FLOORS)
2. Defective gauges of compressors;

Compressors installed are MELCO with 7.5 Hp V-

3. No belt guard on motor; belt driven by 1800 RPM, 220 volts, 60 cycles, 3
phase, Thrige electric motor with starters.

4. Main switch has no cover;

As stated in the specifications under Section No.
IV, the MELCO compressors do not satisfy the
5. Desired room temperature not attained; conditions stated therein due to the following:

1. MELCO Compressors are not provided with
automatic capacity unloader.
2. Not provided with oil pressure safety control.
3. Particular compressors do not have provision for
renewal sleeves.
Out of the total 15 MELCO compressors installed to
serve the 2nd floor up to 8th floors, only six (6)
units are in operation and the rest were already
replaced. Of the remaining six (6) units, several of
them have been replaced with bigger cranks hafts.
NINTH FLOOR:
Two (2) Worthington 2VC4 driven by 15 Hp, 3
phase, 220 volts, 60 cycles, 1750 rpm, Higgs
motors with starters.
Defects Noted are similar to ground floor.
GENERAL REMARKS:
Under Section III, Design conditions of specification
for air conditioning work, and taking into account A
& B same, the present systems are not capable of
maintaining the desired room temperature of 76 =
2F (sic).
The present tenant have installed 35 window type
air conditioning units distributed among the different
floor levels. Temperature measurements conducted
on March 29, 1971, revealed that 78F room (sic) is
only maintained due to the additional window type
units.
The trial court, after evaluating the evidence
presented, held that, indeed, petitioner failed to
install items and parts required in the contract and
substituted some other items which were not in
accordance with the specifications,[18] thus:
From all of the foregoing, the Court is persuaded to
believe the plaintiff that not only had the defendant
failed to install items and parts provided for in the
specifications of the air-conditioning system be
installed, like face and by-pass dampers and
modulating thermostat and many others, but also
that there are items, parts and accessories which
were used and installed on the air-conditioning
system which were not in full accord with contract
specifications. These omissions to install the
equipments, parts and accessories called for in the
Sales Cases (2017-2018) ni Treeng
specifications of the contract, as well as the
deviations made in putting into the air-conditioning
system equipments, parts and accessories not in
full accord with the contract specification naturally
resulted to adversely affect the operational
effectiveness of the air-conditioning system which
necessitated the installation of thirty-five window
type of air-conditioning units distributed among the
different floor levels in order to be able to obtain a
fairly desirable room temperature for the tenants
and actual occupants of the building. The Court
opines and so holds that the failure of the
defendant to follow the contract specifications and
said omissions and deviations having resulted in
the operational ineffectiveness of the system
installed makes the defendant liable to the plaintiff
in the amount necessary to rectify to put the air
conditioning system in its proper operational
condition to make it serve the purpose for which the
plaintiff entered into the contract with the
defendant.
The respondent Court affirmed the trial courts
decision thereby making the latters findings also its
own.
Having concluded that the original complaint is one
for damages arising from breach of a written
contract - and not a suit to enforce warranties
against hidden defects - we herewith declare that
the governing law is Article 1715 (supra). However,
inasmuch as this provision does not contain a
specific prescriptive period, the general law on
prescription, which is Article 1144 of the Civil Code,
will apply. Said provision states, inter alia, that
actions upon a written contract prescribe in ten (10)
years. Since the governing contract was executed
on September 10, 1962 and the complaint was filed
on May 8, 1971, it is clear that the action has not
prescribed.
What about petitioners contention that acceptance
of the work by the employer relieves the contractor
of liability for any defect in the work? This was
answered by respondent Court[19] as follows:
As the breach of contract which gave rise to the
instant case consisted in appellants omission to
install the equipments (sic), parts and accessories
not in accordance with the plan and specifications
provided for in the contract and the deviations
made in putting into the air conditioning system
parts and accessories not in accordance with the
contract specifications, it is evident that the defect
in the installation was not apparent at the time of
the delivery and acceptance of the work,
considering further that plaintiff is not an expert to
recognize the same. From the very nature of things,
it is impossible to determine by the simple
inspection of air conditioning system installed in an
8-floor building whether it has been furnished and
installed as per agreed specifications.
 Sales Cases (2017-2018) ni Treeng

Verily, the mere fact that the private respondent

accepted the work does not, ipso facto, relieve the
petitioner from liability for deviations from and
violations of the written contract, as the law gives
him ten (10) years within which to file an action
based on breach thereof.

WHEREFORE, the petition is hereby DENIED and

the assailed Decision is AFFIRMED. No costs.

SO ORDERED.

JACINTO UY DIO and NORBERTO UY,
petitioners,
vs.
HON. COURT OF APPEALS and
METROPOLITAN BANK AND TRUST COMPANY,
respondents.
Continuing Suretyship Agreements signed by the
petitioners set off this present controversy.
Petitioners assail the 22 June 1989 Decision of the
Court in CA-G.R. CV No. 17724 1 which reversed
the 2 December 1987 Decision of Branch 45 of the
Regional Trial Court (RTC) of Manila in a collection
suit entitled "Metropolitan Bank and Trust Company
vs. Uy Tiam, doing business under the name of
"UY TIAM ENTERPRISES & FREIGHT
SERVICES," Jacinto Uy Dio and Norberto Uy" and
docketed as Civil Case No. 82-9303. They likewise
challenge public respondent's Resolution of 21
August 1989 2 denying their motion for the
reconsideration of the former.
The impugned Decision of the Court summarizes
the antecedent facts as follows:
It appears that in 1977, Uy Tiam Enterprises and
Freight Services (hereinafter referred to as
UTEFS), thru its representative Uy Tiam, applied
for and obtained credit accommodations (letter of
credit and trust receipt accommodations) from the
Metropolitan Bank and Trust Company (hereinafter
referred to as METROBANK) in the sum of
P700,000.00 (Original Records, p. 333). To secure
the aforementioned credit accommodations
Norberto Uy and Jacinto Uy Dio executed
separate Continuing Suretyships (Exhibits "E" and
"F" respectively), dated 25 February 1977, in favor
of the latter. Under the aforesaid agreements,
Norberto Uy agreed to pay METROBANK any
indebtedness of UTEFS up to the aggregate sum of
P300,000.00 while Jacinto Uy Dio agreed to be
bound up to the aggregate sum of P800,000.00.
Having paid the obligation under the above letter of
credit in 1977, UTEFS, through Uy Tiam, obtained
another credit accommodation from METROBANK
in 1978, which credit accommodation was fully
settled before an irrevocable letter of credit was
applied for and obtained by the abovementioned
business entity in 1979 (September 8, 1987, tsn,
pp. 14-15).
The Irrevocable Letter of Credit No. SN-Loc-309,
dated March 30, 1979, in the sum of P815, 600.00,
covered UTEFS' purchase of "8,000 Bags Planters
Urea and 4,000 Bags Planters 21-0-0." It was
applied for and obtain by UTEFS without the
participation of Norberto Uy and Jacinto Uy Dio as
Sales Cases (2017-2018) ni Treeng
they did not sign the document denominated as
"Commercial Letter of Credit and Application." Also,
they were not asked to execute any suretyship to
guarantee its payment. Neither did METROBANK
nor UTEFS inform them that the 1979 Letter of
Credit has been opened and the Continuing
Suretyships separately executed in February, 1977
shall guarantee its payment (Appellees brief, pp. 2-
3; rollo, p. 28).
The 1979 letter of credit (Exhibit "B") was
negotiated. METROBANK paid Planters Products
the amount of P815,600.00 which payment was
covered by a Bill of Exchange (Exhibit "C"), dated 4
June 1979, in favor of (Original Records, p. 331).
Pursuant to the above commercial transaction,
UTEFS executed and delivered to METROBANK
and Trust Receipt (Exh. "D"), dated 4 June 1979,
whereby the former acknowledged receipt in trust
from the latter of the aforementioned goods from
Planters Products which amounted to P815,
600.00. Being the entrusted, the former agreed to
deliver to METROBANK the entrusted goods in the
event of non-sale or, if sold, the proceeds of the
sale thereof, on or before September 2, 1979.
However, UTEFS did not acquiesce to the
obligatory stipulations in the trust receipt. As a
consequence, METROBANK sent letters to the said
principal obligor and its sureties, Norberto Uy and
Jacinto Uy Dio, demanding payment of the
amount due. Informed of the amount due, UTEFS
made partial payments to the Bank which were
accepted by the latter.
Answering one of the demand letters, Dio, thru
counsel, denied his liability for the amount
demanded and requested METROBANK to send
him copies of documents showing the source of his
liability. In its reply, the bank informed him that the
source of his liability is the Continuing Suretyship
which he executed on February 25, 1977.
As a rejoinder, Dio maintained that he cannot be
held liable for the 1979 credit accommodation
because it is a new obligation contracted without
his participation. Besides, the 1977 credit
accommodation which he guaranteed has been
fully paid.
Having sent the last demand letter to UTEFS, Dio
and Uy and finding resort to extrajudicial remedies
to be futile, METROBANK filed a complaint for
collection of a sum of money (P613,339.32, as of
January 31, 1982, inclusive of interest, commission
penalty and bank charges) with a prayer for the
issuance of a writ of preliminary attachment,
against Uy Tiam, representative of UTEFS and
impleaded Dio and Uy as parties-defendants.

The court issued an order, dated 29 July 1983,
granting the attachment writ, which writ was
returned unserved and unsatisfied as defendant Uy
Tiam was nowhere to be found at his given address
and his commercial enterprise was already non-
operational (Original Records, p. 37).
On April 11, 1984, Norberto Uy and Jacinto Uy
Dio (sureties-defendant herein) filed a motion to
dismiss the complaint on the ground of lack of
cause of action. They maintained that the obligation
which they guaranteed in 1977 has been
extinguished since it has already been paid in the
same year. Accordingly, the Continuing Suretyships
executed in 1977 cannot be availed of to secure Uy
Tiam's Letter of Credit obtained in 1979 because a
guaranty cannot exist without a valid obligation. It
was further argued that they can not be held liable
for the obligation contracted in 1979 because they
are not privies thereto as it was contracted without
their participation (Records, pp. 42-46).
On April 24, 1984, METROBANK filed its opposition
to the motion to dismiss. Invoking the terms and
conditions embodied in the comprehensive
suretyships separately executed by sureties-
defendants, the bank argued that sureties-movants
bound themselves as solidary obligors of defendant
Uy Tiam to both existing obligations and future
ones. It relied on Article 2053 of the new Civil Code
which provides: "A guaranty may also be given as
security for future debts, the amount of which is not
yet known; . . . ." It was further asserted that the
agreement was in full force and effect at the time
the letter of credit was obtained in 1979 as sureties-
defendants did not exercise their right to revoke it
by giving notice to the bank. (Ibid., pp. 51-54).
Meanwhile, the resolution of the aforecited motion
to dismiss was held in abeyance pending the
introduction of evidence by the parties as per order
dated February 21, 1986 (Ibid., p. 71).
Having been granted a period of fifteen (15) days
from receipt of the order dated March 7, 1986
within which to file the answer, sureties-defendants
filed their responsive pleading which merely
rehashed the arguments in their motion to dismiss
and maintained that they are entitled to the benefit
of excussion (Original Records, pp. 88-93).
On February 23, 1987, plaintiff filed a motion to
dismiss the complaint against defendant Uy Tiam
on the ground that it has no information as to the
heirs or legal representatives of the latter who died
sometime in December, 1986, which motion was
granted on the following day (Ibid., pp. 180-182).
Sales Cases (2017-2018) ni Treeng
After trial, . . . the court a quo, on December 2, 198,
rendered its judgment, a portion of which reads:
The evidence and the pleadings, thus, pose the
querry (sic):
Are the defendants Jacinto Uy Dioand Norberto
Uy liable for the obligation contracted by Uy Tiam
under the Letter of Credit (Exh. B) issued on March
30, 1987 by virtue of the Continuing Suretyships
they executed on February 25, 1977?
Under the admitted proven facts, the Court finds
that they are not.
a) When Uy and Dio executed the continuing
suretyships, exhibits E and F, on February 25,
1977, Uy Tiam was obligated to the plaintiff in the
amount of P700,000.00 and this was the
obligation which both obligation which both
defendants guaranteed to pay. Uy Tiam paid this
1977 obligation and such payment extinguished
the obligation they assumed as guarantors/sureties.
b) The 1979 Letter of Credit (Exh. B) is
different from the 1977 Letter of Credit which
covered the 1977 account of Uy Tiam. Thus, the
obligation under either is apart and distinct from the
obligation created in the other as evidenced by
the fact that Uy Tiam had to apply anew for the
1979 transaction (Exh. A). And Dio and Uy, being
strangers thereto, cannot be answerable
thereunder.
c) The plaintiff did not serve notice to the
defendants Dio and Uy when it extended to Credit
at least to inform them that the continuing
suretyships they executed on February 25, 1977
will be considered by the plaintiff to secure the
1979 transaction of Uy Tiam.
d) There is no sufficient and credible showing
that Dio and Uy were fully informed of the import
of the Continuing Suretyships when they affixed
their signatures thereon that they are thereby
securing all future obligations which Uy Tiam may
contract the plaintiff. On the contrary, Dio and Uy
categorically testified that they signed the blank
forms in the office of Uy Tiam at 623 Asuncion
Street, Binondo, Manila, in obedience to the
instruction of Uy Tiam, their former employer. They
denied having gone to the office of the plaintiff to
subscribe to the documents (October 1, 1987, tsn,
pp. 5-7, 14; October 15, 1987, tsn, pp. 3-8, 13-16).
(Records, pp. 333-334). 3
xxx xxx xxx

In its Decision, the trial court decreed as follows:
PREMISES CONSIDERED, judgment is hereby
rendered:
a) dismissing the COMPLAINT against
JACINTO UY DIO and NORBERTO UY;
b) ordering the plaintiff to pay to Dio and Uy
the amount of P6,000.00 as attorney's fees and
expenses of litigation; and
c) denying all other claims of the parties for
want of legal and/or factual basis.
SO ORDERED. (Records, p. 336) 4
From the said Decision, the private respondent
appealed to the Court of Appeals. The case was
docketed as CA-G.R. CV No. 17724. In support
thereof, it made the following assignment of errors
in its Brief:
I. THE LOWER COURT SERIOUSLY ERRED
IN NOT FINDING AND HOLDING THAT
DEFENDANTS-APPELLEES JACINTO UY DIO
AND NORBERTO UY ARE SOLIDARILY LIABLE
TO PLAINTIFF-APPELLANT FOR THE
OBLIGATION OF DEFENDANT UY TIAM UNDER
THE LETTER OF CREDIT ISSUED ON MARCH
30, 1979 BY VIRTUE OF THE CONTINUING
SURETYSHIPS THEY EXECUTED ON
FEBRUARY 25, 1977.
II. THE LOWER COURT ERRED IN
HOLDING THAT PLAINTIFF-APPELLANT IS
ANSWERABLE TO DEFENDANTS-APPELLEES
JACINTO UY DIO AND NORBERTO UY FOR
ATTORNEY'S FEES AND EXPENSES OF
LITIGATION. 5
On 22 June 1989, public respondent promulgated
the assailed Decision the dispositive portion of
which reads:
WHEREFORE, premises considered, the judgment
appealed from is hereby REVERSED AND SET,
ASIDE. In lieu thereof, another one is rendered:
1) Ordering sureties-appellees Jacinto Uy Dio
and Norberto Uy to pay, jointly and severally, to
appellant METROBANK the amount of
P2,397,883.68 which represents the amount due as
Sales Cases (2017-2018) ni Treeng
of July 17, 1987 inclusive of principal, interest and
charges;
2) Ordering sureties-appellees Jacinto Uy Dio
and Norberto Uy to pay, jointly and severally,
appellant METROBANK the accruing interest, fees
and charges thereon from July 18, 1987 until the
whole monetary obligation is paid; and
3) Ordering sureties-appellees Jacinto Uy Dio
and Norberto Uy to pay, jointly and severally, to
plaintiff P20,000.00 as attorney's fees.
With costs against appellees.
SO ORDERED. 6
In ruling for the herein private respondent
(hereinafter METROBANK), public respondent held
that the Continuing Suretyship Agreements
separately executed by the petitioners in 1977 were
intended to guarantee payment of Uy Tiam's
outstanding as well as future obligations; each
suretyship arrangement was intended to remain in
full force and effect until METROBANK would have
been notified of its revocation. Since no such notice
was given by the petitioners, the suretyships are
deemed outstanding and hence, cover even the
1979 letter of credit issued by METROBANK in
favor of Uy Tiam.
Petitioners filed a motion to reconsider the
foregoing Decision. They questioned the public
respondent's construction of the suretyship
agreements and its ruling with respect to the extent
of their liability thereunder. They argued the even if
the agreements were in full force and effect when
METROBANK granted Uy Tiam's application for a
letter of credit in 1979, the public respondent
nonetheless seriously erred in holding them liable
for an amount over and above their respective face
values.
In its Resolution of 21 August 1989, public
respondent denied the motion:
. . . considering that the issues raised were
substantially the same grounds utilized by the lower
court in rendering judgment for defendants-
appellees which We upon appeal found and
resolved to be untenable, thereby reversing and
setting aside said judgment and rendering another
in favor of plaintiff, and no new or fresh issues have
been posited to justify reversal of Our decision
herein, . . . . 7

Hence, the instant petition which hinges on the
issue of whether or not the petitioners may be held
liable as sureties for the obligation contracted by Uy
Tiam with METROBANK on 30 May 1979 under
and by virtue of the Continuing Suretyship
Agreements signed on 25 February 1977.
Petitioners vehemently deny such liability on the
ground that the Continuing Suretyship Agreements
were automatically extinguished upon payment of
the principal obligation secured thereby, i.e., the
letter of credit obtained by Uy Tiam in 1977. They
further claim that they were not advised by either
METROBANK or Uy Tiam that the Continuing
Suretyship Agreements would stand as security for
the 1979 obligation. Moreover, it is posited that to
extend the application of such agreements to the
1979 obligation would amount to a violation of
Article 2052 of the Civil Code which expressly
provides that a guaranty cannot exist without a
valid obligation. Petitioners further argue that even
granting, for the sake of argument, that the
Continuing Suretyship Agreements still subsisted
and thereby also secured the 1979 obligations
incurred by Uy Tiam, they cannot be held liable for
more than what they guaranteed to pay because it
s axiomatic that the obligations of a surety cannot
extend beyond what is stipulated in the agreement.
On 12 February 1990, this Court resolved to give
due course to the petition after considering the
allegations, issues and arguments adduced therein,
the Comment thereon by the private respondent
and the Reply thereto by the petitioners; the parties
were required to submit their respective
Memoranda.
The issues presented for determination are quite
simple:
1. Whether petitioners are liable as sureties for
the 1979 obligations of Uy Tiam to METROBANK
by virtue of the Continuing Suretyship Agreements
they separately signed in 1977; and
2. On the assumption that they are, what is the
extent of their liabilities for said 1979 obligations.
Under the Civil Code, a guaranty may be given to
secure even future debts, the amount of which may
not known at the time the guaranty is
executed. 8 This is the basis for contracts
denominated as continuing guaranty or suretyship.
A continuing guaranty is one which is not limited to
a single transaction, but which contemplates a
future course of dealing, covering a series of
transactions, generally for an indefinite time or until
revoked. It is prospective in its operation and is
generally intended to provide security with respect
Sales Cases (2017-2018) ni Treeng
to future transactions within certain limits, and
contemplates a succession of liabilities, for which,
as they accrue, the guarantor becomes liable. 9
Otherwise stated, a continuing guaranty is one
which covers all transactions, including those
arising in the future, which are within the
description or contemplation of the contract, of
guaranty, until the expiration or termination thereof.
10 A guaranty shall be construed as continuing
when by the terms thereof it is evident that the
object is to give a standing credit to the principal
debtor to be used from time to time either
indefinitely or until a certain period, especially if the
right to recall the guaranty is expressly reserved.
Hence, where the contract of guaranty states that
the same is to secure advances to be made "from
time to time" the guaranty will be construed to be a
continuing one. 11
In other jurisdictions, it has been held that the use
of particular words and expressions such as
payment of "any debt," "any indebtedness," "any
deficiency," or "any sum," or the guaranty of "any
transaction" or money to be furnished the principal
debtor "at any time," or "on such time" that the
principal debtor may require, have been construed
to indicate a continuing guaranty. 12
In the case at bar, the pertinent portion of
paragraph I of the suretyship agreement executed
by petitioner Uy provides thus:
I. For and in consideration of any existing
indebtedness to the BANK of UY TIAM (hereinafter
called the "Borrower"), for the payment of which the
SURETY is now obligated to the BANK, either as
guarantor or otherwise, and/or in order to induce
the BANK, in its discretion, at any time or from time
to time hereafter, to make loans or advances or to
extend credit in any other manner to, or at the
request, or for the account of the Borrower, either
with or without security, and/or to purchase or
discount, or to make any loans or advances
evidence or secured by any notes, bills,
receivables, drafts, acceptances, checks, or other
instruments or evidences of indebtedness (all
hereinafter called "instruments") upon which the
Borrower is or may become liable as maker,
endorser, acceptor, or otherwise, the SURETY
agrees to guarantee, and does hereby guarantee,
the punctual payment at maturity to the loans,
advances credits and/or other obligations
hereinbefore referred to, and also any and all other
indebtedness of every kind which is now or may
hereafter become due or owing to the BANK by the
Borrower, together with any and all expenses which
may be incurred by the BANK in collecting all or
any such instruments or other indebtedness or
obligations herein before referred to, and/or in
enforcing any rights hereunder, and the SURETY
also agrees that the BANK may make or cause any
and all such payments to be made strictly in
accordance with the terms and provisions of any
agreement(s) express or implied, which has (have)

been or may hereafter be made or entered into by
the Borrow in reference thereto, regardless of any
law, regulation or decree, unless the same is
mandatory and non-waivable in character, nor or
hereafter in effect, which might in any manner
affect any of the terms or provisions of any such
agreement(s) or the Bank's rights with respect
thereto as against the Borrower, or cause or permit
to be invoked any alteration in the time, amount or
manner of payment by the Borrower of any such
instruments, obligations or indebtedness; provided,
however, that the liability of the SURETY hereunder
shall not exceed at any one time the aggregate
principal sum of PESOS: THREE HUNDRED
THOUSAND ONLY (P300,000.00) (irrespective of
the currenc(ies) in which the obligations hereby
guaranteed are payable), and such interest as may
accrue thereon either before or after any
maturity(ies) thereof and such expenses as may be
incurred by the BANK as referred to above. 13
Paragraph I of the Continuing Suretyship
Agreement executed by petitioner Dio contains
identical provisions except with respect to the
guaranteed aggregate principal amount which is
EIGHT THOUSAND PESOS (P800,000.00). 14
Paragraph IV of both agreements stipulate that:
VI. This is a continuing guaranty and shall
remain in full force and effect until written notice
shall have been received by the BANK that it has
been revoked by the SURETY, but any such notice
shall not release the SURETY, from any liability as
to any instruments, loans, advances or other
obligations hereby guaranteed, which may be held
by the BANK, or in which the BANK may have any
interest at the time of the receipt (sic) of such
notice. No act or omission of any kind on the
BANK'S part in the premises shall in any event
affect or impair this guaranty, nor shall same (sic)
be affected by any change which may arise by
reason of the death of the SURETY, or of any
partner(s) of the SURETY, or of the Borrower, or of
the accession to any such partnership of any one or
more new partners. 15
The foregoing stipulations unequivocally reveal that
the suretyship agreement in the case at bar are
continuing in nature. Petitioners do not deny this; in
fact, they candidly admitted it. Neither have they
denied the fact that they had not revoked the
suretyship agreements. Accordingly, as correctly
held by the public respondent:
Undoubtedly, the purpose of the execution of the
Continuing Suretyships was to induce appellant to
grant any application for credit accommodation
(letter of credit/trust receipt) UTEFS may desire to
obtain from appellant bank. By its terms, each
suretyship is a continuing one which shall remain in
Sales Cases (2017-2018) ni Treeng
full force and effect until the bank is notified of its
revocation.
xxx xxx xxx
When the Irrevocable Letter of Credit No. SN-Loc-
309 was obtained from appellant bank, for the
purpose of obtaining goods (covered by a trust
receipt) from Planters Products, the continuing
suretyships were in full force and effect. Hence,
even if sureties-appellees did not sign the
"Commercial Letter of Credit and Application, they
are still liable as the credit accommodation (letter of
credit/trust receipt) was covered by the said
suretyships. What makes them liable thereunder is
the condition which provides that the Borrower "is
or may become liable as maker, endorser, acceptor
or otherwise." And since UTEFS which (sic) was
liable as principal obligor for having failed to fulfill
the obligatory stipulations in the trust receipt, they
as insurers of its obligation, are liable thereunder.
16
Petitioners maintain, however, that their Continuing
Suretyship Agreements cannot be made applicable
to the 1979 obligation because the latter was not
yet in existence when the agreements were
executed in 1977; under Article 2052 of the Civil
Code, a guaranty "cannot exist without a valid
obligation." We cannot agree. First of all, the
succeeding article provides that "[a] guaranty may
also be given as security for future debts, the
amount of which is not yet known." Secondly,
Article 2052 speaks about a valid obligation, as
distinguished from a void obligation, and not an
existing or current obligation. This distinction is
made clearer in the second paragraph of Article
2052 which reads:
Nevertheless, a guaranty may be constituted to
guarantee the performance of a voidable or an
unenforceable contract. It may also guarantee a
natural obligation.
As to the amount of their liability under the
Continuing Suretyship Agreements, petitioners
contend that the public respondent gravely erred in
finding them liable for more than the amount
specified in their respective agreements, to wit: (a)
P800,000.00 for petitioner Dio and (b)
P300,000.00 for petitioner Uy.
The limit of the petitioners respective liabilities must
be determined from the suretyship agreement each
had signed. It is undoubtedly true that the law looks
upon the contract of suretyship with a jealous eye,
and the rule is settled that the obligation of the
surety cannot be extended by implication beyond
its specified limits. To the extent, and in the

manner, and under the circumstances pointed out
in his obligation, he is bound, and no farther. 17
Indeed, the Continuing Suretyship Agreements
signed by petitioner Dio and petitioner Uy fix the
aggregate amount of their liability, at any given
time, at P800,000.00 and P300,000.00,
respectively. The law is clear that a guarantor may
bond himself for less, but not for more than the
principal debtor, both as regards the amount and
the onerous nature of the conditions. 18 In the case
at bar, both agreements provide for liability for
interest and expenses, to wit:
. . . and such interest as may accrue thereon either
before or after any maturity(ies) thereof and such
expenses as may be incurred by the BANK referred
to above. 19
They further provide that:
In the event of judicial proceedings being instituted
by the BANK against the SURETY to enforce any
of the terms and conditions of this undertaking, the
SURETY further agrees to pay the BANK a
reasonable compensation for and as attorney's
fees and costs of collection, which shall not in any
event be less than ten per cent (10%) of the
amount due (the same to be due and payable
irrespective of whether the case is settled judicially
or extrajudicially). 20
Thus, by express mandate of the Continuing
Suretyship Agreements which they had signed,
petitioners separately bound themselves to pay
interest, expenses, attorney's fees and costs. The
last two items are pegged at not less than ten
percent (10%) of the amount due.
Even without such stipulations, the petitioners
would, nevertheless, be liable for the interest and
judicial costs. Article 2055 of the Civil Code
provides: 21
Art. 2055. A guaranty is not presumed; it must
be express and cannot extend to more than what is
stipulated therein.
If it be simple or indefinite, it shall comprise not only
the principal obligation, but also all its accessories,
including the judicial costs, provided with respect to
the latter, that the guarantor shall only be liable for
those costs incurred after he has been judicially
required to pay.
Interest and damages are included in the term
accessories. However, such interest should run
Sales Cases (2017-2018) ni Treeng
only from the date when the complaint was filed in
court. Even attorney's fees may be imposed
whenever appropriate, pursuant to Article 2208 of
the Civil Code. Thus, in Plaridel Surety & Insurance
Co., Inc. vs. P.L. Galang Machinery Co., Inc., 22
this Court held:
Petitioner objects to the payment of interest and
attorney's fees because: (1) they were not
mentioned in the bond; and (2) the surety would
become liable for more than the amount stated in
the contract of suretyship.
xxx xxx xxx
The objection has to be overruled, because as far
back as the year 1922 this Court held in Tagawa
vs. Aldanese, 43 Phil. 852, that creditors suing on a
suretyship bond may recover from the surety as
part of their damages, interest at the legal rate even
if the surety would thereby become liable to pay
more than the total amount stipulated in the bond.
The theory is that interest is allowed only by way of
damages for delay upon the part of the sureties in
making payment after they should have done so. In
some states, the interest has been charged from
the date of the interest has been charged from the
date of the judgment of the appellate court. In this
jurisdiction, we rather prefer to follow the general
practice, which is to order that interest begin to run
from the date when the complaint was filed in court,
...
Such theory aligned with sec. 510 of the Code of
Civil Procedure which was subsequently
recognized in the Rules of Court (Rule 53, section
6) and with Article 1108 of the Civil Code (now Art.
2209 of the New Civil Code).
In other words the surety is made to pay interest,
not by reason of the contract, but by reason of its
failure to pay when demanded and for having
compelled the plaintiff to resort to the courts to
obtain payment. It should be observed that interest
does not run from the time the obligation became
due, but from the filing of the complaint.
As to attorney's fees. Before the enactment of the
New Civil Code, successful litigants could not
recover attorney's fees as part of the damages they
suffered by reason of the litigation. Even if the party
paid thousands of pesos to his lawyers, he could
not charge the amount to his opponent (Tan Ti vs.
Alvear, 26 Phil. 566).
However the New Civil Code permits recovery of
attorney's fees in eleven cases enumerated in
Article 2208, among them, "where the court deems
it just and equitable that attorney's (sic) fees and
 Sales Cases (2017-2018) ni Treeng
expenses of litigation should be recovered" or Manila, as well as the adjudged attorney's fees and
"when the defendant acted in gross and evident costs.
bad faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim." This gives the
courts discretion in apportioning attorney's fees. All other dispositions in the dispositive portion of
the challenged decision not inconsistent with the
above are affirmed.
The records do not reveal the exact amount of the
unpaid portion of the principal obligation of Uy Tiam
to MERTOBANK under Irrevocable Letter of Credit SO ORDERED.
No. SN-Loc-309 dated 30 March 1979. In referring
to the last demand letter to Mr. Uy Tiam and the
complaint filed in Civil Case No. 82-9303, the public
respondent mentions the amount of "P613,339.32,
as of January 31, 1982, inclusive of interest
commission penalty and bank charges." 23 This is
the same amount stated by METROBANK in its
Memorandum. 24 However, in summarizing Uy
Tiam's outstanding obligation as of 17 July 1987,
public respondent states:

Hence, they are jointly and severally liable to

appellant METROBANK of UTEFS' outstanding
obligation in the sum of P2,397,883.68 (as of July
17, 1987) P651,092.82 representing the
principal amount, P825,133.54, for past due
interest (5-31-82 to 7-17-87) and P921,657.32, for
penalty charges at 12% per annum (5-31-82 to 7-
17-87) as shown in the Statement of Account
(Exhibit I). 25

Since the complaint was filed on 18 May 1982, it is

obvious that on that date, the outstanding principal
obligation of Uy Tiam, secured by the petitioners'
Continuing Suretyship Agreements, was less than
P613,339.32. Such amount may be fully covered by
the Continuing Suretyship Agreement executed by
petitioner Dio which stipulates an aggregate
principal sum of not exceeding P800,000.00, and
partly covered by that of petitioner Uy which pegs
his maximum liability at P300,000.00.

Consequently, the judgment of the public

respondent shall have to be modified to conform to
the foregoing exposition, to which extent the instant
petition is impressed with partial merit.

WHEREFORE, the petition is partly GRANTED, but

only insofar as the challenged decision has to be
modified with respect to the extend of petitioners'
liability. As modified, petitioners JACINTO UY
DIO and NORBERTO UY are hereby declared
liable for and are ordered to pay, up to the
maximum limit only of their respective Continuing
Suretyship Agreement, the remaining unpaid
balance of the principal obligation of UY TIAM or
UY TIAM ENTERPRISES & FREIGHT SERVICES
under Irrevocable Letter of Credit No. SN-Loc-309,
dated 30 March 1979, together with the interest due
thereon at the legal rate commencing from the date
of the filing of the complaint in Civil Case No. 82-
9303 with Branch 45 of the Regional Trial Court of

COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. THE COURT OF APPEALS, THE
COURT OF TAX APPEALS and ATENEO DE
MANILA UNIVERSITY, respondents.
In conducting researches and studies of social
organizations and cultural values thru its Institute of
Philippine Culture, is the Ateneo de Manila
University performing the work of an independent
contractor and thus taxable within the purview of
then Section 205 of the National Internal Revenue
Code levying a three percent contractors tax? This
question is answered by the Court in the negative
as it resolves this petition assailing the Decision[1]
of the Respondent Court of Appeals[2] in CA-G.R.
SP No. 31790 promulgated on April 27, 1994
affirming that of the Court of Tax Appeals.[3]
The Antecedent Facts
The antecedents as found by the Court of Appeals
are reproduced hereinbelow, the same being
largely undisputed by the parties.
Private respondent is a non-stock, non-profit
educational institution with auxiliary units and
branches all over the Philippines. One such
auxiliary unit is the Institute of Philippine Culture
(IPC), which has no legal personality separate and
distinct from that of private respondent. The IPC is
a Philippine unit engaged in social science studies
of Philippine society and culture. Occasionally, it
accepts sponsorships for its research activities from
international organizations, private foundations and
government agencies.
On July 8, 1983, private respondent received from
petitioner Commissioner of Internal Revenue a
demand letter dated June 3, 1983, assessing
private respondent the sum of P174,043.97 for
alleged deficiency contractors tax, and an
assessment dated June 27, 1983 in the sum of
P1,141,837 for alleged deficiency income tax, both
for the fiscal year ended March 31, 1978. Denying
said tax liabilities, private respondent sent petitioner
a letter-protest and subsequently filed with the latter
a memorandum contesting the validity of the
assessments.
On March 17, 1988, petitioner rendered a letter-
decision canceling the assessment for deficiency
income tax but modifying the assessment for
deficiency contractors tax by increasing the amount
due to P193,475.55. Unsatisfied, private
respondent requested for a reconsideration or
reinvestigation of the modified assessment. At the
same time, it filed in the respondent court a petition
for review of the said letter-decision of the
petitioner. While the petition was pending before
the respondent court, petitioner issued a final
Sales Cases (2017-2018) ni Treeng
decision dated August 3, 1988 reducing the
assessment for deficiency contractors tax from
P193,475.55 to P46,516.41, exclusive of surcharge
and interest.
On July 12, 1993, the respondent court rendered
the questioned decision which dispositively reads:
WHEREFORE, in view of the foregoing,
respondents decision is SET ASIDE. The
deficiency contractors tax assessment in the
amount of P46,516.41 exclusive of surcharge and
interest for the fiscal year ended March 31, 1978 is
hereby CANCELED. No pronouncement as to cost.
SO ORDERED.
Not in accord with said decision, petitioner has
come to this Court via the present petition for
review raising the following issues:
1)WHETHER OR NOT PRIVATE RESPONDENT
FALLS UNDER THE PURVIEW OF
INDEPENDENT CONTRACTOR PURSUANT TO
SECTION 205 OF THE TAX CODE; and
2) WHETHER OR NOT PRIVATE RESPONDENT
IS SUBJECT TO 3% CONTRACTORS TAX
UNDER SECTION 205 OF THE TAX CODE.
The pertinent portions of Section 205 of the
National Internal Revenue Code, as amended,
provide:
Sec. 205. Contractor, proprietors or operators of
dockyards, and others. - A contractors tax of three
per centum of the gross receipts is hereby imposed
on the following:
xxxxxxxxx
(16) Business agents and other independent
contractors except persons, associations and
corporations under contract for embroidery and
apparel for export, as well as their agents and
contractors and except gross receipts of or from a
pioneer industry registered with the Board of
Investments under Republic Act No. 5186:
xxxxxxxxx
The term independent contractors include persons
(juridical or natural) not enumerated above (but not

including individuals subject to the occupation tax
under Section 12 of the Local Tax Code) whose
activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the
performance of the service calls for the exercise or
use of the physical or mental faculties of such
contractors or their employees.
xxxxxxxxx
Petitioner contends that the respondent court erred
in holding that private respondent is not an
independent contractor within the purview of
Section 205 of the Tax Code. To petitioner, the
term independent contractor, as defined by the
Code, encompasses all kinds of services rendered
for a fee and that the only exceptions are the
following:
a. Persons, association and corporations under
contract for embroidery and apparel for export and
gross receipts of or from pioneer industry registered
with the Board of Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of
the Local Tax Code (under the old Section 182 [b]
of the Tax Code); and
c. Regional or area headquarters established in the
Philippines by multinational corporations, including
their alien executives, and which headquarters do
not earn or derive income from the Philippines and
which act as supervisory, communication and
coordinating centers for their affiliates, subsidiaries
or branches in the Asia Pacific Region (Section 205
of the Tax Code).
Petitioner thus submits that since private
respondent falls under the definition of an
independent contractor and is not among the
aforementioned exceptions, private respondent is
therefore subject to the 3% contractors tax imposed
under the same Code.[4]
The Court of Appeals disagreed with the Petitioner
Commissioner of Internal Revenue and affirmed the
assailed decision of the Court of Tax Appeals.
Unfazed, petitioner now asks us to reverse the CA
through this petition for review.
The Issues
Petitioner submits before us the following issues:
Sales Cases (2017-2018) ni Treeng
1) Whether or not private respondent falls under the
purview of independent contractor pursuant to
Section 205 of the Tax Code
2) Whether or not private respondent is subject to
3% contractors tax under Section 205 of the Tax
Code.[5]
In fine, these may be reduced to a single issue: Is
Ateneo de Manila University, through its auxiliary
unit or branch -- the Institute of Philippine Culture --
performing the work of an independent contractor
and, thus, subject to the three percent contractors
tax levied by then Section 205 of the National
Internal Revenue Code?
The Courts Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National
Internal Revenue Code germane to the case before
us read:
SEC. 205. Contractors, proprietors or operators of
dockyards, and others. -- A contractors tax of three
per centum of the gross receipts is hereby imposed
on the following:
xxxxxxxxx
(16) Business agents and other independent
contractors, except persons, associations and
corporations under contract for embroidery and
apparel for export, as well as their agents and
contractors, and except gross receipts of or from a
pioneer industry registered with the Board of
Investments under the provisions of Republic Act
No. 5186;
xxxxxxxxx
The term independent contractors include persons
(juridical or natural) not enumerated above (but not
including individuals subject to the occupation tax
under Section 12 of the Local Tax Code) whose
activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the
performance of the service calls for the exercise or
use of the physical or mental faculties of such
contractors or their employees.

The term independent contractor shall not include
regional or area headquarters established in the
Philippines by multinational corporations, including
their alien executives, and which headquarters do
not earn or derive income from the Philippines and
which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries
or branches in the Asia-Pacific Region.
The term gross receipts means all amounts
received by the prime or principal contractor as the
total contract price, undiminished by amount paid to
the subcontractor, shall be excluded from the
taxable gross receipts of the subcontractor.
Petitioner Commissioner of Internal Revenue
contends that Private Respondent Ateneo de
Manila University falls within the definition of an
independent contractor and is not one of those
mentioned as excepted; hence, it is properly a
subject of the three percent contractors tax levied
by the foregoing provision of law.[6] Petitioner
states that the term independent contractor is not
specifically defined so as to delimit the scope
thereof, so much so that any person who x x x
renders physical and mental service for a fee, is
now indubitably considered an independent
contractor liable to 3% contractors tax.[7] according
to petitioner, Ateneo has the burden of proof to
show its exemption from the coverage of the law.
We disagree. Petitioner Commissioner of Internal
Revenue erred in applying the principles of tax
exemption without first applying the well-settled
doctrine of strict interpretation in the imposition of
taxes. It is obviously both illogical and impractical to
determine who are exempted without first
determining who are covered by the aforesaid
provision. The Commissioner should have
determined first if private respondent was covered
by Section 205, applying the rule of strict
interpretation of laws imposing taxes and other
burdens on the populace, before asking Ateneo to
prove its exemption therefrom. The Court takes this
occasion to reiterate the hornbook doctrine in the
interpretation of tax laws that (a) statute will not be
construed as imposing a tax unless it does so
clearly, expressly, and unambiguously. x x x (A) tax
cannot be imposed without clear and express
words for that purpose. Accordingly, the general
rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness
to tax laws and the provisions of a taxing act are
not to be extended by implication.[8]
Parenthetically, in answering the question of who is
subject to tax statutes, it is basic that in case of
doubt, such statutes are to be construed most
strongly against the government and in favor of the
subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what
statutes expressly and clearly import.[9]
Sales Cases (2017-2018) ni Treeng
To fall under its coverage, Section 205 of the
National Internal Revenue Code requires that the
independent contractor be engaged in the business
of selling its services. Hence, to impose the three
percent contractors tax on Ateneos Institute of
Philippine Culture, it should be sufficiently proven
that the private respondent is indeed selling its
services for a fee in pursuit of an independent
business. And it is only after private respondent has
been found clearly to be subject to the provisions of
Sec. 205 that the question of exemption therefrom
would arise. Only after such coverage is shown
does the rule of construction -- that tax exemptions
are to be strictly construed against the taxpayer --
come into play, contrary to petitioners position. This
is the main line of reasoning of the Court of Tax
Appeals in its decision,[10] which was affirmed by
the CA.
The Ateneo de Manila University Did Not Contract
for the Sale of the Services of its Institute of
Philippine Culture
After reviewing the records of this case, we find no
evidence that Ateneos Institute of Philippine Culture
ever sold its services for a fee to anyone or was
ever engaged in a business apart from and
independently of the academic purposes of the
university.
Stressing that it is not the Ateneo de Manila
University per se which is being taxed, Petitioner
Commissioner of Internal Revenue contends that
the tax is due on its activity of conducting
researches for a fee. The tax is due on the gross
receipts made in favor of IPC pursuant to the
contracts the latter entered to conduct researches
for the benefit primarily of its clients. The tax is
imposed on the exercise of a taxable activity. x x x
[T]he sale of services of private respondent is made
under a contract and the various contracts entered
into between private respondent and its clients are
almost of the same terms, showing, among others,
the compensation and terms of payment.[11]
(Underscoring supplied.)
In theory, the Commissioner of Internal Revenue
may be correct. However, the records do not show
that Ateneos IPC in fact contracted to sell its
research services for a fee. Clearly then, as found
by the Court of Appeals and the Court of Tax
Appeals, petitioners theory is inapplicable to the
established factual milieu obtaining in the instant
case.
In the first place, the petitioner has presented no
evidence to prove its bare contention that, indeed,
contracts for sale of services were ever entered into
by the private respondent. As appropriately pointed
out by the latter:

An examination of the Commissioners Written
Formal Offer of Evidence in the Court of Tax
Appeals shows that only the following documentary
evidence was presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiners Field Audit Report
3 Adjustments to Sales/Receipts
4 Letter-decision of BIR Commissioner
Bienvenido A. Tan Jr.
None of the foregoing evidence even comes close
to purport to be contracts between private
respondent and third parties.[12]
Moreover, the Court of Tax Appeals accurately and
correctly declared that the funds received by the
Ateneo de Manila University are technically not a
fee. They may however fall as gifts or donations
which are tax-exempt as shown by private
respondents compliance with the requirement of
Section 123 of the National Internal Revenue Code
providing for the exemption of such gifts to an
educational institution.[13]
Respondent Court of Appeals elucidated on the
ruling of the Court of Tax Appeals:
To our mind, private respondent hardly fits into the
definition of an independent contractor.
For one, the established facts show that IPC, as a
unit of the private respondent, is not engaged in
business. Undisputedly, private respondent is
mandated by law to undertake research activities to
maintain its university status. In fact, the research
activities being carried out by the IPC is focused
not on business or profit but on social sciences
studies of Philippine society and culture. Since it
can only finance a limited number of IPCs research
projects, private respondent occasionally accepts
sponsorship for unfunded IPC research projects
from international organizations, private
foundations and governmental agencies. However,
such sponsorships are subject to private
respondents terms and conditions, among which
are, that the research is confined to topics
consistent with the private respondents academic
agenda; that no proprietary or commercial purpose
research is done; and that private respondent
retains not only the absolute right to publish but
also the ownership of the results of the research
conducted by the IPC. Quite clearly, the
aforementioned terms and conditions belie the
allegation that private respondent is a contractor or
is engaged in business.
Sales Cases (2017-2018) ni Treeng
For another, it bears stressing that private
respondent is a non-stock, non-profit educational
corporation. The fact that it accepted sponsorship
for IPCs unfunded projects is merely incidental.
For, the main function of the IPC is to undertake
research projects under the academic agenda of
the private respondent. Moreover, the records do
not show that in accepting sponsorship of research
work, IPC realized profits from such work. On the
contrary, the evidence shows that for about 30
years, IPC had continuously operated at a loss,
which means that sponsored funds are less than
actual expenses for its research projects. That IPC
has been operating at a loss loudly bespeaks of the
fact that education and not profit is the motive for
undertaking the research projects.
Then, too, granting arguendo that IPC made profits
from the sponsored research projects, the fact still
remains that there is no proof that part of such
earnings or profits was ever distributed as
dividends to any stockholder, as in fact none was
so distributed because they accrued to the benefit
of the private respondent which is a non-profit
educational institution.[14]
Therefore, it is clear that the funds received by
Ateneos Institute of Philippine Culture are not given
in the concept of a fee or price in exchange for the
performance of a service or delivery of an object.
Rather, the amounts are in the nature of an
endowment or donation given by IPCs benefactors
solely for the purpose of sponsoring or funding the
research with no strings attached. As found by the
two courts below, such sponsorships are subject to
IPCs terms and conditions. No proprietary or
commercial research is done, and IPC retains the
ownership of the results of the research, including
the absolute right to publish the same. The
copyrights over the results of the research are
owned by Ateneo and, consequently, no portion
thereof may be reproduced without its
permission.[15] The amounts given to IPC,
therefore, may not be deemed, it bears stressing,
as fees or gross receipts that can be subjected to
the three percent contractors tax.
It is also well to stress that the questioned
transactions of Ateneos Institute of Philippine
Culture cannot be deemed either as a contract of
sale or a contract for a piece of work. By the
contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay
therefor a price certain in money or its
equivalent.[16] By its very nature, a contract of sale
requires a transfer of ownership. Thus, Article 1458
of the Civil Code expressly makes the obligation to
transfer ownership as an essential element of the
contract of sale, following modern codes, such as
the German and the Swiss. Even in the absence of
this express requirement, however, most writers,

including Sanchez Roman, Gayoso, Valverde,
Ruggiero, Colin and Capitant, have considered
such transfer of ownership as the primary purpose
of sale. Perez and Alguer follow the same view,
stating that the delivery of the thing does not mean
a mere physical transfer, but is a means of
transmitting ownership. Transfer of title or an
agreement to transfer it for a price paid or promised
to be paid is the essence of sale.[17] In the case of
a contract for a piece of work, the contractor binds
himself to execute a piece of work for the employer,
in consideration of a certain price or compensation.
x x x If the contractor agrees to produce the work
from materials furnished by him, he shall deliver the
thing produced to the employer and transfer
dominion over the thing. x x x.[18] Ineludably,
whether the contract be one of sale or one for a
piece of work, a transfer of ownership is involved
and a party necessarily walks away with an
object.[19] In the case at bench, it is clear from the
evidence on record that there was no sale either of
objects or services because, as adverted to earlier,
there was no transfer of ownership over the
research data obtained or the results of research
projects undertaken by the Institute of Philippine
Culture.
Furthermore, it is clear that the research activity of
the Institute of Philippine Culture is done in
pursuance of maintaining Ateneos university status
and not in the course of an independent business
of selling such research with profit in mind. This is
clear from a reading of the regulations governing
universities:
31.In addition to the legal requisites an institution
must meet, among others, the following
requirements before an application for university
status shall be considered:
xxxxxxxxx
(e) The institution must undertake research and
operate with a competent qualified staff at least
three graduate departments in accordance with the
rules and standards for graduate education. One of
the departments shall be science and technology.
The competence of the staff shall be judged by
their effective teaching, scholarly publications and
research activities published in its school journal as
well as their leadership activities in the profession.
(f) The institution must show evidence of adequate
and stable financial resources and support, a
reasonable portion of which should be devoted to
institutional development and research.
(underscoring supplied)
xxxxxxxxx
Sales Cases (2017-2018) ni Treeng
32. University status may be withdrawn, after due
notice and hearing, for failure to maintain
satisfactorily the standards and requirements
therefor.[20]
Petitioners contention that it is the Institute of
Philippine Culture that is being taxed and not the
Ateneo is patently erroneous because the former is
not an independent juridical entity that is separate
and distinct from the latter.
Factual Findings and Conclusions of the Court of
Tax Appeals
Affirmed by the Court of Appeals Generally
Conclusive
In addition, we reiterate that the Court of Tax
Appeals is a highly specialized body specifically
created for the purpose of reviewing tax cases.
Through its expertise, it is undeniably competent to
determine the issue of whether[21] Ateneo de
Manila University may be deemed a subject of the
three percent contractors tax through the evidence
presented before it. Consequently, as a matter of
principle, this Court will not set aside the conclusion
reached by x x x the Court of Tax Appeals which is,
by the very nature of its function, dedicated
exclusively to the study and consideration of tax
problems and has necessarily developed an
expertise on the subject unless there has been an
abuse or improvident exercise of authority x x x.[22]
This point becomes more evident in the case
before us where the findings and conclusions of
both the Court of Tax Appeals and the Court of
Appeals appear untainted by any abuse of
authority, much less grave abuse of discretion.
Thus, we find the decision of the latter affirming that
of the former free from any palpable error.
Public Service, Not Profit, is the Motive
The records show that the Institute of Philippine
Culture conducted its research activities at a huge
deficit of P1,624,014.00 as shown in its statements
of fund and disbursements for the period 1972 to
1985.[23] In fact, it was Ateneo de Manila
University itself that had funded the research
projects of the institute, and it was only when
Ateneo could no longer produce the needed funds
that the institute sought funding from outside. The
testimony of Ateneos Director for Accounting
Services, Ms. Leonor Wijangco, provides significant
insight on the academic and nonprofit nature of the
institutes research activities done in furtherance of
the universitys purposes, as follows:
Q Now it was testified to earlier by Miss Thelma
Padero (Office Manager of the Institute of
 Sales Cases (2017-2018) ni Treeng
Philippine Culture) that as far as grants from
sponsored research it is possible that the grant
sometimes is less than the actual cost. Will you
please tell us in this case when the actual cost is a
lot less than the grant who shoulders the additional
cost?

A The University.

Q Now, why is this done by the University?

A Because of our faculty development program as

a university, because a university has to have its
own research institute.[24]

So, why is it that Ateneo continues to operate and

conduct researches through its Institute of
Philippine Culture when it undisputedly loses not an
insignificant amount in the process? The plain and
simple answer is that private respondent is not a
contractor selling its services for a fee but an
academic institution conducting these researches
pursuant to its commitments to education and,
ultimately, to public service. For the institute to
have tenaciously continued operating for so long
despite its accumulation of significant losses, we
can only agree with both the Court of Tax Appeals
and the Court of Appeals that education and not
profit is [IPCs] motive for undertaking the research
projects.[25]

WHEREFORE, premises considered, the petition is

DENIED and the assailed Decision of the Court of
Appeals is hereby AFFIRMED in full.

SO ORDERED.

Distinguished from Agency to Sell
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B.
Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEA, J.:
On January 24, 1911, 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 J. Parsons (to whose rights and obligations the
present defendant later subrogated itself), as party
of the second part:
CONTRACT EXECUTED BY AND
BETWEEN ANDRES QUIROGA
AND J. PARSONS, BOTH
MERCHANTS ESTABLISHED IN
MANILA, FOR THE EXCLUSIVE
SALE OF "QUIROGA" BEDS IN
THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the
exclusive right to sell his beds in the
Visayan Islands to J. Parsons under the
following conditions:
(A) Mr. Quiroga shall furnish beds of his
manufacture to Mr. Parsons for the latter's
establishment in Iloilo, and shall invoice
them at the same price he has fixed for
sales, in Manila, and, in the invoices, shall
make and allowance of a discount of 25 per
cent of the invoiced prices, as commission
on the sale; and Mr. Parsons shall order the
beds by the dozen, whether of the same or
of different styles.
(B) Mr. Parsons binds himself to pay Mr.
Quiroga for the beds received, within a
period of sixty days from the date of their
shipment.
(C) The expenses for transportation and
shipment shall be borne by M. Quiroga, and
the freight, insurance, and cost of unloading
from the vessel at the point where the beds
are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr.
Quiroga should request its payment, said
payment when made shall be considered as
a prompt payment, and as such a deduction
of 2 per cent shall be made from the amount
of the invoice.
The same discount shall be made on the
amount of any invoice which Mr. Parsons
may deem convenient to pay in cash.
(E) Mr. Quiroga 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
Sales Cases (2017-2018) ni Treeng
pending to be served to Mr. Parsons, such
order shall enjoy 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, Mr. Quiroga assumed the
obligation to invoice the beds at the price at
which the order was given.
(F) Mr. Parsons binds himself not to sell any
other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses
of advertisement which, for the benefit of
both contracting parties, Mr. Parsons may
find himself obliged to make, Mr. Quiroga
assumes the obligation to offer and give the
preference to Mr. Parsons in case anyone
should apply for the exclusive agency for
any island not comprised with the Visayan
group.
ART. 3. Mr. Parsons may sell, or establish
branches of his agency for the sale of
"Quiroga" beds in all the towns of the
Archipelago where there are no exclusive
agents, and shall immediately report such
action to Mr. Quiroga for his approval.
ART. 4. 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.
Of the three causes of action alleged by the plaintiff
in his complaint, only two of them constitute the
subject 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 invoices; to have an
open establishment in Iloilo; itself to conduct the
agency; to keep the beds on public exhibition, and
to pay for the advertisement expenses for the
same; and to order the beds by the dozen 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 dozen 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. But the plaintiff alleged that
the defendant was his agent for the sale of his beds
in Iloilo, and that said obligations are implied in a
contract of commercial agency. The whole
question, 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.
In order to classify a contract, due regard must be
given to its essential clauses. In the contract in
question, what was essential, as constituting its
cause and subject 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 Manila, with a discount of from 20 to 25 per
cent, according to their class. Payment was to be
made at the end of sixty days, or before, at the

plaintiff's request, 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. By 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.
It 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. But, besides, examining the clauses of this
contract, none of them is found that substantially
supports the plaintiff's contention. Not a single one
of these clauses necessarily conveys the idea of an
agency. The words commission on sales used in
clause (A) of article 1 mean nothing else, as stated
in the contract itself, than a mere discount on the
invoice price. The word agency, also used in
articles 2 and 3, only expresses that the defendant
was the only one that could sell the plaintiff's beds
in the Visayan Islands. With 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 Vidal, a former vice-president of the
defendant corporation and who established and
managed the latter's business in Iloilo. It 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, Guillermo Parsons, of
falsification. He testified that it was he who drafted
the contract Exhibit A, and, when questioned 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.
However, according to the defendant's evidence, it
was Mariano Lopez Santos, a director of the
corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal 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
Vidal was mistaken in his classification of the
contract. But 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 sell;
that, without previous notice, it forwarded to the
Sales Cases (2017-2018) ni Treeng
defendant the beds that it wanted; and that the
defendant received its commission for the beds
sold by the plaintiff directly to persons in Iloilo. But
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
terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as
they performed it. Only the acts of the contracting
parties, subsequent 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. Furthermore,
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 kind; and
for the letter Exhibit L-1, requested the plaintiff's
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 Iloilo was
because, as the defendant obligated itself in the
contract to incur the expenses of advertisement of
the plaintiff's beds, such sales were to be
considered as a result of that advertisement.
In respect to the defendant's obligation to order by
the dozen, 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 conditions; but if
the plaintiff consents to fill them, he waives his right
and cannot complain for having acted thus at his
own free will.
For 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 judgment appealed from is affirmed, with costs
against the appellant. So orde

GONZALO PUYAT & SONS, INC., petitioner,
vs.
ARCO AMUSEMENT COMPANY (formerly
known as Teatro Arco), respondent.
This is a petition for the issuance of a writ of
certiorari to the Court of Appeals for the purpose
of reviewing its Amusement Company (formerly
known as Teatro Arco), plaintiff-appellant, vs.
Gonzalo Puyat and Sons. Inc., defendant-
appellee."
It appears that the respondent herein brought an
action against the herein petitioner in the Court of
First Instance of Manila to secure a reimbursement
of certain amounts allegedly overpaid by it on
account of the purchase price of sound reproducing
equipment and machinery ordered by the petitioner
from the Starr Piano Company of Richmond,
Indiana, U.S.A. The facts of the case as found by
the trial court and confirmed by the appellate court,
which are admitted by the respondent, are as
follows:
In the year 1929, the "Teatro Arco", a corporation
duly organized under the laws of the Philippine
Islands, with its office in Manila, was engaged in
the business of operating cinematographs. In 1930,
its name was changed to Arco Amusement
Company. C. S. Salmon was the president, while A.
B. Coulette was the business manager. About the
same time, Gonzalo Puyat & Sons, Inc., another
corporation doing business in the Philippine
Islands, with office in Manila, in addition to its other
business, was acting as exclusive agents in the
Philippines for the Starr Piano Company of
Richmond, Indiana, U.S. A. It would seem that this
last company dealt in cinematographer equipment
and machinery, and the Arco Amusement
Company desiring to equipt its cinematograph with
sound reproducing devices, approached Gonzalo
Puyat & Sons, Inc., thru its then president and
acting manager, Gil Puyat, and an employee
named Santos. After some negotiations, it was
agreed between the parties, that is to say, Salmon
and Coulette on one side, representing the plaintiff,
and Gil Puyat on the other, representing the
defendant, that the latter would, on behalf of the
plaintiff, order sound reproducing equipment from
the Starr Piano Company and that the plaintiff
would pay the defendant, in addition to the price of
the equipment, a 10 per cent commission, plus all
expenses, such as, freight, insurance, banking
charges, cables, etc. At the expense of the plaintiff,
the defendant sent a cable, Exhibit "3", to the Starr
Piano Company, inquiring about the equipment
desired and making the said company to quote its
price without discount. A reply was received by
Gonzalo Puyat & Sons, Inc., with the price,
evidently the list price of $1,700 f.o.b. factory
Sales Cases (2017-2018) ni Treeng
Richmond, Indiana. The defendant did not show the
plaintiff the cable of inquiry nor the reply but merely
informed the plaintiff of the price of $1,700. Being
agreeable to this price, the plaintiff, by means of
Exhibit "1", which is a letter signed by C. S. Salmon
dated November 19, 1929, formally authorized the
order. The equipment arrived about the end of the
year 1929, and upon delivery of the same to the
plaintiff and the presentation of necessary papers,
the price of $1.700, plus the 10 per cent
commission agreed upon and plus all the expenses
and charges, was duly paid by the plaintiff to the
defendant.
Sometime the following year, and after some
negotiations between the same parties, plaintiff and
defendants, another order for sound reproducing
equipment was placed by the plaintiff with the
defendant, on the same terms as the first order.
This agreement or order was confirmed by the
plaintiff by its letter Exhibit "2", without date, that is
to say, that the plaintiff would pay for the equipment
the amount of $1,600, which was supposed to be
the price quoted by the Starr Piano Company, plus
10 per cent commission, plus all expenses
incurred. The equipment under the second order
arrived in due time, and the defendant was duly
paid the price of $1,600 with its 10 per cent
commission, and $160, for all expenses and
charges. This amount of $160 does not represent
actual out-of-pocket expenses paid by the
defendant, but a mere flat charge and rough
estimate made by the defendant equivalent to 10
per cent of the price of $1,600 of the equipment.
About three years later, in connection with a civil
case in Vigan, filed by one Fidel Reyes against the
defendant herein Gonzalo Puyat & Sons, Inc., the
officials of the Arco Amusement Company
discovered that the price quoted to them by the
defendant with regard to their two orders mentioned
was not the net price but rather the list price, and
that the defendants had obtained a discount from
the Starr Piano Company. Moreover, by reading
reviews and literature on prices of machinery and
cinematograph equipment, said officials of the
plaintiff were convinced that the prices charged
them by the defendant were much too high
including the charges for out-of-pocket expense.
For these reasons, they sought to obtain a
reduction from the defendant or rather a
reimbursement, and failing in this they brought the
present action.
The trial court held that the contract between the
petitioner and the respondent was one of outright
purchase and sale, and absolved that petitioner
from the complaint. The appellate court, however,
by a division of four, with one justice dissenting
held that the relation between petitioner and
respondent was that of agent and principal, the
petitioner acting as agent of the respondent in the
purchase of the equipment in question, and
sentenced the petitioner to pay the respondent

alleged overpayments in the total sum of $1,335.52
or P2,671.04, together with legal interest thereon
from the date of the filing of the complaint until said
amount is fully paid, as well as to pay the costs of
the suit in both instances. The appellate court
further argued that even if the contract between the
petitioner and the respondent was one of purchase
and sale, the petitioner was guilty of fraud in
concealing the true price and hence would still be
liable to reimburse the respondent for the
overpayments made by the latter.
The petitioner now claims that the following errors
have been incurred by the appellate court:
I. El Tribunal de Apelaciones incurrio en error de
derecho al declarar que, segun hechos, entre la
recurrente y la recurrida existia una relacion
implicita de mandataria a mandante en la
transaccion de que se trata, en vez de la de
vendedora a compradora como ha declarado el
Juzgado de Primera Instncia de Manila, presidido
entonces por el hoy Magistrado Honorable
Marcelino Montemayor.
II. El Tribunal de Apelaciones incurrio en error de
derecho al declarar que, suponiendo que dicha
relacion fuerra de vendedora a compradora, la
recurrente obtuvo, mediante dolo, el
consentimiento de la recurrida en cuanto al precio
de $1,700 y $1,600 de las maquinarias y equipos
en cuestion, y condenar a la recurrente ha obtenido
de la Starr Piano Company of Richmond, Indiana.
We sustain the theory of the trial court that the
contract between the petitioner and the respondent
was one of purchase and sale, and not one of
agency, for the reasons now to be stated.
In the first place, the contract is the law between
the parties and should include all the things they
are supposed to have been agreed upon. What
does not appear on the face of the contract should
be regarded merely as "dealer's" or "trader's talk",
which can not bind either party. (Nolbrook v.
Conner, 56 So., 576, 11 Am. Rep., 212; Bank v.
Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92;
Hosser v. Copper, 8 Allen, 334; Doles v. Merrill,
173 Mass., 411.) The letters, Exhibits 1 and 2, by
which the respondent accepted the prices of $1,700
and $1,600, respectively, for the sound reproducing
equipment subject of its contract with the petitioner,
are clear in their terms and admit no other
interpretation that the respondent in question at the
prices indicated which are fixed and determinate.
The respondent admitted in its complaint filed with
the Court of First Instance of Manila that the
petitioner agreed to sell to it the first sound
reproducing equipment and machinery. The third
paragraph of the respondent's cause of action
states:
Sales Cases (2017-2018) ni Treeng
3. That on or about November 19, 1929, the herein
plaintiff (respondent) and defendant (petitioner)
entered into an agreement, under and by virtue of
which the herein defendant was to secure from the
United States, and sell and deliver to the herein
plaintiff, certain sound reproducing equipment and
machinery, for which the said defendant, under and
by virtue of said agreement, was to receive the
actual cost price plus ten per cent (10%), and was
also to be reimbursed for all out of pocket expenses
in connection with the purchase and delivery of
such equipment, such as costs of telegrams,
freight, and similar expenses. (Emphasis ours.)
We agree with the trial judge that "whatever
unforseen events might have taken place
unfavorable to the defendant (petitioner), such as
change in prices, mistake in their quotation, loss of
the goods not covered by insurance or failure of the
Starr Piano Company to properly fill the orders as
per specifications, the plaintiff (respondent) might
still legally hold the defendant (petitioner) to the
prices fixed of $1,700 and $1,600." This is
incompatible with the pretended relation of agency
between the petitioner and the respondent,
because in agency, the agent is exempted from all
liability in the discharge of his commission provided
he acts in accordance with the instructions received
from his principal (section 254, Code of
Commerce), and the principal must indemnify the
agent for all damages which the latter may incur in
carrying out the agency without fault or imprudence
on his part (article 1729, Civil Code).
While the latters, Exhibits 1 and 2, state that the
petitioner was to receive ten per cent (10%)
commission, this does not necessarily make the
petitioner an agent of the respondent, as this
provision is only an additional price which the
respondent bound itself to pay, and which
stipulation is not incompatible with the contract of
purchase and sale. (See Quiroga vs. Parsons
Hardware Co., 38 Phil., 501.)
In the second place, to hold the petitioner an agent
of the respondent in the purchase of equipment and
machinery from the Starr Piano Company of
Richmond, Indiana, is incompatible with the
admitted fact that the petitioner is the exclusive
agent of the same company in the Philippines. It is
out of the ordinary for one to be the agent of both
the vendor and the purchaser. The facts and
circumstances indicated do not point to anything
but plain ordinary transaction where the respondent
enters into a contract of purchase and sale with the
petitioner, the latter as exclusive agent of the Starr
Piano Company in the United States.
It follows that the petitioner as vendor is not bound
to reimburse the respondent as vendee for any
difference between the cost price and the sales
 Sales Cases (2017-2018) ni Treeng
price which represents the profit realized by the from the respondent's complaint in G. R. No. 1023,
vendor out of the transaction. This is the very entitled "Arco Amusement Company (formerly
essence of commerce without which merchants or known as Teatro Arco), plaintiff-appellant, vs.
middleman would not exist. Gonzalo Puyat & Sons, Inc., defendants-appellee,"
without pronouncement regarding costs. So
ordered.
The respondents contends that it merely agreed to
pay the cost price as distinguished from the list
price, plus ten per cent (10%) commission and all Avancea, C.J., Diaz, Moran and Horrilleno, JJ.,
out-of-pocket expenses incurred by the petitioner. concur.
The distinction which the respondents seeks to
draw between the cost price and the list price we
consider to be spacious. It is to be observed that
the twenty-five per cent (25%) discount granted by
the Starr piano Company to the petitioner is
available only to the latter as the former's exclusive
agent in the Philippines. The respondent could not
have secured this discount from the Starr Piano
Company and neither was the petitioner willing to
waive that discount in favor of the respondent. As a
matter of fact, no reason is advanced by the
respondent why the petitioner should waive the 25
per cent discount granted it by the Starr Piano
Company in exchange for the 10 percent
commission offered by the respondent. Moreover,
the petitioner was not duty bound to reveal the
private arrangement it had with the Starr Piano
Company relative to such discount to its
prospective customers, and the respondent was not
even aware of such an arrangement. The
respondent, therefore, could not have offered to
pay a 10 per cent commission to the petitioner
provided it was given the benefit of the 25 per cent
discount enjoyed by the petitioner. It is well known
that local dealers acting as agents of foreign
manufacturers, aside from obtaining a discount
from the home office, sometimes add to the list
price when they resell to local purchasers. It was
apparently to guard against an exhorbitant
additional price that the respondent sought to limit it
to 10 per cent, and the respondent is estopped
from questioning that additional price. If the
respondent later on discovers itself at the short end
of a bad bargain, it alone must bear the blame, and
it cannot rescind the contract, much less compel a
reimbursement of the excess price, on that ground
alone. The respondent could not secure equipment
and machinery manufactured by the Starr Piano
Company except from the petitioner alone; it
willingly paid the price quoted; it received the
equipment and machinery as represented; and that
was the end of the matter as far as the respondent
was concerned. The fact that the petitioner
obtained more or less profit than the respondent
calculated before entering into the contract or
reducing the price agreed upon between the
petitioner and the respondent. Not every
concealment is fraud; and short of fraud, it were
better that, within certain limits, business acumen
permit of the loosening of the sleeves and of the
sharpening of the intellect of men and women in the
business world.

The writ of certiorari should be, as it is hereby,

granted. The decision of the appellate court is
accordingly reversed and the petitioner is absolved

KER & CO., LTD., petitioner,
vs.
JOSE B. LINGAD, as Acting Commissioner of
Internal Revenue, respondent.
Ross, Selph and Carrascoso for petitioner.
Office of the Solicitor General Arturo A. Alafriz,
Solicitor Alejandro B. Afurong and Special Atty.
Balbino Gatdula, Jr. for respondent.
Petitioner Ker & Co., Ltd. would have us reverse a
decision of the Court of Tax Appeals, holding it
liable as a commercial broker under Section 194 (t)
of the National Internal Revenue Code. Its plea,
notwithstanding the vigorous effort of its counsel, is
not sufficiently persuasive. An obstacle, well-nigh
insuperable stands in the way. The decision under
review conforms to and is in accordance with the
controlling doctrine announced in the recent case of
Commissioner of Internal Revenue v. Constantino.
1 The decisive test, as therein set forth, is the
retention of the ownership of the goods delivered to
the possession of the dealer, like herein petitioner,
for resale to customers, the price and terms
remaining subject to the control of the firm
consigning such goods. The facts, as found by
respondent Court, to which we defer, unmistakably
indicate that such a situation does exist. The
juridical consequences must inevitably follow. We
affirm.
It was shown that petitioner was assessed by the
then Commissioner of Internal Revenue Melecio R.
Domingo the sum of P20,272.33 as the commercial
broker's percentage tax, surcharge, and
compromise penalty for the period from July 1,
1949 to December 31, 1953. There was a request
on the part of petitioner for the cancellation of such
assessment, which request was turned down. As a
result, it filed a petition for review with the Court of
Tax Appeals. In its answer, the then Commissioner
Domingo maintained his stand that petitioner
should be taxed in such amount as a commercial
broker. In the decision now under review,
promulgated on October 19, 1962, the Court of Tax
Appeals held petitioner taxable except as to the
compromise penalty of P500.00, the amount due
from it being fixed at P19,772.33.
Such liability arose from a contract of petitioner with
the United States Rubber International, the former
being referred to as the Distributor and the latter
specifically designated as the Company. The
contract was to apply to transactions between the
former and petitioner, as Distributor, from July 1,
1948 to continue in force until terminated by either
party giving to the other sixty days' notice. 2 The
shipments would cover products "for consumption
in Cebu, Bohol, Leyte, Samar, Jolo, Negros
Sales Cases (2017-2018) ni Treeng
Oriental, and Mindanao except [the] province of
Davao", petitioner, as Distributor, being precluded
from disposing such products elsewhere than in the
above places unless written consent would first be
obtained from the Company. 3 Petitioner, as
Distributor, is required to exert every effort to have
the shipment of the products in the maximum
quantity and to promote in every way the sale
thereof. 4 The prices, discounts, terms of payment,
terms of delivery and other conditions of sale were
subject to change in the discretion of the Company.
5
Then came this crucial stipulation: "The Company
shall from time to time consign to the Distributor
and the Distributor will receive, accept and/or hold
upon consignment the products specified under the
terms of this agreement in such quantities as in the
judgment of the Company may be necessary for
the successful solicitation and maintenance of
business in the territory, and the Distributor agrees
that responsibility for the final sole of all goods
delivered shall rest with him. All goods on
consignment shall remain the property of the
Company until sold by the Distributor to the
purchaser or purchasers, but all sales made by the
Distributor shall be in his name, in which the sale
price of all goods sold less the discount given to the
Distributor by the Company in accordance with the
provision of paragraph 13 of this agreement,
whether or not such sale price shall have been
collected by the Distributor from the purchaser or
purchasers, shall immediately be paid and remitted
by the Distributor to the Company. It is further
agreed that this agreement does not constitute
Distributor the agent or legal representative 4 of the
Company for any purpose whatsoever. Distributor
is not granted any right or authority to assume or to
create any obligation or responsibility, express or
implied, in behalf of or in the name of the Company,
or to bind the Company in any manner or thing
whatsoever." 6
All specifications for the goods ordered were
subject to acceptance by the Company with
petitioner, as Distributor, required to accept such
goods shipped as well as to clear the same through
customs and to arrange for delivery in its
warehouse in Cebu City. Moreover, orders are to
be filled in whole or in part from the stocks carried
by the Company's neighboring branches,
subsidiaries or other sources of Company's brands.
7 Shipments were to be invoiced at prices to be
agreed upon, with the customs duties being paid by
petitioner, as Distributor, for account of the
Company. 8 Moreover, all resale prices, lists,
discounts and general terms and conditions of local
resale were to be subject to the approval of the
Company and to change from time to time in its
discretion. 9 The dealer, as Distributor, is allowed a
discount of ten percent on the net amount of sales
of merchandise made under such agreement. 10
On a date to be determined by the Company, the
petitioner, as Distributor, was required to report to it
data showing in detail all sales during the month

immediately preceding, specifying therein the
quantities, sizes and types together with such
information as may be required for accounting
purposes, with the Company rendering an invoice
on sales as described to be dated as of the date of
inventory and sales report. As Distributor, petitioner
had to make payment on such invoice or invoices
on due date with the Company being privileged at
its option to terminate and cancel the agreement
forthwith upon the failure to comply with this
obligation. 11 The Company, at its own expense,
was to keep the consigned stock fully insured
against loss or damage by fire or as a result of fire,
the policy of such insurance to be payable to it in
the event of loss. Petitioner, as Distributor,
assumed full responsibility with reference to the
stock and its safety at all times; and upon request
of the Company at any time, it was to render
inventory of the existing stock which could be
subject to change. 12 There was furthermore this
equally tell-tale covenant: "Upon the termination or
any cancellation of this agreement all goods held
on consignment shall be held by the Distributor for
the account of the Company, without expense to
the Company, until such time as provision can be
made by the Company for disposition." 13
The issue with the Court of Tax Appeals, as with us
now, is whether the relationship thus created is one
of vendor and vendee or of broker and principal.
Not that there would have been the slightest doubt
were it not for the categorical denial in the contract
that petitioner was not constituted as "the agent or
legal representative of the Company for any
purpose whatsoever." It would be, however, to
impart to such an express disclaimer a meaning it
should not possess to ignore what is manifestly the
role assigned to petitioner considering the
instrument as a whole. That would be to lose sight
altogether of what has been agreed upon. The
Court of Tax Appeals was not misled in the
language of the decision now on appeal: "That the
petitioner Ker & Co., Ltd. is, by contractual
stipulation, an agent of U.S. Rubber International is
borne out by the facts that petitioner can dispose of
the products of the Company only to certain
persons or entities and within stipulated limits,
unless excepted by the contract or by the Rubber
Company (Par. 2); that it merely receives, accepts
and/or holds upon consignment the products, which
remain properties of the latter company (Par. 8);
that every effort shall be made by petitioner to
promote in every way the sale of the products (Par.
3); that sales made by petitioner are subject to
approval by the company (Par. 12); that on dates
determined by the rubber company, petitioner shall
render a detailed report showing sales during the
month (Par. 14); that the rubber company shall
invoice the sales as of the dates of inventory and
sales report (Par. 14); that the rubber company
agrees to keep the consigned goods fully insured
under insurance policies payable to it in case of
loss (Par. 15); that upon request of the rubber
company at any time, petitioner shall render an
inventory of the existing stock which may be
checked by an authorized representative of the
Sales Cases (2017-2018) ni Treeng
former (Par. 15); and that upon termination or
cancellation of the Agreement, all goods held on
consignment shall be held by petitioner for the
account of the rubber company until their
disposition is provided for by the latter (Par. 19). All
these circumstances are irreconcilably antagonistic
to the idea of an independent merchant." 14 Hence
its conclusion: "However, upon analysis of the
contract, as a whole, together with the actual
conduct of the parties in respect thereto, we have
arrived at the conclusion that the relationship
between them is one of brokerage or agency." 15
We find ourselves in agreement, notwithstanding
the able brief filed on behalf of petitioner by its
counsel. As noted at the outset, we cannot heed
petitioner's plea for reversal.
1. According to the National Internal Revenue
Code, a commercial broker "includes all persons,
other than importers, manufacturers, producers, or
bona fide employees, who, for compensation or
profit, sell or bring about sales or purchases of
merchandise for other persons or bring proposed
buyers and sellers together, or negotiate freights or
other business for owners of vessels or other
means of transportation, or for the shippers, or
consignors or consignees of freight carried by
vessels or other means of transportation. The term
includes commission merchants." 16 The
controlling decision as to the test to be followed as
to who falls within the above definition of a
commercial broker is that of Commissioner of
Internal Revenue v. Constantino. 17 In the
language of Justice J. B. L. Reyes, who penned the
opinion: "Since the company retained ownership of
the goods, even as it delivered possession unto the
dealer for resale to customers, the price and terms
of which were subject to the company's control, the
relationship between the company and the dealer is
one of agency, ... ." 18 An excerpt from Salisbury v.
Brooks 19 cited in support of such a view follows: "
'The difficulty in distinguishing between contracts of
sale and the creation of an agency to sell has led to
the establishment of rules by the application of
which this difficulty may be solved. The decisions
say the transfer of title or agreement to transfer it
for a price paid or promised is the essence of sale.
If such transfer puts the transferee in the attitude or
position of an owner and makes him liable to the
transferor as a debtor for the agreed price, and not
merely as an agent who must account for the
proceeds of a resale, the transaction is a sale;
while the essence of an agency to sell is the
delivery to an agent, not as his property, but as the
property of the principal, who remains the owner
and has the right to control sales, fix the price, and
terms, demand and receive the proceeds less the
agent's commission upon sales made.' " 20 The
opinion relied on the work of Mechem on Sales as
well as Mechem on Agency. Williston and Tiedman
both of whom wrote treatises on Sales, were
likewise referred to.
Equally relevant is this portion of the Salisbury
opinion: "It is difficult to understand or appreciate
 Sales Cases (2017-2018) ni Treeng
the necessity or presence of these mutual manifest. It would be to frustrate the objective for
requirements and obligations on any theory other which administrative tribunals are created if the
than that of a contract of agency. Salisbury was to judiciary, absent such a showing, is to ignore their
furnish the mill and put the timber owned by him appraisal on a matter that forms the staple of their
into a marketable condition in the form of lumber; specialized competence. While it is to be admitted
Brooks was to furnish the funds necessary for that that counsel for petitioner did scrutinize with care
purpose, sell the manufactured product, and the decision under review with a view to exposing
account therefor to Salisbury upon the specific what was considered its flaws, it cannot be said
terms of the agreement, less the compensation that there was such a failure to apply what the law
fixed by the parties in lieu of interest on the money commands as to call for its reversal. Instead, what
advanced and for services as agent. These cannot be denied is that the Court of Tax Appeals
requirements and stipulations are in tent with any reached a result to which the Court in the recent
other conception of the contract. If it constitutes an Constantino decision gave the imprimatur of its
agreement to sell, they are meaningless. But they approval.
cannot be ignored. They were placed there for
some purpose, doubtless as the result of definite
antecedent negotiations therefore, consummated
by the final written expression of the agreement."
21 Hence the Constantino opinion could
categorically affirm that the mere disclaimer in a
contract that an entity like petitioner is not "the
agent or legal representative for any purpose
whatsoever" does not suffice to yield the conclusion
that it is an independent merchant if the control
over the goods for resale of the goods consigned is
pervasive in character. The Court of Tax Appeals
decision now under review pays fealty to such an
applicable doctrine.

2. No merit therefore attaches to the first error

imputed by petitioner to the Court of Tax Appeals.
Neither did such Court fail to appreciate in its true
significance the act and conduct pursued in the
implementation of the contract by both the United
States Rubber International and petitioner, as was
contended in the second assignment of error.
Petitioner ought to have been aware that there was
no need for such an inquiry. The terms of the
contract, as noted, speak quite clearly. There is
lacking that degree of ambiguity sufficient to give
rise to serious doubt as to what was contemplated
by the parties. A reading thereof discloses that the
relationship arising therefrom was not one of seller
and purchaser. If it were thus intended, then it
would not have included covenants which in their
totality would negate the concept of a firm acquiring
as vendee goods from another. Instead, the
stipulations were so worded as to lead to no other
conclusion than that the control by the United
States Rubber International over the goods in
question is, in the language of the Constantino
opinion, "pervasive". The insistence on a
relationship opposed to that apparent from the
language employed might even yield the
impression that such a mode of construction was
resorted to in order that the applicability of a taxing
statute might be rendered nugatory. Certainly, such
a result is to be avoided.

Nor is it to be lost sight of that on a matter left to the

discretion of the Court of Tax Appeals which has
developed an expertise in view of its function being
limited solely to the interpretation of revenue laws,
this Court is not prepared to substitute its own
judgment unless a grave abuse of discretion is

SCHMID & OBERLY, INC., petitioner,
vs.
RJL MARTINEZ FISHING CORPORATION,
respondent.
CORTES, J.:
Petitioner seeks reversal of the decision and the
resolution of the Court of Appeals, ordering Schmid
& Oberly Inc. (hereafter to be referred to simply as
"SCHMID") to refund the purchase price paid by
RJL Martinez Fishing Corporation (hereafter to be
referred to simply as "RJL MARTINEZ") to D.
Nagata Co., Ltd. of Japan (hereafter to be referred
to simply as NAGATA CO.") for twelve (12)
defective "Nagata"-brand generators, plus
consequential damages, and attorneys fees.
The facts as found by the Court of Appeals, are as
follows:
The findings of facts by the trial court (Decision, pp.
21-28, Record on Appeal) shows: that the plaintiff
RJL Martinez Fishing Corporation is engaged in
deep-sea fishing, and in the course of its business,
needed electrical generators for the operation of its
business; that the defendant sells electrical
generators with the brand of "Nagata", a Japanese
product; that the supplier is the manufacturer, the
D. Nagata Co. Ltd., of Japan, that the defendant
Schmid & Oberly Inc. advertised the 12 Nagata
generators for sale; that the plaintiff purchased 12
brand new Nagata generators, as advertised by
herein defendant; that through an irrevocable line of
credit, the D. Nagata Co., Ltd., shipped to the
plaintiff 12 electric generators, and the latter paid
the amount of the purchase price; that the 12
generators were found to be factory defective; that
the plaintiff informed the defendant herein that it
shall return the 12 generators as in fact three of the
12 were actually returned to the defendant; that the
plaintiff sued the defendant on the warranty; asking
for rescission of the contract; that the defendant be
ordered to accept the generators and be ordered to
pay back the purchase money; and that the plaintiff
asked for damages. (Record on Appeal, pp. 27-28)
[CA Decision, pp. 34; Rollo, pp. 47-48.]
On the basis thereof, the Court of Appeals affirmed
the decision of the trial court ordering petitioner to
refund to private respondent the purchase price for
the twelve (12) generators and to accept delivery of
the same and to pay s and attorney's fees, with a
slight modification as to the amount to be refunded.
In its resolution of the motion for reconsideration,
the Court of Appeals further modified the trial courts
decision as to the award of consequential
damages.
Sales Cases (2017-2018) ni Treeng
Ordinarily, the Court will not disturb the findings of
fact of the Court of Appeals in petitions to review
the latter's decisions under Rule 45 of the Revised
Rules of Court, the scope of the Court's inquiry
being limited to a review of the imputed errors of
law [Chan v. Court of Appeals, G.R. No. L-27488,
June 30, 1970, 33 SCRA 77; Tiongco v. De la
Merced, G.R. No. L-24426, July 25, 1974, 58
SCRA 89; Corona v. Court of Appeals, G.R. No.
62482, April 28, 1983, 121 SCRA 865; Baniqued v.
Court of Appeals, G.R. No.
L-47531, January 30, 1984, 127 SCRA 596.]
However, when, as in this case, it is the petitioner's
position that the appealed judgment is premised on
a misapprehension of
facts, * the Court is compelled to review the Court
of Appeal's factual findings [De la Cruz v. Sosing,
94 Phil. 26 (1953); Castillo v. Court of Appeals,
G.R. No. I,48290, September 29, 1983, 124 SCRA
808.]
Considering the sketchiness of the respondent
court's narration of facts, whether or not the Court
of Appeals indeed misapprehended the facts could
not be determined without a thorough review of the
records.
Thus, after a careful scrutiny of the records, the
Court has found the appellate court's narration of
facts incomplete. It failed to include certain material
facts.
The facts are actually as follows:
RJL MARTINEZ is engaged in the business of
deep-sea fishing. As RJL MARTINEZ needed
electric generators for some of its boats and
SCHMIID sold electric generators of different
brands, negotiations between them for the
acquisition thereof took place. The parties had two
separate transactions over "Nagata"-brand
generators.
The first transaction was the sale of three (3)
generators. In this transaction, it is not disputed that
SCHMID was the vendor of the generators. The
company supplied the generators from its
stockroom; it was also SCHMID which invoiced the
sale.
The second transaction, which gave rise to the
present controversy, involves twelve (12) "Nagata"-
brand generators. 'These are the facts surrounding
this particular transaction:
 Sales Cases (2017-2018) ni Treeng
As RJL MARTINEZ was canvassing for generators,
SC gave RJL MARTINEZ its Quotation dated
The tests revealed that the generators were
August 19, 1975 [Exhibit 'A"] for twelve (12)
overrated. As indicated both in the quotation and in
"Nagata'-brand generators with the following
the invoice, the capacity of a generator was
specifications:
supposed to be 5 KVA (kilovolt amperes). However,
it turned out that the actual capacity was only 4
KVA.
"NAGATA" Single phase AC Alternators, 110/220
V, 60 cycles, 1800 rpm, unity power factor, rectifier
type and radio suppressor,, 5KVA (5KW) $546.75
SCHMID replaced the three (3) generators subject
@
of the first sale with generators of a different brand.

It was stipulated that payment would be made by

As for the twelve (12) generators subject of the
confirming an irrevocable letter of credit in favor of
second transaction, the Japanese technicians
NAGATA CO. Furthermore, among the General
advised RJL MARTINEZ to ship three (3)
Conditions of Sale appearing on the dorsal side of
generators to Japan, which the company did.
the Quotation is the following:
These three (3) generators were repaired by
NAGATA CO. itself and thereafter returned to RJL
MARTINEZ; the remaining nine (9) were neither
Buyer will, upon request, promptly open irrevocable
repaired nor replaced. NAGATA CO., however,
Letter of Credit in favor of seller, in the amount
wrote SCHMID suggesting that the latter check the
stated on the face of this memorandum, specifying
generators, request for spare parts for replacement
shipment from any Foreign port to Manila or any
free of charge, and send to NAGATA CO.
safe Philippine port, permitting partial shipments
SCHMID's warranty claim including the labor cost
and providing that in the event the shippers are
for repairs [Exhibit "I".] In its reply letter, SCHMID
unable to ship within the specified period due to
indicated that it was not agreeable to these terms
strikes, lack of shipping space or other
[Exhibit "10".]
circumstances beyond their reasonable control,
Buyer agrees to extend the said Letter of Credit for
later shipment. The Letter of Credit shall otherwise
As not all of the generators were replaced or
be subject to the conditions stated in this
repaired, RJL MARTINEZ formally demanded that it
memorandum of contract. [Emphasis supplied.]
be refunded the cost of the generators and paid
damages. SCHMID in its reply maintained that it
was not the seller of the twelve (12) generators and
Agreeing with the terms of the Quotation, RJL
thus refused to refund the purchase price therefor.
MARTINEZ opened a letter of credit in favor of
Hence, on February 14, 1977, RJL MARTINEZ
NAGATA CO. Accordingly, on November 20,1975,
brought suit against SCHMID on the theory that the
SCHMID transmitted to NAGATA CO. an order
latter was the vendor of the twelve (12) generators
[Exhibit "4"] for the twelve (12) generators to be
and, as such vendor, was liable under its warranty
shipped directly to RJL MARTINEZ. NAGATA CO.
against hidden defects.
thereafter sent RJL MARTINEZ the bill of lading
and its own invoice (Exhibit "B") and, in accordance
with the order, shipped the generators directly to
Both the trial court and the Court of Appeals upheld
RJL MARTINEZ. The invoice states that "one (1)
the contention of RJL MARTINEZ that SCHMID
case of 'NAGATA' AC Generators" consisting of
was the vendor in the second transaction and was
twelve sets wasbought by order and for account
liable under its warranty. Accordingly, the courts a
risk of Messrs. RJL Martinez Fishing Corporation.
quo rendered judgment in favor of RJL MARTINEZ.
Hence, the instant recourse to this Court.
For its efforts, SCHMID received from NAGATA
CO. a commission of $1,752.00 for the sale of the
In this petition for review, SCHMID seeks reversal
twelve generators to RJL MARTINEZ. [Exhibits "9",
on the following grounds:
"9-A", "9-B" and "9-C".]

(i) Schmid was merely the indentor in the sale

All fifteen (15) generators subject of the two
[of the twelve (12) generators] between Nagata
transactions burned out after continuous use. RJL
Co., the exporter and RJL Martinez, the importer;
MARTINEZ informed SCHMID about this
development. In turn, SCHMID brought the matter
to the attention of NAGATA CO. In July 1976,
NAGATA CO. sent two technical representatives (ii) as mere indentor, Schmid is not liable for
who made an ocular inspection and conducted the seller's implied warranty against hidden defects,
tests on some of the burned out generators, which Schmid not having personally assumed any such
by then had been delivered to the premises of warranty.
SCHMID.

(iii) in any event, conformably with Article 1563
of the Civil Code, there was no implied warranty
against hidden defects in the sale of these twelve
(12) generators because these were sold under
their trade name "Nagata"; and
(iv) Schmid, accordingly, is not liable for the
reimbursement claimed by RJL Martinez nor for the
latter's unsubstantiated claim of PI 10.33
operational losses a day nor for exemplary
damages, attorney's fees and costs. [Petition, p. 6.]
1. As may be expected, the basic issue confronting
this Court is whether the second transaction
between the parties was a sale or an indent
transaction. SCHMID maintains that it was the
latter; RJL MARTINEZ claims that it was a sale.
At the outset, it must be understood that a contract
is what the law defines it to be, considering its
essential elements, and not what it is caged by the
contracting parties [Quiroga v. Parsons Hardware
Co., 38 Phil. 501 (1918).]
The Civil Code defines a contract of sale, thus:
ART. 458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in
money or its equivalent.
It has been said that the essence of the contract of
sale is transfer of title or agreement to transfer it for
a price paid or promised [Commissioner of Internal
Revenue v. Constantino, G.R. No. L-25926,
February 27, 1970, 31 SCRA 779, 785, citing
Salisbury v. Brooks, 94 SE 117,118-19.] "If such
transfer puts the transferee in the attitude or
position of an owner and makes him liable to the
transferor as a debtor for the agreed price, and not
merely as an agent who must account for the
proceeds of a resale, the transaction is, a sale."
[Ibid.]
On the other hand, there is no statutory definition of
"indent" in this jurisdiction. However, the Rules and
Regulations to Implement Presidential Decree No.
1789 (the Omnibus Investments Code) lumps
"indentors" together with "commercial brokers" and
"commission merchants" in this manner:
... A foreign firm which does business through the
middlemen acting in their own names, such as
indentors, commercial brokers or commission
merchants, shall not be deemed doing business in
the Philippines. But such indentors, commercial
brokers or commission merchants shall be the ones
Sales Cases (2017-2018) ni Treeng
deemed to be doing business in the Philippines
[Part I, Rule I, Section 1, par. g (1).]
Therefore, an indentor is a middlemen in the same
class as commercial brokers and commission
merchants. To get an Idea of what an indentor is, a
look at the definition of those in his class may prove
helpful.
A broker is generally defined as one who is
engaged, for others, on a commission, negotiating
contracts relative to property with the custody of
which he has no concern; the negotiator between
other parties, never acting in his own name but in
the name of those who employed him; he is strictly
a middleman and for some purpose the agent of
both parties. (1 9 Cyc 186; Henderson vs. The
State, 50 Ind., 234; Black's Law Dictionary.) A
broker is one whose occupation it is to bring parties
together to bargain, or to bargain for them, in
matters of trade, commerce or navigation. Mechem
on Agency, sec. 13; Wharton on Agency, sec. 695.)
Judge Storey, in his work on Agency, defines a
broker as an agent employed to make bargains and
contracts between other persons, in matters of
trade, commerce or navigation, for compensation
commonly called brokerage. (Storey on Agency,
sec. 28.) [Behn Meyer and Co., Ltd. v. Nolting and
Garcia, 35 Phil. 274, 279-80 (1916).]
A commission merchant is one engaged in the
purchase or sale for another of personal property
which, for this purpose, is placed in his possession
and at his disposal. He maintains a relation not only
with his principal and the purchasers or vendors,
but also with the property which is subject matter of
the transaction. [Pacific Commercial Co. v. Yatco,
68 Phil. 398, 401 (1939).]
Thus, the chief feature of a commercial broker and
a commercial merchant is that in effecting a sale,
they are merely intermediaries or middle-men, and
act in a certain sense as the agent of both parties
to the transaction.
Webster defines an indent as "a purchase order for
goods especially when sent from a foreign country."
[Webster's Ninth New Collegiate Dictionary 612
(1986).] It would appear that there are three parties
to an indent transaction, namely, the buyer, the
indentor, and the supplier who is usually a non-
resident manufacturer residing in the country where
the goods are to be bought [Commissioner of
Internal Revenue v. Cadwallader Pacific Company,
G.R. No. L-20343, September 29, 1976, 73 SCRA
59.] An indentor may therefore be best described
as one who, for compensation, acts as a
middleman in bringing about a purchase and sale
of goods between a foreign supplier and a local
purchaser.

Coming now to the case at bar, the admissions of
the parties and the facts appearing on record more
than suffice to warrant the conclusion that SCHMID
was not a vendor, but was merely an indentor, in
the second transaction.
In its complaint, RJL MARTINEZ admitted that the
generators were purchased "through indent order"
[Record on Appeal, p. 6.] In the same vein, it
admitted in its demand letter previously sent to
SCHMID that twelve (12) of en (15) Nagata-brand
generators "were purchased through your company
(SCHMID), by indent order and three (3) by direct
purchase." [Exhibit "D".] The evidence also show
that RJL MARTINEZ paid directly NAGATA CO, for
the generators, and that the latter company itself
invoiced the sale [Exhibit "B"], and shipped the
generators directly to the former. The only
participation of SCHMID was to act as an
intermediary or middleman between NAGATA CO.
and RJL MARTINEZ, by procuring an order from
RJL MARTINEZ and forwarding the same to
NAGATA CO. for which the company received a
commission from NAGATA CO. [Exhibits "9", "9-A",
"9-B" and "9-C".]
The above transaction is significantly different from
the first transaction wherein SCHMID delivered the
goods from its own stock (which it had itself
imported from NAGATA CO.), issued its own
invoice, and collected payment directly from the
purchaser.
These facts notwithstanding, RJL MARTINEZ
insists that SCHMID was the vendor of the twelve
generators on the following grounds:
First, it is contended that the Quotation and the
General Conditions of Sale on the dorsal side
thereof do not necessarily lead to the conclusion
that NAGATA CO., and not SCHMID, was the real
seller in the case of the twelve (12) generators in
that:
(i) the signing of the quotation, which was
under SCHMID's letter-head, perfected the contract
of sale (impliedly, as between the signatories
theretoi.e., RJL MARTINEZ and SCHMID);
(ii) the qualification that the letter of credit shall
be in favor of NAGATA CO. constituted simply the
manner of payment requested by SCHMID
(implying that SCHMID, as seller, merely chose to
waive direct payment, stipulating delivery of
payment instead to NAGATA CO. as supplier);
Second, it is asserted that the acts of SCHMID after
it was informed of the defect in the generators were
indicative of its awareness that it was the vendor
Sales Cases (2017-2018) ni Treeng
and acknowledgment of its liability as such vendor.
Attention is called to these facts: When RJL
MARTINEZ complained to SCHMID that the
generators were defective, SCHMID immediately
asked RJL MARTINEZ to send the defective
generators to its shop to determine what was
wrong. SCHMID likewise informed NAGATA CO.
about the complaint of RJL MARTINEZ. When the
Japanese technicians arrived, SCHMID made
available its technicians, its shop and its testing
equipment. After the generators were found to have
factory defects, SCHMID facilitated the shipment of
three (3) generators to Japan and, after their repair,
back to the Philippines [Memorandum for the
Respondent, p. 8.]
Third, it is argued that the contents of the letter
from NAGATA CO. to SCHMID regarding the repair
of the generators indicated that the latter was
"within the purview of a seller." [Ibid.]
Fourth, it is argued that if SCHMID is considered as
a mere agent of NAGATA CO., a foreign
corporation not licensed to do business in the
Philippines, then the officers and employees of the
former may be penalized for violation of the old
Corporation Law which provided:
Sec. 69 ... Any officer or agent of the corporation or
any person transacting business for any foreign
corporation not having the license prescribed shall
be punished by imprisonment for not less than six
months nor more than two years or by a fine 'of not
less than two hundred pesos nor more than one
thousand pesos or both such imprisonment and
fine, in the discretion of the Court.
The facts do not bear out these contentions.
The first contention disregards the circumstances
surrounding the second transaction as
distinguished from those surrounding the first
transaction, as noted above.
Neither does the solicitous manner by which
SCHMID responded to RJL MARTINEZ's complaint
prove that the former was the seller of the
generators. As aptly stated by counsel, no indentor
will just fold its hands when a client complains
about the goods it has bought upon the indentor's
mediation. In its desire to promote the product of
the seller and to retain the goodwill of the buyer, a
prudent indentor desirous of maintaining his
business would have to act considerably. towards
his clients.
Note that in contrast to its act of replacing the three
(3) generators subject of the first transaction,
SCHMID did not replace any of the twelve (12)
 Sales Cases (2017-2018) ni Treeng
generators, but merely rendered assistance to both
RJL TINES and NAGATA CO. so that the latter
The Quotation (Exhibit A is in writing. It is the
could repair the defective generators.
repository of the contract between RJL MARTINEZ
and SCHMID. Notably, nowhere is it stated therein
that SCHMID did bind itself to answer for the
The proposal of NAGATA CO. rejected by SCHMID
defects of the things sold. There being no allegation
that the latter undertake the repair of the nine (9)
nor any proof that the Quotation does not express
other defective generators, with the former
the true intent and agreement of the contracting
supplying the replacement parts free of charge and
parties, extrinsic parol evidence of warranty will be
subsequently reimbursing the latter for labor costs
to no avail [See Rule 123, Sec. 22.]
[Exhibit "I"], cannot support the conclusion that
SCHMID is vendor of the generators of the second
transaction or was acting "within the purview of a
The trial court, however, relied on the testimony of
seller."
Patrocinio Balagtas, the head of the Electrical
Department of RJL MARTINEZ, to support the
finding that SCHMID did warrant the twelve (12)
Finally, the afore-quoted penal provision in the
generators against defects.
Corporation Law finds no application to SCHMID
and its officers and employees relative to the
transactions in the instant case. What the law
Upon careful examination of Balagtas' testimony,
seeks to prevent, through said provision, is the
what is at once apparent is that Balagtas failed to
circumvention by foreign corporations of licensing
disclose the nature or terms and conditions of the
requirements through the device of employing local
warranty allegedly given by SC Was it a warranty
representatives. An indentor, acting in his own
that the generators would be fit for the fishing
name, is not, however, covered by the above-
business of the buyer? Was it a warranty that the
quoted provision. In fact, the provision of the Rules
generators to be delivered would meet the
and Regulations implementing the Omnibus
specifications indicated in the Quotation?
Investments Code quoted above, which was copied
Considering the different kinds of warranties that
from the Rules implementing Republic Act No.
may be contracted, unless the nature or terms and
5455, recognizes the distinct role of an indentor,
conditions of the warranty are known, it would not
such that when a foreign corporation does business
be possible to determine whether there has been a
through such indentor, the foreign corporation is not
breach thereof.
deemed doing business in the Philippines.

Moreover, a closer examination of the statements

In view of the above considerations, this Court rules
allegedly made by the representative of SCHMID
that SCHMID was merely acting as an indentor in
reveals that they merely constituted an expression
the purchase and sale of the twelve (12) generators
of opinion which cannot by any means be
subject of the second transaction. Not being the
construed as a warranty [See Art. 1546, Civil
vendor, SCHMID cannot be held liable for the
Code.]
implied warranty for hidden defects under the Civil
Code [Art. 1561, et seq.]

We quote from Balagtas' testimony:

2. However, even as SCHMID was merely an
indentor, there was nothing to prevent it from
voluntarily warranting that twelve (12) generators Atty. CATRAL:
subject of the second transaction are free from any
hidden defects. In other words, SCHMID may be
held answerable for some other contractual Q Did you not say at the start of your cross
obligation, if indeed it had so bound itself. As stated examination, Mr. Balagtas, that the only
above, an indentor is to some extent an agent of participation you had in the acquisition of those
both the vendor and the vendee. As such agent, twelve (12) units [of] generators was your having
therefore, he may expressly obligate himself to issued a purchase order to your own company for
undertake the obligations of his principal (See Art. the purchase of the units?
1897, Civil Code.)

ATTY. AQUINO:
The Court's inquiry, therefore, shifts to a
determination of whether or not SCHMID expressly
bound itself to warrant that the twelve (12) Misleading, your Honor.
generators are free of any hidden defects.

Atty. CATRAL:
Again, we consider the facts.
 Sales Cases (2017-2018) ni Treeng
I am asking the witness. REVERSED. The complaint of RJL Martinez
Fishing Corporation is hereby DISMISSED. No
costs.
COURT:

SO ORDERED.
He has the right to ask that question because he is
on cross. Moreover, if I remember, he mentioned
something like that. Witness may answer.

A Yes, sir. Before I submitted that, we negotiated

with Schmid and Oberly the beat generators they
can recommend because we are looking for
generators. The representative of Schmid and
Oberly said that Nagata is very good. That is why I
recommended that to the management. [t.s.n.,
October 14, 1977, pp. 23-25.]

At any rate, when asked where SCHMID's warranty

was contained, Balagtas testified initially that it was
in the receipts covering the sale. (At this point, it
may be stated that the invoice [Exhibit "B-l"] was
issued by NAGATA CO. and nowhere is it stated
therein that SCHMID warranted the generators
against defects.) When confronted with a copy of
the invoice issued by NAGATA CO., he changed
his assertion and claimed that what he meant was
that the date of the commencement of the period of
SCHMID's warranty would be based on the date of
the invoice. On further examination, he again
changed his mind and asserted that the warranty
was given verbally [TSN, October 14, 1977, pp. 19-
22.] But then again, as stated earlier, the witness
failed to disclose the nature or terms and conditions
of the warranty allegedly given by SCHMID.

On the other hand, Hernan Adad SCHMID's

General Manager, was categorical that the
company does not warrant goods bought on indent
and that the company warrants only the goods
bought directly from it, like the three generators
earlier bought by RJL MARTINEZ itself [TSN,
December 19, 1977, pp. 63-64.] It must be recalled
that SCHMID readily replaced the three generators
from its own stock. In the face of these conflicting
testimonies, this Court is of the view that RJL has
failed to prove that SCHMID had given a warranty
on the twelve (12) generators subject of the second
transaction. Even assuming that a warranty was
given, there is no way to determine whether there
has been a breach thereof, considering that its
nature or terms and conditions have not been
shown.

3. In view of the foregoing, it becomes unnecessary

to pass upon the other issues.

WHEREFORE, finding the Court of Appeals to

have committed a reversible error, the petition is
GRANTED and the appealed Decision and
Resolution of the Court of Appeals are

VICTORIAS MILLING CO., INC., petitioner, vs.
COURT OF APPEALS and CONSOLIDATED
SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under
Rule 45 of the Rules of Court assailing the decision
of the Court of Appeals dated February 24, 1994, in
CA-G.R. CV No. 31717, as well as the respondent
court's resolution of September 30, 1994 modifying
said decision. Both decision and resolution
amended the judgment dated February 13, 1991, of
the Regional Trial Court of Makati City, Branch 147,
in Civil Case No. 90-118.
The facts of this case as found by both the trial and
appellate courts are as follows:
St. Therese Merchandising (hereafter STM)
regularly bought sugar from petitioner Victorias
Milling Co., Inc., (VMC). In the course of their
dealings, petitioner issued several Shipping
List/Delivery Receipts (SLDRs) to STM as proof of
purchases. Among these was SLDR No. 1214M,
which gave rise to the instant case. Dated October
16, 1989, SLDR No. 1214M covers 25,000 bags of
sugar. Each bag contained 50 kilograms and priced
at P638.00 per bag as "per sales order VMC
Marketing No. 042 dated October 16, 1989."[1] The
transaction it covered was a "direct sale."[2] The
SLDR also contains an additional note which reads:
"subject for (sic) availability of a (sic) stock at
NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private
respondent Consolidated Sugar Corporation (CSC)
its rights in SLDR No. 1214M for P 14,750,000.00.
CSC issued one check dated October 25, 1989 and
three checks postdated November 13, 1989 in
payment. That same day, CSC wrote petitioner that
it had been authorized by STM to withdraw the
sugar covered by SLDR No. 1214M. Enclosed in
the letter were a copy of SLDR No. 1214M and a
letter of authority from STM authorizing CSC "to
withdraw for and in our behalf the refined sugar
covered by Shipping List/Delivery Receipt-Refined
Sugar (SDR) No. 1214 dated October 16, 1989 in
the total quantity of 25,000 bags."[4]
On October 27, 1989, STM issued 16 checks in the
total amount of P31,900,000.00 with petitioner as
payee. The latter, in turn, issued Official Receipt
No. 33743 dated October 27, 1989 acknowledging
receipt of the said checks in payment of 50,000
bags. Aside from SLDR No. 1214M, said checks
also covered SLDR No. 1213.
Sales Cases (2017-2018) ni Treeng
Private respondent CSC surrendered SLDR No.
1214M to the petitioner's NAWACO warehouse and
was allowed to withdraw sugar. However, after
2,000 bags had been released, petitioner refused to
allow further withdrawals of sugar against SLDR
No. 1214M. CSC then sent petitioner a letter dated
January 23, 1990 informing it that SLDR No.
1214M had been "sold and endorsed" to it but that
it had been refused further withdrawals of sugar
from petitioner's warehouse despite the fact that
only 2,000 bags had been withdrawn.[5] CSC thus
inquired when it would be allowed to withdraw the
remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could
not allow any further withdrawals of sugar against
SLDR No. 1214M because STM had already
dwithdrawn all the sugar covered by the cleared
checks.[6]
On March 2, 1990, CSC sent petitioner a letter
demanding the release of the balance of 23,000
bags.
Seven days later, petitioner reiterated that all the
sugar corresponding to the amount of STM's
cleared checks had been fully withdrawn and
hence, there would be no more deliveries of the
commodity to STM's account. Petitioner also noted
that CSC had represented itself to be STM's agent
as it had withdrawn the 2,000 bags against SLDR
No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for
specific performance, docketed as Civil Case No.
90-1118. Defendants were Teresita Ng Sy (doing
business under the name of St. Therese
Merchandising) and herein petitioner. Since the
former could not be served with summons, the case
proceeded only against the latter. During the trial, it
was discovered that Teresita Ng Go who testified
for CSC was the same Teresita Ng Sy who could
not be reached through summons.[7] CSC,
however, did not bother to pursue its case against
her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid
petitioner for the sugar covered by SLDR No.
1214M. Therefore, the latter had no justification for
refusing delivery of the sugar. CSC prayed that
petitioner be ordered to deliver the 23,000 bags
covered by SLDR No. 1214M and sought the award
of P1,104,000.00 in unrealized profits,
P3,000,000.00 as exemplary damages,
P2,200,000.00 as attorney's fees and litigation
expenses.

Petitioner's primary defense a quo was that it was
an unpaid seller for the 23,000 bags.[8] Since STM
had already drawn in full all the sugar
corresponding to the amount of its cleared checks,
it could no longer authorize further delivery of sugar
to CSC. Petitioner also contended that it had no
privity of contract with CSC.
Petitioner explained that the SLDRs, which it had
issued, were not documents of title, but mere
delivery receipts issued pursuant to a series of
transactions entered into between it and STM. The
SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer
of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the
SLDR and was actually STM's co-conspirator to
defraud it through a misrepresentation that CSC
was an innocent purchaser for value and in good
faith. Petitioner then prayed that CSC be ordered to
pay it the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages;
and P1,500,000.00 as attorney's fees. Petitioner
also prayed that cross-defendant STM be ordered
to pay it P10,000,000.00 in exemplary damages,
and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the
trial court heard the case on the merits.
As earlier stated, the trial court rendered its
judgment favoring private respondent CSC, as
follows:
"WHEREFORE, in view of the foregoing, the Court
hereby renders judgment in favor of the plaintiff and
against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company
to deliver to the plaintiff 23,000 bags of refined
sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company
to pay the amount of P920,000.00 as unrealized
profits, the amount of P800,000.00 as exemplary
damages and the amount of P1,357,000.00, which
is 10% of the acquisition value of the undelivered
bags of refined sugar in the amount of
P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
Sales Cases (2017-2018) ni Treeng
"[T]he testimony of plaintiff's witness Teresita Ng
Go, that she had fully paid the purchase price of
P15,950,000.00 of the 25,000 bags of sugar bought
by her covered by SLDR No. 1214 as well as the
purchase price of P15,950,000.00 for the 25,000
bags of sugar bought by her covered by SLDR No.
1213 on the same date, October 16, 1989 (date of
the two SLDRs) is duly supported by Exhibits C to
C-15 inclusive which are post-dated checks dated
October 27, 1989 issued by St. Therese
Merchandising in favor of Victorias Milling
Company at the time it purchased the 50,000 bags
of sugar covered by SLDR No. 1213 and 1214.
Said checks appear to have been honored and duly
credited to the account of Victorias Milling
Company because on October 27, 1989 Victorias
Milling Company issued official receipt no. 34734 in
favor of St. Therese Merchandising for the amount
of P31,900,000.00 (Exhibits B and B-1). The
testimony of Teresita Ng Go is further supported by
Exhibit F, which is a computer printout of defendant
Victorias Milling Company showing the quantity and
value of the purchases made by St. Therese
Merchandising, the SLDR no. issued to cover the
purchase, the official reciept no. and the status of
payment. It is clear in Exhibit 'F' that with respect to
the sugar covered by SLDR No. 1214 the same has
been fully paid as indicated by the word 'cleared'
appearing under the column of 'status of payment.'
"On the other hand, the claim of defendant
Victorias Milling Company that the purchase price
of the 25,000 bags of sugar purchased by St.
Therese Merchandising covered by SLDR No. 1214
has not been fully paid is supported only by the
testimony of Arnulfo Caintic, witness for defendant
Victorias Milling Company. The Court notes that the
testimony of Arnulfo Caintic is merely a sweeping
barren assertion that the purchase price has not
been fully paid and is not corroborated by any
positive evidence. There is an insinuation by
Arnulfo Caintic in his testimony that the postdated
checks issued by the buyer in payment of the
purchased price were dishonored. However, said
witness failed to present in Court any dishonored
check or any replacement check. Said witness
likewise failed to present any bank record showing
that the checks issued by the buyer, Teresita Ng
Go, in payment of the purchase price of the sugar
covered by SLDR No. 1214 were dishonored."[10]
Petitioner appealed the trial courts decision to the
Court of Appeals.
On appeal, petitioner averred that the dealings
between it and STM were part of a series of
transactions involving only one account or one
general contract of sale. Pursuant to this contract,
STM or any of its authorized agents could withdraw
bags of sugar only against cleared checks of STM.
SLDR No. 21214M was only one of 22 SLDRs
issued to STM and since the latter had already
withdrawn its full quota of sugar under the said

SLDR, CSC was already precluded from seeking
delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar
purchases involving SLDR No. 1214M were
separate and independent transactions and that the
details of the series of purchases were contained in
a single statement with a consolidated summary of
cleared check payments and sugar stock
withdrawals because this a more convenient
system than issuing separate statements for each
purchase.
The appellate court considered the following
issues: (a) Whether or not the transaction between
petitioner and STM involving SLDR No. 1214M was
a separate, independent, and single transaction; (b)
Whether or not CSC had the capacity to sue on its
own on SLDR No. 1214M; and (c) Whether or not
CSC as buyer from STM of the rights to 25,000
bags of sugar covered by SLDR No. 1214M could
compel petitioner to deliver 23,000 bags allegedly
unwithdrawn.
On February 24, 1994, the Court of Appeals
rendered its decision modifying the trial court's
judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the
assailed judgment and orders defendant-appellant
to:
"1) Deliver to plaintiff-appellee 12,586 bags of
sugar covered by SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is
10% of the value of the undelivered bags of refined
sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate
motions for reconsideration.
In its resolution dated September 30, 1994, the
appellate court modified its decision to read:
"WHEREFORE, the Court hereby modifies the
assailed judgment and orders defendant-appellant
to:
Sales Cases (2017-2018) ni Treeng
"(1) Deliver to plaintiff-appellee 23,000 bags of
refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]
The appellate court explained the rationale for the
modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of
bags of sugar which remained undelivered as
12,586 cannot be made the basis for such a
finding. The rule is explicit that courts should
consider the evidence only for the purpose for
which it was offered. (People v. Abalos, et al, 1 CA
Rep 783). The rationale for this is to afford the party
against whom the evidence is presented to object
thereto if he deems it necessary. Plaintiff-appellee
is, therefore, correct in its argument that Exhibit F'
which was offered to prove that checks in the total
amount of P15,950,000.00 had been cleared.
(Formal Offer of Evidence for Plaintiff, Records p.
58) cannot be used to prove the proposition that
12,586 bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng
[TSN, 10 October 1990, p. 33] and Marianito L.
Santos [TSN, 17 October 1990, pp. 16, 18, and 36])
presented by plaintiff-appellee was to the effect that
it had withdrawn only 2,000 bags of sugar from
SLDR after which it was not allowed to withdraw
anymore. Documentary evidence (Exhibit I, Id., p.
78, Exhibit K, Id., p. 80) show that plaintiff-appellee
had sent demand letters to defendant-appellant
asking the latter to allow it to withdraw the
remaining 23,000 bags of sugar from SLDR 1214M.
Defendant-appellant, on the other hand, alleged
that sugar delivery to the STM corresponded only
to the value of cleared checks; and that all sugar
corresponded to cleared checks had been
withdrawn. Defendant-appellant did not rebut
plaintiff-appellee's assertions. It did not present
evidence to show how many bags of sugar had
been withdrawn against SLDR No. 1214M,
precisely because of its theory that all sales in
question were a series of one single transaction
and withdrawal of sugar depended on the clearing
of checks paid therefor.
"After a second look at the evidence, We see no
reason to overturn the findings of the trial court on
this point."[13]
Hence, the instant petition, positing the following
errors as grounds for review:

"1. The Court of Appeals erred in not holding that
STM's and private respondent's specially informing
petitioner that respondent was authorized by buyer
STM to withdraw sugar against SLDR No. 1214M
"for and in our (STM) behalf," (emphasis in the
original) private respondent's withdrawing 2,000
bags of sugar for STM, and STM's empowering
other persons as its agents to withdraw sugar
against the same SLDR No. 1214M, rendered
respondent like the other persons, an agent of STM
as held in Rallos v. Felix Go Chan & Realty Corp.,
81 SCRA 252, and precluded it from subsequently
claiming and proving being an assignee of SLDR
No. 1214M and from suing by itself for its
enforcement because it was conclusively presumed
to be an agent (Sec. 2, Rule 131, Rules of Court)
and estopped from doing so. (Art. 1431, Civil
Code).
" 2. The Court of Appeals erred in manifestly and
arbitrarily ignoring and disregarding certain relevant
and undisputed facts which, had they been
considered, would have shown that petitioner was
not liable, except for 69 bags of sugar, and which
would justify review of its conclusion of facts by this
Honorable Court.
" 3. The Court of Appeals misapplied the law on
compensation under Arts. 1279, 1285 and 1626 of
the Civil Code when it ruled that compensation
applied only to credits from one SLDR or contract
and not to those from two or more distinct contracts
between the same parties; and erred in denying
petitioner's right to setoff all its credits arising prior
to notice of assignment from other sales or SLDRs
against private respondent's claim as assignee
under SLDR No. 1214M, so as to extinguish or
reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more
distinct contracts between the same parties
(emphasis in the original).
"4. The Court of Appeals erred in concluding that
the settlement or liquidation of accounts in Exh. F
between petitioner and STM, respondent's
admission of its balance, and STM's acquiescence
thereto by silence for almost one year did not
render Exh. `F' an account stated and its balance
binding.
"5. The Court of Appeals erred in not holding that
the conditions of the assigned SLDR No. 1214,
namely, (a) its subject matter being generic, and (b)
the sale of sugar being subject to its availability at
the Nawaco warehouse, made the sale conditional
and prevented STM or private respondent from
acquiring title to the sugar; and the non-availability
of sugar freed petitioner from further obligation.
Sales Cases (2017-2018) ni Treeng
"6. The Court of Appeals erred in not holding that
the "clean hands" doctrine precluded respondent
from seeking judicial reliefs (sic) from petitioner, its
only remedy being against its assignor."[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in
not ruling that CSC was an agent of STM and
hence, estopped to sue upon SLDR No. 1214M as
an assignee.
(2)....Whether or not the Court of Appeals erred in
applying the law on compensation to the
transaction under SLDR No. 1214M so as to
preclude petitioner from offsetting its credits on the
other SLDRs.
(3)....Whether or not the Court of Appeals erred in
not ruling that the sale of sugar under SLDR No.
1214M was a conditional sale or a contract to sell
and hence freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals
committed an error of law in not applying the "clean
hands doctrine" to preclude CSC from seeking
judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that
petitioner raised this issue for the first time on
appeal. It is settled that an issue which was not
raised during the trial in the court below could not
be raised for the first time on appeal as to do so
would be offensive to the basic rules of fair play,
justice, and due process.[15] Nonetheless, the
Court of Appeals opted to address this issue,
hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of
authority allowing CSC to withdraw sugar against
SLDR No. 1214M to show that the latter was STM's
agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar
Corporation or its representative to withdraw for
and in our behalf (stress supplied) the refined sugar
covered by Shipping List/Delivery Receipt =
Refined Sugar (SDR) No. 1214 dated October 16,
1989 in the total quantity of 25, 000 bags."[16]
The Civil Code defines a contract of agency as
follows:

"Art. 1868. By the contract of agency a person
binds himself to render some service or to do
something in representation or on behalf of
another, with the consent or authority of the latter."
It is clear from Article 1868 that the basis of agency
is representation.[17] On the part of the principal,
there must be an actual intention to appoint[18] or
an intention naturally inferable from his words or
actions;[19] and on the part of the agent, there
must be an intention to accept the appointment and
act on it,[20] and in the absence of such intent,
there is generally no agency.[21] One factor which
most clearly distinguishes agency from other legal
concepts is control; one person - the agent - agrees
to act under the control or direction of another - the
principal. Indeed, the very word "agency" has come
to connote control by the principal.[22] The control
factor, more than any other, has caused the courts
to put contracts between principal and agent in a
separate category.[23] The Court of Appeals, in
finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of
agency is dependent upon the acts of the parties,
the law makes no presumption of agency, and it is
always a fact to be proved, with the burden of proof
resting upon the persons alleging the agency, to
show not only the fact of its existence, but also its
nature and extent (Antonio vs. Enriquez [CA], 51
O.G. 3536]. Here, defendant-appellant failed to
sufficiently establish the existence of an agency
relation between plaintiff-appellee and STM. The
fact alone that it (STM) had authorized withdrawal
of sugar by plaintiff-appellee "for and in our (STM's)
behalf" should not be eyed as pointing to the
existence of an agency relation ...It should be
viewed in the context of all the circumstances
obtaining. Although it would seem STM
represented plaintiff-appellee as being its agent by
the use of the phrase "for and in our (STM's)
behalf" the matter was cleared when on 23 January
1990, plaintiff-appellee informed defendant-
appellant that SLDFR No. 1214M had been "sold
and endorsed" to it by STM (Exhibit I, Records, p.
78). Further, plaintiff-appellee has shown that the
25, 000 bags of sugar covered by the SLDR No.
1214M were sold and transferred by STM to it ...A
conclusion that there was a valid sale and transfer
to plaintiff-appellee may, therefore, be made thus
capacitating plaintiff-appellee to sue in its own
name, without need of joining its imputed principal
STM as co-plaintiff."[24]
In the instant case, it appears plain to us that
private respondent CSC was a buyer of the SLDFR
form, and not an agent of STM. Private respondent
CSC was not subject to STM's control. The
question of whether a contract is one of sale or
agency depends on the intention of the parties as
gathered from the whole scope and effect of the
language employed.[25] That the authorization
given to CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency.
Sales Cases (2017-2018) ni Treeng
Ultimately, what is decisive is the intention of the
parties.[26] That no agency was meant to be
established by the CSC and STM is clearly shown
by CSC's communication to petitioner that SLDR
No. 1214M had been "sold and endorsed" to it.[27]
The use of the words "sold and endorsed" means
that STM and CSC intended a contract of sale, and
not an agency. Hence, on this score, no error was
committed by the respondent appellate court when
it held that CSC was not STM's agent and could
independently sue petitioner.
On the second issue, proceeding from the theory
that the transactions entered into between
petitioner and STM are but serial parts of one
account, petitioner insists that its debt has been
offset by its claim for STM's unpaid purchases,
pursuant to Article 1279 of the Civil Code.[28]
However, the trial court found, and the Court of
Appeals concurred, that the purchase of sugar
covered by SLDR No. 1214M was a separate and
independent transaction; it was not a serial part of a
single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows,
without being rebutted, that petitioner had been
paid for the sugar purchased under SLDR No.
1214M. Petitioner clearly had the obligation to
deliver said commodity to STM or its assignee.
Since said sugar had been fully paid for, petitioner
and CSC, as assignee of STM, were not mutually
creditors and debtors of each other. No reversible
error could thereby be imputed to respondent
appellate court when, it refused to apply Article
1279 of the Civil Code to the present case.
Regarding the third issue, petitioner contends that
the sale of sugar under SLDR No. 1214M is a
conditional sale or a contract to sell, with title to the
sugar still remaining with the vendor. Noteworthy,
SLDR No. 1214M contains the following terms and
conditions:
"It is understood and agreed that by payment by
buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through
a representative, title to refined sugar is transferred
to buyer/trader and delivery to him/it is deemed
effected and completed (stress supplied) and
buyer/trader assumes full responsibility
therefore"[29]
The aforequoted terms and conditions clearly show
that petitioner transferred title to the sugar to the
buyer or his assignee upon payment of the
purchase price. Said terms clearly establish a
contract of sale, not a contract to sell. Petitioner is
now estopped from alleging the contrary. The
contract is the law between the contracting
parties.[30] And where the terms and conditions so
stipulated are not contrary to law, morals, good
customs, public policy or public order, the contract
is valid and must be upheld.[31] Having transferred
 Sales Cases (2017-2018) ni Treeng
title to the sugar in question, petitioner is now
obliged to deliver it to the purchaser or its assignee.

As to the fourth issue, petitioner submits that STM

and private respondent CSC have entered into a
conspiracy to defraud it of its sugar. This
conspiracy is allegedly evidenced by: (a) the fact
that STM's selling price to CSC was below its
purchasing price; (b) CSC's refusal to pursue its
case against Teresita Ng Go; and (c) the authority
given by the latter to other persons to withdraw
sugar against SLDR No. 1214M after she had sold
her rights under said SLDR to CSC. Petitioner
prays that the doctrine of "clean hands" should be
applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the
records bare of convincing evidence whatsoever to
support the petitioner's allegations of fraud. We are
now constrained to deem this matter purely
speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for

lack of merit. Costs against petitioner.

SO ORDERED.

Art. 1245. Dation in payment, whereby property
is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of
sales
PHILIPPINE NATIONAL BANK, petitioner,
vs.
HON. GREGORIO G. PINEDA, in his capacity as
Presiding Judge of the Court of First Instance
of Rizal, Branch XXI and TAYABAS CEMENT
COMPANY, INC., respondents.
The Chief Legal Counsel for petitioner.
Ortille Law Office for private respondent.
In this petition for certiorari, petitioner Philippine
National Bank (PNB) seeks to annul and set aside
the orders dated March 4, 1977 and May 31, 1977
rendered in Civil Case No. 24422 1 of the Court of
First Instance of Rizal, Branch XXI, respectively
granting private respondent Tayabas Cement
Company, Inc.'s application for a writ of preliminary
injunction to enjoin the foreclosure sale of certain
properties in Quezon City and Negros Occidental
and denying petitioner's motion for reconsideration
thereof.
In 1963, Ignacio Arroyo, married to Lourdes Tuason
Arroyo (the Arroyo Spouses), obtained a loan of
P580,000.00 from petitioner bank to purchase 60%
of the subscribed capital stock, and thereby acquire
the controlling interest of private respondent
Tayabas Cement Company, Inc. (TCC). 2 As
security for said loan, the spouses Arroyo executed
a real estate mortgage over a parcel of land
covered by Transfer Certificate of Title No. 55323
of the Register of Deeds of Quezon City known as
the La Vista property.
Thereafter, TCC filed with petitioner bank an
application and agreement for the establishment of
an eight (8) year deferred letter of credit (L/C) for
$7,000,000.00 in favor of Toyo Menka Kaisha, Ltd.
of Tokyo, Japan, to cover the importation of a
cement plant machinery and equipment.
Upon approval of said application and opening of
an L/C by PNB in favor of Toyo Menka Kaisha, Ltd.
for the account of TCC, the Arroyo spouses
executed the following documents to secure this
loan accommodation: Surety Agreement dated
August 5, 1964 3 and Covenant dated August 6,
1964. 4
Sales Cases (2017-2018) ni Treeng
The imported cement plant machinery and
equipment arrived from Japan and were released to
TCC under a trust receipt agreement.
Subsequently, Toyo Menka Kaisha, Ltd. made the
corresponding drawings against the L/C as
scheduled. TCC, however, failed to remit and/or
pay the corresponding amount covered by the
drawings. Thus, on May 19, 1968, pursuant to the
trust receipt agreement, PNB notified TCC of its
intention to repossess, as it later did, the imported
machinery and equipment for failure of TCC to
settle its obligations under the L/C. 5
In the meantime, the personal accounts of the
spouses Arroyo, which included another loan of
P160,000.00 secured by a real estate mortgage
over parcels of agricultural land known as Hacienda
Bacon located in Isabela, Negros Occidental, had
likewise become due. The spouses Arroyo having
failed to satisfy their obligations with PNB, the latter
decided to foreclose the real estate mortgages
executed by the spouses Arroyo in its favor.
On July 18, 1975, PNB filed with the City Sheriff of
Quezon City a petition for extra-judicial foreclosure
under Act 3138, as amended by Act 4118 and
under Presidential Decree No. 385 of the real
estate mortgage over the properties known as the
La Vista property covered by TCT No. 55323. 6
PNB likewise filed a similar petition with the City
Sheriff of Bacolod, Negros Occidental with respect
to the mortgaged properties located at Isabela,
Negros Occidental and covered by OCT No. RT
1615.
The foreclosure sale of the La Vista property was
scheduled on August 11, 1975. At the auction sale,
PNB was the highest bidder with a bid price of
P1,000,001.00. However, when said property was
about to be awarded to PNB, the representative of
the mortgagor-spouses objected and demanded
from the PNB the difference between the bid price
of P1,000,001.00 and the indebtedness of
P499,060.25 of the Arroyo spouses on their
personal account. It was the contention of the
spouses Arroyo's representative that the
foreclosure proceedings referred only to the
personal account of the mortgagor spouses without
reference to the account of TCC.
To remedy the situation, PNB filed a supplemental
petition on August 13, 1975 requesting the Sheriff's
Office to proceed with the sale of the subject real
properties to satisfy not only the amount of
P499,060.25 owed by the spouses Arroyos on their
personal account but also the amount of
P35,019,901.49 exclusive of interest, commission
charges and other expenses owed by said spouses
as sureties of TCC. 7 Said petition was opposed by
the spouses Arroyo and the other bidder, Jose L.
Araneta.
 Sales Cases (2017-2018) ni Treeng
On September 12, 1975, Acting Clerk of Court and
Ex-Officio Sheriff Diana L. Dungca issued a
Private respondent TCC counters with the
resolution finding that the questions raised by the
argument that P.D. No. 385 does not apply to the
parties required the reception and evaluation of
case at bar, firstly because no foreclosure
evidence, hence, proper for adjudication by the
proceedings have been instituted against it by PNB
courts of law. Since said questions were prejudicial
and secondly, because its account under the L/C
to the holding of the foreclosure sale, she ruled that
has been fully satisfied with the repossession of the
her "Office, therefore, cannot properly proceed with
imported machinery and equipment by PNB.
the foreclosure sale unless and until there be a
court ruling on the aforementioned issues." 8

The resolution of the instant controversy lies

primarily on the question of whether or not TCC's
Thus, in May, 1976, PNB filed with the Court of
liability has been extinguished by the repossession
First Instance of Quezon City, Branch V a petition
of PNB of the imported cement plant machinery
for mandamus 9 against said Diana Dungca in her
and equipment.
capacity as City Sheriff of Quezon City to compel
her to proceed with the foreclosure sale of the
mortgaged properties covered by TCT No. 55323 in
order to satisfy both the personal obligation of the We rule for the petitioner PNB. It must be
spouses Arroyo as well as their liabilities as remembered that PNB took possession of the
sureties of TCC. 10 imported cement plant machinery and equipment
pursuant to the trust receipt agreement executed by
and between PNB and TCC giving the former the
unqualified right to the possession and disposal of
On September 6, 1976, the petition was granted
all property shipped under the Letter of Credit until
and Dungca was directed to proceed with the
such time as all the liabilities and obligations under
foreclosure sale of the mortgaged properties
said letter had been discharged. 16 In the case of
covered by TCT No. 55323 pursuant to Act No.
Vintola vs. Insular Bank of Asia and America 17
3135 and to issue the corresponding Sheriff's
wherein the same argument was advanced by the
Certificate of Sale. 11
Vintolas as entrustees of imported seashells under
a trust receipt transaction, we said:
Before the decision could attain finality, TCC filed
on September 14, 1976 before the Court of First
Further, the VINTOLAS take the position that their
Instance of Rizal, Pasig, Branch XXI a complaint 12
obligation to IBAA has been extinguished inasmuch
against PNB, Dungca, and the Provincial Sheriff of
as, through no fault of their own, they were unable
Negros Occidental and Ex-Officio Sheriff of
to dispose of the seashells, and that they have
Bacolod City seeking, inter alia, the issuance of a
relinquished possession thereof to the IBAA, as
writ of preliminary injunction to restrain the
owner of the goods, by depositing them with the
foreclosure of the mortgages over the La Vista
Court.
property and Hacienda Bacon as well as a
declaration that its obligation with PNB had been
fully paid by reason of the latter's repossession of
the imported machinery and equipment. 13 The foregoing submission overlooks the nature and
mercantile usage of the transaction involved. A
letter of credit-trust receipt arrangement is endowed
with its own distinctive features and characteristics.
On October 5, 1976, the CFI, thru respondent
Under that set-up, a bank extends a loan covered
Judge Gregorio Pineda, issued a restraining order
by the Letter of Credit, with the trust receipt as a
14 and on March 4, 1977, granted a writ of
security for the loan. In other words, the transaction
preliminary injunction. 15 PNB's motion for
involves a loan feature represented by the letter of
reconsideration was denied, hence this petition.
credit, and a security feature which is in the
covering trust receipt.
Petitioner PNB advances four grounds for the
setting aside of the writ of preliminary injunction,
xxx xxx xxx
namely: a) that it contravenes P.D. No. 385 which
prohibits the issuance of a restraining order against
a government financial institution in any action
taken by such institution in compliance with the A trust receipt, therefore, is a security agreement,
mandatory foreclosure provided in Section 1 pursuant to which a bank acquires a "security
thereof; b) that the writ countermands a final interest" in the goods.1wphi1 It secures an
decision of a co-equal and coordinate court; c) that indebtedness and there can be no such thing as
the writ seeks to prohibit the performance of acts security interest that secures no obligation. As
beyond the court's territorial jurisdiction; and, d) defined in our laws:
private respondent TCC has not shown any clear
legal right or necessity to the relief of preliminary
injunction.

(h) "Security interest" means a property interest
in goods, documents or instruments to secure
performance of some obligations of the entrustee or
of some third persons to the entruster and includes
title, whether or not expressed to be absolute,
whenever such title is in substance taken or
retained for security only.
xxx xxx xxx
Contrary to the allegation of the VINTOLAS, IBAA
did not become the real owner of the goods. It was
merely the holder of a security title for the advances
it had made to the VINTOLAS. The goods the
VINTOLAS had purchased through IBAA financing
remain their own property and they hold it at their
own risk. The trust receipt arrangement did not
convert the IBAA into an investor; the latter
remained a lender and creditor.
xxx xxx xxx
Since the IBAA is not the factual owner of the
goods, the VINTOLAS cannot justifiably claim that
because they have surrendered the goods to IBAA
and subsequently deposited them in the custody of
the court, they are absolutely relieved of their
obligation to pay their loan because of their inability
to dispose of the goods. The fact that they were
unable to sell the seashells in question does not
affect IBAA's right to recover the advances it had
made under the Letter of Credit.
PNB's possession of the subject machinery and
equipment being precisely as a form of security for
the advances given to TCC under the Letter of
Credit, said possession by itself cannot be
considered payment of the loan secured thereby.
Payment would legally result only after PNB had
foreclosed on said securities, sold the same and
applied the proceeds thereof to TCC's loan
obligation. Mere possession does not amount to
foreclosure for foreclosure denotes the procedure
adopted by the mortgagee to terminate the rights of
the mortgagor on the property and includes the sale
itself. 18
Neither can said repossession amount to dacion en
pago. Dation in payment takes place when property
is alienated to the creditor in satisfaction of a debt
in money and the same is governed by sales. 19
Dation in payment is the delivery and transmission
of ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of
the obligation. 20 As aforesaid, the repossession of
the machinery and equipment in question was
merely to secure the payment of TCC's loan
obligation and not for the purpose of transferring
ownership thereof to PNB in satisfaction of said
Sales Cases (2017-2018) ni Treeng
loan. Thus, no dacion en pago was ever
accomplished.
Proceeding from this finding, PNB has the right to
foreclose the mortgages executed by the spouses
Arroyo as sureties of TCC. A surety is considered
in law as being the same party as the debtor in
relation to whatever is adjudged touching the
obligation of the latter, and their liabilities are
interwoven as to be inseparable. 21 As sureties,
the Arroyo spouses are primarily liable as original
promissors and are bound immediately to pay the
creditor the amount outstanding. 22
Under Presidential Decree No. 385 which took
effect on January 31, 1974, government financial
institutions like herein petitioner PNB are required
to foreclose on the collaterals and/or securities for
any loan, credit or accommodation whenever the
arrearages on such account amount to at least
twenty percent (20%) of the total outstanding
obligations, including interests and charges, as
appearing in the books of account of the financial
institution concerned. 23 It is further provided
therein that "no restraining order, temporary or
permanent injunction shall be issued by the court
against any government financial institution in any
action taken by such institution in compliance with
the mandatory foreclosure provided in Section 1
hereof, whether such restraining order, temporary
or permanent injunction is sought by the
borrower(s) or any third party or parties . . ." 24
It is not disputed that the foreclosure proceedings
instituted by PNB against the Arroyo spouses were
in compliance with the mandate of P.D. 385. This
being the case, the respondent judge acted in
excess of his jurisdiction in issuing the injunction
specifically proscribed under said decree.
Another reason for striking down the writ of
preliminary injunction complained of is that it
interfered with the order of a co-equal and
coordinate court. Since Branch V of the CFI of Rizal
had already acquired jurisdiction over the question
of foreclosure of mortgage over the La Vista
property and rendered judgment in relation thereto,
then it retained jurisdiction to the exclusion of all
other coordinate courts over its judgment, including
all incidents relative to the control and conduct of its
ministerial officers, namely the sheriff thereof. 25
The foreclosure sale having been ordered by
Branch V of the CFI of Rizal, TCC should not have
filed injunction proceedings with Branch XXI of the
same CFI, but instead should have first sought
relief by proper motion and application from the
former court which had exclusive jurisdiction over
the foreclosure proceeding. 26
This doctrine of non-interference is premised on the
principle that a judgment of a court of competent

jurisdiction may not be opened, modified or vacated
by any court of concurrent jurisdiction. 27
Furthermore, we find the issuance of the
preliminary injunction directed against the
Provincial Sheriff of Negros Occidental and ex-
officio Sheriff of Bacolod City a jurisdictional faux
pas as the Courts of First Instance, now Regional
Trial Courts, can only enforce their writs of
injunction within their respective designated
territories. 28
SONNY LO, petitioner, vs. KJS ECO-
FORMWORK SYSTEM PHIL., INC., respondent.
DECISION
YNARES-SANTIAGO, J.:
Respondent KJS ECO-FORMWORK System Phil.,
Inc. is a corporation engaged in the sale of steel
scaffoldings, while petitioner Sonny L. Lo, doing
business under the name and style Sans
Enterprises, is a building contractor. On February
22, 1990, petitioner ordered scaffolding equipments
from respondent worth P540,425.80.[1] He paid a
downpayment in the amount of P150,000.00. The
balance was made payable in ten monthly
installments.
Respondent delivered the scaffoldings to
petitioner.[2] Petitioner was able to pay the first two
monthly installments. His business, however,
encountered financial difficulties and he was unable
to settle his obligation to respondent despite oral
and written demands made against him.[3]
On October 11, 1990, petitioner and respondent
executed a Deed of Assignment,[4] whereby
petitioner assigned to respondent his receivables in
the amount of P335,462.14 from Jomero Realty
Corporation. Pertinent portions of the Deed provide:
WHEREAS, the ASSIGNOR is the contractor for
the construction of a residential house located at
Greenmeadow Avenue, Quezon City owned by
Jomero Realty Corporation;
WHEREAS, in the construction of the
aforementioned residential house, the ASSIGNOR
purchased on account scaffolding equipments from
the ASSIGNEE payable to the latter;
WHEREAS, up to the present the ASSIGNOR has
an obligation to the ASSIGNEE for the purchase of
the aforementioned scaffoldings now in the amount
of Three Hundred Thirty Five Thousand Four
Hundred Sixty Two and 14/100 Pesos
(P335,462.14);
Sales Cases (2017-2018) ni Treeng
NOW, THEREFORE, for and in consideration of the
sum of Three Hundred Thirty Five Thousand Four
Hundred Sixty Two and 14/100 Pesos
(P335,462.14), Philippine Currency which
represents part of the ASSIGNORs collectible from
Jomero Realty Corp., said ASSIGNOR hereby
assigns, transfers and sets over unto the
ASSIGNEE all collectibles amounting to the said
amount of P335, 462.14;
And the ASSIGNOR does hereby grant the
ASSIGNEE, its successors and assigns, the full
power and authority to demand, collect, receive,
compound, compromise and give acquittance for
the same or any part thereof, and in the name and
stead of the said ASSIGNOR;
And the ASSIGNOR does hereby agree and
stipulate to and with said ASSIGNEE, its
successors and assigns that said debt is justly
owing and due to the ASSIGNOR for Jomero
Realty Corporation and that said ASSIGNOR has
not done and will not cause anything to be done to
diminish or discharge said debt, or delay or to
prevent the ASSIGNEE, its successors or assigns,
from collecting the same;
And the ASSIGNOR further agrees and stipulates
as aforesaid that the said ASSIGNOR, his heirs,
executors, administrators, or assigns, shall and will
at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost
and expense, execute and do all such further acts
and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in
accordance with the true intent and meaning of
these presents. xxx[5] (Italics supplied)
However, when respondent tried to collect the said
credit from Jomero Realty Corporation, the latter
refused to honor the Deed of Assignment because
it claimed that petitioner was also indebted to it.[6]
On November 26, 1990, respondent sent a letter[7]
to petitioner demanding payment of his obligation,
but petitioner refused to pay claiming that his
obligation had been extinguished when they
executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent
filed an action for recovery of a sum of money
against the petitioner before the Regional Trial
Court of Makati, Branch 147, which was docketed
as Civil Case No. 91-074.[8]
During the trial, petitioner argued that his obligation
was extinguished with the execution of the Deed of
Assignment of credit. Respondent, for its part,

presented the testimony of its employee, Almeda
Baaga, who testified that Jomero Realty refused to
honor the assignment of credit because it claimed
that petitioner had an outstanding indebtedness to
it.
On August 25, 1994, the trial court rendered a
decision[9] dismissing the complaint on the ground
that the assignment of credit extinguished the
obligation. The decretal portion thereof provides:
WHEREFORE, in view of the foregoing, the Court
hereby renders judgment in favor of the defendant
and against the plaintiff, dismissing the complaint
and ordering the plaintiff to pay the defendant
attorneys fees in the amount of P25,000.00.
Respondent appealed the decision to the Court of
Appeals. On April 19, 2001, the appellate court
rendered a decision,[10] the dispositive portion of
which reads:
WHEREFORE, finding merit in this appeal, the
court REVERSES the appealed Decision and
enters judgment ordering defendant-appellee
Sonny Lo to pay the plaintiff-appellant KJS ECO-
FORMWORK SYSTEM PHILIPPINES, INC. Three
Hundred Thirty Five Thousand Four Hundred Sixty-
Two and 14/100 (P335,462.14) with legal interest of
6% per annum from January 10, 1991 (filing of the
Complaint) until fully paid and attorneys fees
equivalent to 10% of the amount due and costs of
the suit.
SO ORDERED.[11]
In finding that the Deed of Assignment did not
extinguish the obligation of the petitioner to the
respondent, the Court of Appeals held that (1)
petitioner failed to comply with his warranty under
the Deed; (2) the object of the Deed did not exist at
the time of the transaction, rendering it void
pursuant to Article 1409 of the Civil Code; and (3)
petitioner violated the terms of the Deed of
Assignment when he failed to execute and do all
acts and deeds as shall be necessary to effectually
enable the respondent to recover the
collectibles.[12]
Petitioner filed a motion for reconsideration of the
said decision, which was denied by the Court of
Appeals.[13]
In this petition for review, petitioner assigns the
following errors:
I
Sales Cases (2017-2018) ni Treeng
THE HONORABLE COURT OF APPEALS
COMMITTED A GRAVE ERROR IN DECLARING
THE DEED OF ASSIGNMENT (EXH. 4) AS NULL
AND VOID FOR LACK OF OBJECT ON THE
BASIS OF A MERE HEARSAY CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT THE DEED OF ASSIGNMENT
(EXH. 4) DID NOT EXTINGUISH PETITIONERS
OBLIGATION ON THE WRONG NOTION THAT
PETITIONER FAILED TO COMPLY WITH HIS
WARRANTY THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED
IN REVERSING THE DECISION OF THE TRIAL
COURT AND IN ORDERING PAYMENT OF
INTERESTS AND ATTORNEYS FEES.[14]
The petition is without merit.
An assignment of credit is an agreement by virtue
of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en
pago, exchange or donation, and without the
consent of the debtor, transfers his credit and
accessory rights to another, known as the
assignee, who acquires the power to enforce it to
the same extent as the assignor could enforce it
against the debtor.[15]
Corollary thereto, in dacion en pago, as a special
mode of payment, the debtor offers another thing to
the creditor who accepts it as equivalent of
payment of an outstanding debt.[16] In order that
there be a valid dation in payment, the following are
the requisites: (1) There must be the performance
of the prestation in lieu of payment (animo solvendi)
which may consist in the delivery of a corporeal
thing or a real right or a credit against the third
person; (2) There must be some difference
between the prestation due and that which is given
in substitution (aliud pro alio); (3) There must be an
agreement between the creditor and debtor that the
obligation is immediately extinguished by reason of
the performance of a prestation different from that
due.[17] The undertaking really partakes in one
sense of the nature of sale, that is, the creditor is
really buying the thing or property of the debtor,
payment for which is to be charged against the
debtors debt. As such, the vendor in good faith
shall be responsible, for the existence and legality
of the credit at the time of the sale but not for the

solvency of the debtor, in specified
circumstances.[18]
Hence, it may well be that the assignment of credit,
which is in the nature of a sale of personal
property,[19] produced the effects of a dation in
payment which may extinguish the obligation.[20]
However, as in any other contract of sale, the
vendor or assignor is bound by certain warranties.
More specifically, the first paragraph of Article 1628
of the Civil Code provides:
The vendor in good faith shall be responsible for
the existence and legality of the credit at the time of
the sale, unless it should have been sold as
doubtful; but not for the solvency of the debtor,
unless it has been so expressly stipulated or unless
the insolvency was prior to the sale and of common
knowledge.
Sales Cases (2017-2018) ni Treeng
Appeals of attorneys fees is without factual basis.
No evidence or testimony was presented to
substantiate this claim. Attorneys fees, being in the
nature of actual damages, must be duly
substantiated by competent proof.
WHEREFORE, in view of the foregoing, the
Decision of the Court of Appeals dated April 19,
2001 in CA-G.R. CV No. 47713, ordering petitioner
to pay respondent the sum of P335,462.14 with
legal interest of 6% per annum from January 10,
1991 until fully paid is AFFIRMED with
MODIFICATION. Upon finality of this Decision, the
rate of legal interest shall be 12% per annum,
inasmuch as the obligation shall thereafter become
equivalent to a

From the above provision, petitioner, as vendor or

assignor, is bound to warrant the existence and
legality of the credit at the time of the sale or
assignment. When Jomero claimed that it was no
longer indebted to petitioner since the latter also
had an unpaid obligation to it, it essentially meant
that its obligation to petitioner has been
extinguished by compensation.[21] In other words,
respondent alleged the non-existence of the credit
and asserted its claim to petitioners warranty under
the assignment. Therefore, it behooved on
petitioner to make good its warranty and paid the
obligation.

Furthermore, we find that petitioner breached his

obligation under the Deed of Assignment, to wit:

And the ASSIGNOR further agrees and stipulates

as aforesaid that the said ASSIGNOR, his heirs,
executors, administrators, or assigns, shall and will
at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost
and expense, execute and do all such further acts
and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in
accordance with the true intent and meaning of
these presents.[22] (underscoring ours)

Indeed, by warranting the existence of the credit,

petitioner should be deemed to have ensured the
performance thereof in case the same is later found
to be inexistent. He should be held liable to pay to
respondent the amount of his indebtedness.

Hence, we affirm the decision of the Court of

Appeals ordering petitioner to pay respondent the
sum of P335,462.14 with legal interest thereon.
However, we find that the award by the Court of

AGRIFINA AQUINTEY, petitioner,
vs. Amount
SPOUSES FELICIDAD AND RICO
TIBONG, respondents. P 100,000.00 May 11, 1989
4,000.00
50,000.00
60,000.00
DECISION 205,000.00
128,000.00
2,000.00
10,000.00
CALLEJO, SR., J.: 80,000.00
34,000.00
Before us is a petition for review under
100,000.00
Rule 45 of the Revised Rules on Civil
Procedure of the Decision1 of the Court of Appeals
in CA-G.R. CV No. 78075, which affirmed with
modification the Decision2 of the Regional Trial
Court (RTC), Branch 61, Baguio City, and the
Resolution3 of the appellate court denying
reconsideration thereof.
The Antecedents
On May 6, 1999, petitioner Agrifina Aquintey filed
before the RTC of Baguio City, a complaint for sum
of money and damages against the respondents,
spouses Felicidad and Rico Tibong. Agrifina
alleged that Felicidad had secured loans from her
on several occasions, at monthly interest rates of
6% to 7%. Despite demands, the spouses Tibong
failed to pay their outstanding loan, amounting
to P773,000.00 exclusive of interests. The
complaint contained the following prayer:
WHEREFORE, premises considered, it is
most respectfully prayed of this Honorable
Court, after due notice and hearing, to
render judgment ordering defendants to pay
plaintiff the following:
a). SEVEN HUNDRED SEVENTY-
THREE THOUSAND PESOS
(P773,000.00) representing the
principal obligation of the defendants
with the stipulated interests of six
(6%) percent per month from May
11, 1999 to date and or those that
are stipulated on the contracts as
mentioned from paragraph two (2) of
the complaint.
b). FIFTEEN PERCENT (15%) of
the total accumulated obligations as
attorney's fees.
c). Actual expenses representing the
filing fee and other charges and
expenses to be incurred during the
prosecution of this case.
Further prays for such other relief and
remedies just and equitable under the
premises.4
Agrifina appended a copy of the Counter-Affidavit
executed by Felicidad in I.S. No. 93-334, as well as
copies of the promissory notes and
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Date Obtained Interest Per Due Date
Mo.
6% August 11, 1989
June 8, 1989 - -
June 13, 1989 6% On demand
Aug. 16, 1989 7% January 1990
Oct. 13, 1989 7% January 1990
Oct. 19, 1989 7% January 1990
Nov. 12, 1989 6% April 28, 1990
June 13, 1990 - -
Jan. 4, 1990 - -
- 6% October 19, 1989
July 14, 1989 5% October 198913
acknowledgment receipts executed by Felicidad
covering the loaned amounts.5
In their Answer with Counterclaim,6 spouses Tibong
admitted that they had secured loans from Agrifina.
The proceeds of the loan were then re-lent to other
borrowers at higher interest rates. They, likewise,
alleged that they had executed deeds of
assignment in favor of Agrifina, and that their
debtors had executed promissory notes in
Agrifina's favor. According to the spouses Tibong,
this resulted in a novation of the original obligation
to Agrifina. They insisted that by virtue of these
documents, Agrifina became the new collector of
their debtors; and the obligation to pay the balance
of their loans had been extinguished.
The spouses Tibong specifically denied the
material averments in paragraphs 2 and 2.1 of the
complaint. While they did not state the total amount
of their loans, they declared that they did not
receive anything from Agrifina without any written
receipt.7 They prayed for that the complaint be
dismissed.
In their Pre-Trial Brief, the spouses Tibong
maintained that they have never obtained any loan
from Agrifina without the benefit of a written
document.8
On August 17, 2000, the trial court issued a Pre-
Trial Order where the following issues of the case
were defined:
Whether or not plaintiff is entitled to her
claim of P773,000.00;
Whether or not plaintiff is entitled to
stipulated interests in the promissory notes;
and
Whether or not the parties are entitled to
their claim for damages.9
The Case for Petitioner
Agrifina and Felicidad were classmates at the
University of Pangasinan. Felicidad's husband,
Rico, also happened to be a distant relative of
Agrifina. Upon Felicidad's prodding, Agrifina agreed
to lend money to Felicidad. According to Felicidad,
Agrifina would be earning interests higher than
those given by the bank for her money. Felicidad
told Agrifina that since she (Felicidad) was engaged

in the sale of dry goods at the GP Shopping
Arcade, she would use the money to buy bonnels
and thread.10 Thus, Agrifina lent a total sum
of P773,000.00 to Felicidad, and each loan
transaction was covered by either a promissory
note or an acknowledgment receipt.11Agrifina
stated that she had lost the receipts signed by
Felicidad for the following
amounts: P100,000.00, P34,000.00
and P2,000.00.12 The particulars of the transactions
are as follows:
According to Agrifina, Felicidad was able to pay
only her loans amounting to P122,600.00.14
In July 1990, Felicidad gave to Agrifina City Trust
Bank Check No. 126804 dated August 25, 1990 in
the amount of P50,000.00 as partial
payment.15 However, the check was dishonored for
having been drawn against insufficient
funds.16 Agrifina then filed a criminal case against
Felicidad in the Office of the City Prosecutor. An
Information for violation of Batas Pambansa Bilang
22 was filed against Felicidad, docketed as
Criminal Case No. 11181-R. After trial, the court
ordered Felicidad to pay P50,000.00. Felicidad
complied and paid the face value of the check.17
In the meantime, Agrifina learned that Felicidad had
re-loaned the amounts to other
borrowers.18 Agrifina sought the assistance of Atty.
Torres G. A-ayo who advised her to require
Felicidad to execute deeds of assignment over
Felicidad's debtors. The lawyer also suggested that
Felicidad's debtors execute promissory notes in
Agrifina's favor, to "turn over" their loans from
Felicidad. This arrangement would facilitate
collection of Felicidad's account. Agrifina agreed to
the proposal.19 Agrifina, Felicidad, and the latter's
debtors had a conference20 where Atty. A-ayo
explained that Agrifina could apply her collections
as payments of Felicidad's account.21
From August 7, 1990 to October, 1990, Felicidad
executed deeds of assignment of credits
(obligations)22 duly notarized by Atty. A-ayo, in
which Felicidad transferred and assigned to
Agrifina the total amount of P546,459.00 due from
her debtors.23 In the said deeds, Felicidad
confirmed that her debtors were no longer indebted
to her for their respective loans. For her part,
Agrifina conformed to the deeds of assignment
relative to the loans of Virginia Morada and
Corazon Dalisay.24 She was furnished copies of the
deeds as well as the promissory notes.25
The following debtors of Felicidad executed
promissory notes where they obliged themselves to
pay directly to Agrifina:
Debtors Account Date of Instrument
Juliet & Tommy Tibong P50,000.00 August 7, asked
Corazon Dalisay 8,000.00 August 7, of Atty. A-ayo.
Rita Chomacog
4,480.00 August 8, 1990
Antoinette Manuel 12,000.00 October 19, 1990
Rosemarie Bandas 8,000.00 August 8, debtors.
Fely Cirilo 63,600.00 September 13, 1990 No date
Virginia Morada 62,379.00 August 9, 1990
Carmelita Casuga 59,000.00 August 28, 1990
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Merlinda Gelacio 17,200.00 August 29
Total P284,659.00
Agrifina narrated that Felicidad showed to her the
way to the debtors' houses to enable her to collect
from them. One of the debtors, Helen Cabang, did
not execute any promissory note but conformed to
the Deed of Assignment of Credit which Felicidad
executed in favor of Agrifina.27 Eliza Abance
conformed to the deed of assignment for and in
behalf of her sister, Fely Cirilo.28 Edna Papat-iw
was not able to affix her signature on the deed of
assignment nor sign the promissory note because
she was in Taipei, Taiwan.29
Following the execution of the deeds of assignment
and promissory notes, Agrifina was able to collect
the total amount of P301,000.00 from Felicidad's
debtors.30 In April 1990, she tried to collect the
balance of Felicidad's account, but the latter told
her to wait until her debtors had money.31 When
Felicidad reneged on her promise, Agrifina filed a
complaint in the Office of the Barangay Captain for
the collection of P773,000.00. However, no
settlement was arrived at.32
The Case for Respondents
Felicidad testified that she and her friend Agrifina
had been engaged in the money-lending
business.33 Agrifina would lend her money with
monthly interest,34 and she, in turn, would re-lend
the money to borrowers at a higher interest rate.
Their business relationship turned sour when
Agrifina started complaining that she (Felicidad)
was actually earning more than Agrifina.35 Before
the respective maturity dates of her debtors' loans,
Agrifina asked her to pay her account since Agrifina
needed money to buy a house and lot in Manila.
However, she told Agrifina that she could not pay
yet, as her debtors' loan payments were not yet
due.36 Agrifina then came to her store every
afternoon to collect from her, and persuaded her to
go to Atty. Torres G. A-ayo for legal advice.37 The
lawyer suggested that she indorse the accounts of
her debtors to Agrifina so that the latter would be
the one to collect from her debtors and she would
no longer have any obligation to Agrifina.38 She
then executed deeds of assignment in favor of
Agrifina covering the sums of money due from her
debtors. She signed the deeds prepared by Atty. A-
ayo in the presence of Agrifina.39 Some of the
debtors signed the promissory notes which were
likewise prepared by the lawyer. Thereafter,
Agrifina personally collected from Felicidad's
debtors.40Felicidad further narrated that she
received P250,000.00 from one of her debtors, Rey
Rivera, and remitted the payment to Agrifina.41
Agrifina testified, on rebuttal, that she did not enter
into a re-lending business Datewith
Payable
Felicidad. When she
1990 Felicidad
November 4, 1990her
to consolidate andloans in one
document, the February 4, 1991
latter told her to seek the assistance
42
1990 No The lawyer suggested that
date
Felicidad
assign her credits
September 23, in order to help her
1990
collect her loans.43 She agreed to the deeds of
March 30, 1991
assignment to help Felicidad collect from the
1990 44 February 3, 1991
February 9, 1991
February 28, 1991

On January 20, 2003, the trial court rendered its
Decision45 in favor of Agrifina. The fallo of the
decision reads:
WHEREFORE, judgment is rendered in
favor of the plaintiff and against the
defendants ordering the latter to pay the
plaintiffs (sic) the following amounts:
1. P472,000 as actual obligation with the
stipulated interest of 6% per month from
May 11, 1999 until the said obligation is fully
paid. However, the amount of P50,000 shall
be deducted from the total accumulated
interest for the same was already paid by
the defendant as admitted by the plaintiff in
her complaint,
2. P25,000 as attorney's fees,
3. [T]o pay the costs.
SO ORDERED.46
The trial court ruled that Felicidad's obligation had
not been novated by the deeds of assignment and
the promissory notes executed by Felicidad's
borrowers. It explained that the documents did not
contain any express agreement to novate and
extinguish Felicidad's obligation. It declared that the
deeds and notes were separate contracts which
could stand alone from the original indebtedness of
Felicidad. Considering, however, Agrifina's
admission that she was able to collect from
Felicidad's debtors the total amount
of P301,000.00, this should be deducted from the
latter's accountability.47 Hence, the balance,
exclusive of interests, amounted to P472,000.00.
On appeal, the CA affirmed with modification the
decision of the RTC and stated that, based on the
promissory notes and acknowledgment receipts
signed by Felicidad, the appellants secured loans
from the appellee in the total principal amount of
only P637,000.00, not P773,000.00 as declared by
the trial court. The CA found that, other than
Agrifina's bare testimony that she had lost the
promissory notes and acknowledgment receipts,
she failed to present competent documentary
evidence to substantiate her claim that Felicidad
had, likewise, borrowed the amounts
of P100,000.00, P34,000.00, and P2,000.00. Of
the P637,000.00 total account, P585,659.00 was
covered by the deeds of assignment and
promissory notes; hence, the balance of Felicidad's
account amounted to only P51,341.00. The fallo of
the decision reads:
WHEREFORE, in view of the foregoing, the
decision dated January 20, 2003 of the
RTC, Baguio City, Branch 61 in Civil Case
No. 4370-R is hereby MODIFIED.
Defendants-appellants are hereby ordered
to pay the balance of the total indebtedness
in the amount of P51,341.00 plus the
stipulated interest of 6% per month from
May 11, 1999 until the finality of this
decision.
SO ORDERED.48
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The appellate court sustained the trial court's ruling
that Felicidad's obligation to Agrifina had not been
novated by the deeds of assignment and
promissory notes executed in the latter's favor.
Although Agrifina was subrogated as a new creditor
in lieu of Felicidad, Felicidad's obligation to Agrifina
under the loan transaction remained; there was no
intention on their part to novate the original
obligation. Nonetheless, the appellate court held
that the legal effects of the deeds of assignment
could not be totally disregarded. The assignments
of credits were onerous, hence, had the effect of
payment, pro tanto, of the outstanding obligation.
The fact that Agrifina never repudiated or rescinded
such assignments only shows that she had
accepted and conformed to it. Consequently, she
cannot collect both from Felicidad and her
individual debtors without running afoul to the
principle of unjust enrichment. Agrifina's primary
recourse then is against Felicidad's individual
debtors on the basis of the deeds of assignment
and promissory notes.
The CA further declared that the deeds of
assignment executed by Felicidad had the effect of
payment of her outstanding obligation to Agrifina in
the amount of P585,659.00. It ruled that, since an
assignment of credit is in the nature of a sale, the
assignors remained liable for the warranties as they
are responsible for the existence and legality of the
credit at the time of the assignment.
Both parties moved to have the decision
reconsidered,49 but the appellate court denied both
motions on December 21, 2004.50
Agrifina, now petitioner, filed the instant petition,
contending that
1. The Honorable Court of Appeals erred in
ruling that the deeds of assignment in favor
of petitioner has the effect of payment of the
original obligation even as it ruled out that
the original obligation and the assigned
credit are distinct and separate and can
stand independently from each other;
2. The Honorable Court of Appeals erred in
passing upon issues raised for the first time
on appeal; and
3. The Honorable Court of Appeals erred in
resolving fact not in issue.51
Petitioner avers that the appellate court erred in
ruling that respondents' original obligation
amounted to only P637,000.00 (instead
of P773,000.00) simply because she lost the
promissory notes/receipts which evidenced the
loans executed by respondent Felicidad Tibong.
She insists that the issue of whether Felicidad
owed her less than P773,000.00 was not raised by
respondents during pre-trial and in their appellate
brief; the appellate court was thus proscribed from
taking cognizance of the issue.
Petitioner avers that respondents failed to deny, in
their verified answer, that they had secured
the P773,000.00 loan; hence, respondents are
deemed to have admitted the allegation in the
complaint that the loans secured by respondent

from her amounted to P773,000.00. As gleaned
from the trial court's pre-trial order, the main issue
is whether or not she should be made to pay this
amount.
Petitioner further maintains that the CA erred in
deducting the total amount of P585,659.00 covered
by the deeds of assignment executed by Felicidad
and the promissory notes executed by the latter's
debtors, and that the balance of respondents'
account was only P51,341.00. Moreover, the
appellate court's ruling that there was no novation
runs counter to its holding that the primary recourse
was against Felicidad's debtors. Petitioner avers
that of the 11 deeds of assignment and promissory
notes, only two bore her signature.52 She insists
that she is not bound by the deeds which she did
not sign. By assigning the obligation to pay
petitioner their loan accounts, Felicidad's debtors
merely assumed the latter's obligation and became
co-debtors to petitioner. Respondents were not
released from their obligation under their loan
transactions, and she had the option to demand
payment from them or their debtors. Citing the
ruling of this Court in Magdalena Estates, Inc. v.
Rodriguez,53 petitioner insists that the first debtor is
not released from responsibility upon reaching an
agreement with the creditor. The payment by a third
person of the first debtor's obligation does not
constitute novation, and the creditor can still
enforce the obligation against the original debtor.
Petitioner also cites the ruling of this Court
in Guerrero v. Court of Appeals.54
In their Comment on the petition, respondents aver
that by virtue of respondent Felicidad's execution of
the deeds of assignment, and the original debtors'
execution of the promissory notes (along with their
conformity to the deeds of assignment with
petitioner's consent), their loan accounts with
petitioner amounting to P585,659.00 had been
effectively extinguished. Respondents point out that
this is in accordance with Article 1291, paragraph 2,
of the Civil Code. Thus, the original debtors of
respondents had been substituted as petitioner's
new debtors.
Respondents counter that petitioner had been
subrogated to their right to collect the loan accounts
of their debtors. In fact, petitioner, as the new
creditor of respondents' former debtors had been
able to collect the latter's loan accounts which
amounted to P301,000.00. The sums received by
respondents' debtors were the same loans which
they obliged to pay to petitioner under the
promissory notes executed in petitioner's favor.
Respondents aver that their obligation to petitioner
cannot stand or exist separately from the original
debtors' obligation to petitioner as the new creditor.
If allowed to collect from them as well as from their
original debtors, petitioner would be enriching
herself at the expense of respondents. Thus,
despite the fact that petitioner had
collected P172,600.00 from respondents
and P301,000.00 from the original debtors,
petitioner still sought to collect P773,000.00 from
them in the RTC. Under the deeds of assignment
executed by Felicidad and the original debtors'
promissory notes, the original debtors' accounts
were assigned to petitioner who would be the new
creditor. In fine, respondents are no longer liable to
Sales Cases (2017-2018) ni Treeng
petitioner for the balance of their loan account
inclusive of interests. Respondents also insist that
petitioner failed to prove that she (petitioner) was
merely authorized to collect the accounts of the
original debtors so as to to facilitate the payment of
respondents' loan obligation.
The Issues
The threshold issues are: (1) whether respondent
Felicidad Tibong borrowed P773,000.00 from
petitioner; and (2) whether the obligation of
respondents to pay the balance of their loans,
including interest, was partially extinguished by the
execution of the deeds of assignment in favor of
petitioner, relative to the loans of Edna Papat-iw,
Helen Cabang, Antoinette Manuel, and Fely Cirilo
in the total amount of P371,000.00.
The Ruling of the Court
We have carefully reviewed the brief of
respondents as appellants in the CA, and find that,
indeed, they had raised the issue of whether they
received P773,000.00 by way of loans from
petitioner. They averred that, as gleaned from the
documentary evidence of petitioner in the RTC, the
total amount they borrowed was only P673,000.00.
They asserted that petitioner failed to adduce
concrete evidence that they received P773,000.00
from her.55
We agree, however, with petitioner that the
appellate court erred in reversing the finding of the
RTC simply because petitioner failed to present any
document or receipt signed by Felicidad.
Section 10, Rule 8 of the Rules of Civil Procedure
requires a defendant to "specify each material
allegation of fact the truth of which he does not
admit and, whenever practicable, x x x set forth the
substance of the matters upon which he relies to
support his denial.56
Section 11, Rule 8 of the same Rules provides that
allegations of the complaint not specifically denied
are deemed admitted.57
The purpose of requiring the defendant to make a
specific denial is to make him disclose the matters
alleged in the complaint which he succinctly intends
to disprove at the trial, together with the matter
which he relied upon to support the denial. The
parties are compelled to lay their cards on the
table.58
A denial is not made specific simply because it is
so qualified by the defendant. A general denial
does not become specific by the use of the word
"specifically." When matters of whether the
defendant alleges having no knowledge or
information sufficient to form a belief are plainly and
necessarily within the defendant's knowledge, an
alleged "ignorance or lack of information" will not be
considered as a specific denial. Section 11, Rule 8
of the Rules also provides that material averments
in the complaint other than those as to the amount
of unliquidated damages shall be deemed admitted
when not specifically denied.59 Thus, the answer
should be so definite and certain in its allegations
that the pleader's adversary should not be left in

doubt as to what is admitted, what is denied, and
what is covered by denials of knowledge as
sufficient to form a belief.60
In the present case, petitioner alleged the following
in her complaint:
2. That defendants are indebted to the
plaintiff in the principal amount of SEVEN
HUNDRED SEVENTY-THREE THOUSAND
PESOS (P773,000.00) Philippine Currency
with a stipulated interest which are broken
down as follows. The said principal amounts
was admitted by the defendants in their
counter-affidavit submitted before the court.
Such affidavit is hereby attached as Annex
"A;"61
xxxx
H) The sum of THIRTY FOUR THOUSAND
PESOS (P34,000.00) with interest at six
(6%) per cent per month and payable on
October 19, 1989, however[,] the receipt for
the meantime cannot be recovered as it was
misplaced by the plaintiff but the letter of
defendant FELICIDAD TIBONG is hereby
attached as Annex "H" for the appreciation
of the Honorable court;
I) The sum of ONE HUNDRED THOUSAND
PESOS (P100,000.00) with interest at five
(5%) percent per month, obtained on July
14, 1989 and payable on October 14, 1989.
Such receipt was lost but admitted by the
defendants in their counter-affidavit as
attached [to] this complaint and marked as
Annex "A" mentioned in paragraph one (1);
x x x62
In their Answer, respondents admitted that they had
secured loans from petitioner. While the allegations
in paragraph 2 of the complaint were specifically
denied, respondents merely averred that petitioner
and respondent Felicidad entered into an
agreement for the lending of money to interested
borrowers at a higher interest rate. Respondents
failed to declare the exact amount of the loans they
had secured from petitioner. They also failed to
deny the allegation in paragraph 2 of the complaint
that respondent Felicidad signed and submitted a
counter-affidavit in I.S. No. 93-334 where she
admitted having secured loans from petitioner in
the amount of P773,000.00. Respondents, likewise,
failed to deny the allegation in paragraph 2(h) of the
complaint that respondents had secured
a P34,000.00 loan payable on October 19, 1989,
evidenced by a receipt which petitioner had
misplaced. Although respondents specifically
denied in paragraph 2.11 of their Answer the
allegations in paragraph 2(I) of the complaint, they
merely alleged that "they have not received sums
of money from the plaintiff without any receipt
therefor."
Respondents, likewise, failed to specifically deny
another allegation in the complaint that they had
secured a P100,000.00 loan from petitioner on July
14, 1989; that the loan was payable on October 14,
1989; and evidenced by a receipt which petitioner
claimed to have lost. Neither did respondents deny
the allegation that respondents admitted their loan
Sales Cases (2017-2018) ni Treeng
of P100,000.00 in the counter-affidavit of
respondent Felicidad, which was appended to the
complaint as Annex "A." In fine, respondents had
admitted the existence of their P773,000.00 loan
from petitioner.
We agree with the finding of the CA that petitioner
had no right to collect from respondents the total
amount of P301,000.00, which includes more
than P178,980.00 which respondent Felicidad
collected from Tibong, Dalisay, Morada,
Chomacog, Cabang, Casuga, Gelacio, and Manuel.
Petitioner cannot again collect the same amount
from respondents; otherwise, she would be
enriching herself at their expense. Neither can
petitioner collect from respondents more
than P103,500.00 which she had already collected
from Nimo, Cantas, Rivera, Donguis, Fernandez
and Ramirez.
There is no longer a need for the Court to still
resolve the issue of whether respondents'
obligation to pay the balance of their loan account
to petitioner was partially extinguished by the
promissory notes executed by Juliet Tibong,
Corazon Dalisay, Rita Chomacog, Carmelita
Casuga, Merlinda Gelacio and Antoinette Manuel
because, as admitted by petitioner, she was able to
collect the amounts under the notes from said
debtors and applied them to respondents'
accounts.
Under Article 1231(b) of the New Civil Code,
novation is enumerated as one of the ways by
which obligations are extinguished. Obligations
may be modified by changing their object or
principal creditor or by substituting the person of
the debtor.63 The burden to prove the defense that
an obligation has been extinguished by novation
falls on the debtor.64 The nature of novation was
extensively explained in Iloilo Traders Finance, Inc.
v. Heirs of Sps. Oscar Soriano, Jr.,65 as follows:
Novation may either be extinctive or
modificatory, much being dependent on the
nature of the change and the intention of the
parties. Extinctive novation is never
presumed; there must be an express
intention to novate; in cases where it is
implied, the acts of the parties must clearly
demonstrate their intent to dissolve the old
obligation as the moving consideration for
the emergence of the new one. Implied
novation necessitates that the
incompatibility between the old and new
obligation be total on every point such that
the old obligation is completely superseded
by the new one. The test of incompatibility is
whether they can stand together, each one
having an independent existence; if they
cannot and are irreconciliable, the
subsequent obligation would also extinguish
the first.
An extinctive novation would thus have the
twin effects of, first, extinguishing an
existing obligation and, second, creating a
new one in its stead. This kind of novation
presupposes a confluence of four essential
requisites: (1) a previous valid obligation; (2)
an agreement of all parties concerned to a
new contract; (3) the extinguishment of the

old obligation; and (4) the birth of a valid
new obligation. Novation is merely
modificatory where the change brought
about by any subsequent agreement is
merely incidental to the main obligation
(e.g., a change in interest rates or an
extension of time to pay); in this instance,
the new agreement will not have the effect
of extinguishing the first but would merely
supplement it or supplant some but not all of
its provisions.66 (Citations Omitted)
Novation which consists in substituting a new
debtor (delegado) in the place of the original one
(delegante) may be made even without the
knowledge or against the will of the latter but not
without the consent of the creditor. Substitution of
the person of the debtor may be effected
by delegacion, meaning, the debtor offers, and the
creditor (delegatario), accepts a third person who
consents to the substitution and assumes the
obligation. Thus, the consent of those three
persons is necessary.67 In this kind of novation, it is
not enough to extend the juridical relation to a third
person; it is necessary that the old debtor be
released from the obligation, and the third person
or new debtor take his place in the
relation.68 Without such release, there is no
novation; the third person who has assumed the
obligation of the debtor merely becomes a co-
debtor or a surety. If there is no agreement as to
solidarity, the first and the new debtor are
considered obligated jointly.69
In Di Franco v. Steinbaum,70 the appellate court
ruled that as to the consideration necessary to
support a contract of novation, the rule is the same
as in other contracts. The consideration need not
be pecuniary or even beneficial to the person
promising. It is sufficient if it be a loss of an
inconvenience, such as the relinquishment of a
right or the discharge of a debt, the postponement
of a remedy, the discontinuance of a suit, or
forbearance to sue.
In City National Bank of Huron, S.D. v. Fuller,71 the
Circuit Court of Appeals ruled that the theory of
novation is that the new debtor contracts with
the old debtor that he will pay the debt, and also
to the same effect with the creditor, while the
latter agrees to accept the new debtor for the
old. A novation is not made by showing that the
substituted debtor agreed to pay the debt; it must
appear that he agreed with the creditor to do
so. Moreover, the agreement must be based on
the consideration of the creditor's agreement to
look to the new debtor instead of the old. It is
not essential that acceptance of the terms of the
novation and release of the debtor be shown by
express agreement. Facts and circumstances
surrounding the transaction and the subsequent
conduct of the parties may show acceptance as
clearly as an express agreement, albeit implied.72
We find in this case that the CA correctly found that
respondents' obligation to pay the balance of their
account with petitioner was extinguished, pro tanto,
by the deeds of assignment of credit executed by
respondent Felicidad in favor of petitioner.
An assignment of credit is an agreement by virtue
of which the owner of a credit, known as the
Sales Cases (2017-2018) ni Treeng
assignor, by a legal cause, such as sale, dation in
payment, exchange or donation, and without the
consent of the debtor, transfers his credit and
accessory rights to another, known as the
assignee, who acquires the power to enforce it to
the same extent as the assignor could enforce it
against the debtor.73 It may be in the form of sale,
but at times it may constitute a dation in payment,
such as when a debtor, in order to obtain a release
from his debt, assigns to his creditor a credit he has
against a third person.74
In Vda. de Jayme v. Court of Appeals,75 the Court
held that dacion en pago is the delivery and
transmission of ownership of a thing by the debtor
to the creditor as an accepted equivalent of the
performance of the obligation. It is a special mode
of payment where the debtor offers another thing to
the creditor who accepts it as equivalent of
payment of an outstanding debt. The undertaking
really partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be
charged against the debtor's obligation. As such,
the essential elements of a contract of sale,
namely, consent, object certain, and cause or
consideration must be present. In its modern
concept, what actually takes place in dacion en
pago is an objective novation of the obligation
where the thing offered as an accepted equivalent
of the performance of an obligation is considered
as the object of the contract of sale, while the debt
is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it
sale or novation, to have the effect of totally
extinguishing the debt or obligation.76
The requisites for dacion en pago are: (1) there
must be a performance of the prestation in lieu of
payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a
credit against the third person; (2) there must be
some difference between the prestation due and
that which is given in substitution (aliud pro alio);
and (3) there must be an agreement between the
creditor and debtor that the obligation is
immediately extinguished by reason of the
performance of a prestation different from that
due.77
All the requisites for a valid dation in payment are
present in this case. As gleaned from the deeds,
respondent Felicidad assigned to petitioner her
credits "to make good" the balance of her
obligation. Felicidad testified that she executed the
deeds to enable her to make partial payments of
her account, since she could not comply with
petitioner's frenetic demands to pay the account in
cash. Petitioner and respondent Felicidad agreed to
relieve the latter of her obligation to pay the
balance of her account, and for petitioner to collect
the same from respondent's debtors.
Admittedly, some of respondents' debtors, like
Edna Papat-iw, were not able to affix their
conformity to the deeds. In an assignment of credit,
however, the consent of the debtor is not essential
for its perfection; the knowledge thereof or lack of it
affecting only the efficaciousness or
inefficaciousness of any payment that might have
been made. The assignment binds the debtor upon
acquiring knowledge of the assignment but he is

entitled, even then, to raise against the assignee
the same defenses he could set up against the
assignor78 necessary in order that assignment may
fully produce legal effects. Thus, the duty to pay
does not depend on the consent of the debtor. The
purpose of the notice is only to inform that debtor
from the date of the assignment. Payment should
be made to the assignee and not to the original
creditor.
The transfer of rights takes place upon perfection of
the contract, and ownership of the right, including
all appurtenant accessory rights, is acquired by the
assignee79 who steps into the shoes of the original
creditor as subrogee of the latter80 from that
amount, the ownership of the right is acquired by
the assignee. The law does not require any formal
notice to bind the debtor to the assignee, all that
the law requires is knowledge of the assignment.
Even if the debtor had not been notified, but came
to know of the assignment by whatever means, the
debtor is bound by it. If the document of
assignment is public, it is evidence even against a
third person of the facts which gave rise to its
execution and of the date of the latter. The transfer
of the credit must therefore be held valid and
effective from the moment it is made to appear in
such instrument, and third persons must recognize
it as such, in view of the authenticity of the
document, which precludes all suspicion of fraud
with respect to the date of the transfer or
assignment of the credit.81
As gleaned from the deeds executed by respondent
Felicidad relative to the accounts of her other
debtors, petitioner was authorized to collect the
amounts of P6,000.00 from Cabang,
and P63,600.00 from Cirilo. They obliged
themselves to pay petitioner. Respondent
Felicidad, likewise, unequivocably declared that
Cabang and Cirilo no longer had any obligation to
her.
Equally significant is the fact that, since 1990, when
respondent Felicidad executed the deeds,
petitioner no longer attempted to collect from
respondents the balance of their accounts. It was
only in 1999, or after nine (9) years had elapsed
that petitioner attempted to collect from
respondents. In the meantime, petitioner had
collected from respondents' debtors the amount
of P301,000.00.
While it is true that respondent Felicidad likewise
authorized petitioner in the deeds to collect the
debtors' accounts, and for the latter to pay the
same directly, it cannot thereby be considered that
respondent merely authorized petitioner to collect
the accounts of respondents' debtors and for her to
apply her collections in partial payments of their
accounts. It bears stressing that petitioner, as
assignee, acquired all the rights and remedies
passed by Felicidad, as assignee, at the time of the
assignment.82 Such rights and remedies include the
right to collect her debtors' obligations to her.
Petitioner cannot find solace in the Court's ruling
in Magdalena Estates. In that case, the Court ruled
that the mere fact that novation does not follow as a
matter of course when the creditor receives a
guaranty or accepts payments from a third person
who has agreed to assume the obligation when
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there is no agreement that the first debtor would be
released from responsibility. Thus, the creditor can
still enforce the obligation against the original
debtor.
In the present case, petitioner and respondent
Felicidad agreed that the amounts due from
respondents' debtors were intended to "make good
in part" the account of respondents. Case law is
that, an assignment will, ordinarily, be interpreted or
construed in accordance with the rules of
construction governing contracts generally, the
primary object being always to ascertain and carry
out the intention of the parties. This intention is to
be derived from a consideration of the whole
instrument, all parts of which should be given
effect, and is to be sought in the words and
language employed.83
Indeed, the Court must not go beyond the rational
scope of the words used in construing an
assignment, words should be construed according
to their ordinary meaning, unless something in the
assignment indicates that they are being used in a
special sense. So, if the words are free from
ambiguity and expressed plainly the purpose of the
instrument, there is no occasion for interpretation;
but where necessary, words must be interpreted in
the light of the particular subject matter.84 And
surrounding circumstances may be considered in
order to understand more perfectly the intention of
the parties. Thus, the object to be accomplished
through the assignment, and the relations and
conduct of the parties may be considered in
construing the document.
Although it has been said that an ambiguous or
uncertain assignment should be construed most
strictly against the assignor, the general rule is that
any ambiguity or uncertainty in the meaning of an
assignment will be resolved against the party who
prepared it; hence, if the assignment was prepared
by the assignee, it will be construed most strictly
against him or her.85 One who chooses the words
by which a right is given ought to be held to the
strict interpretation of them, rather than the other
who only accepts them.86
Considering all the foregoing, we find that
respondents still have a balance on their account to
petitioner in the principal amount of P33,841.00, the
difference between their loan of P773,000.00
less P585,659.00, the payment of respondents'
other debtors amounting to P103,500.00, and
the P50,000.00 payment made by respondents.
IN LIGHT OF ALL THE FOREGOING, the petition
is DENIED. The Decision and Resolution of the
Court of Appeals
are AFFIRMED with MODIFICATION in that the
balance of the principal account of the respondents
to the petitioner is P33,841.00. No costs.
SO ORDERED.

SOCIAL SECURITY SYSTEM, petitioner,
vs.
ATLANTIC GULF AND PACIFIC COMPANY OF
MANILA, INC. and SEMIRARA COAL
CORPORATION, respondents.
DECISION
TINGA, J.:
In this Petition for Review on Certiorari1 under Rule
45 of the 1997 Rules of Civil Procedure, petitioner
Republic of the Philippines represented by the
Social Security System (SSS) assails the Decision2
dated 31 August 2006 of the Eleventh Division of
the Court of Appeals and its Resolution3 dated 19
December 2006 denying petitioners Motion for
Reconsideration.
Following are the antecedents culled from the
decision of the Court of Appeals:
On 13 February 2004, Atlantic Gulf and Pacific
Company of Manila, Inc. (AG & P) and Semirara
Coal Corporation (SEMIRARA) (collectively
referred to as private respondents) filed a complaint
for specific performance and damages against SSS
before the Regional Trial Court of Batangas City,
Branch 3, docketed as Civil Case No. 7441. The
complaint alleged that:
xxx
3. Sometime in 2000, plaintiff informed the
SSS in writing of its premiums and loan
amortization delinquencies covering the
period from January 2000 to May 2000
amounting to P7.3 Million. AG&P proposed
to pay its said arrears by end of 2000, but
requested for the condonation of all
penalties;
4. In turn, the defendant suggested two (2)
options to AG&P, either to pay by
installment or through "dacion en pago";
5. AG&P chose to settle its obligation with
the SSS under the second option, that is
through dacion en pago of its 5,999 sq. m.
property situated in Baguio City covered by
TCT No. 3941 with an appraised value of
about P80.0 Million. SSS proposes to carve-
out from the said property an area sufficient
to cover plaintiffs delinquencies. AG&P,
however, is not amenable to subdivide its
Baguio property;
6. AG&P then made another proposal to
SSS. This time, offering as payment a
portion of its 58,153 square meter-lot,
situated in F.S. Sebastian, Sto. Nio, San
Pascual, Batangas. In addition, SSS
informed AG&P of its decision to include
other companies within the umbrella of
DMCI group with arrearages with the SSS.
In the process of elimination of the
companies belonging to the DMCI group
with possible outstanding obligation with the
SSS, it was only SEMIRARA which was left
with outstanding delinquencies with the
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SSS. Thus, SEMIRARAs inclusion in the
proposed settlement through dacion en
pago;
7. AG&P was, thereafter, directed by the
defendant to submit certain documents,
such as Transfer Certificate of Title, Tax
Declaration covering the subject lot, and the
proposed subdivision plan, which
requirements AG&P immediately complied;
8. On April 4, 2001, SSS, in its Resolution
No. 270, finally approved AG&Ps proposal
to settle its and SEMIRARAs delinquencies
through dacion en pago, which as of March
31, 2001 amounted to P29,261,902.45.
Approval of AG&Ps proposal was
communicated to it by Ms. Aurora E.L.
Ortega, Vice-President, NCR-Group of the
SSS in a letter dated April 23, 2001. ;
9. As a result of the approval of the dacion
en pago, posting of contributions and loan
amortization to individual member accounts,
both for AG&P and SEMIRARA employees,
was effected immediately thereafter. Thus,
the benefits of the member-employees of
both companies were restored;
10. From the time of the approval of AG&Ps
proposal up to the present, AG&P is (sic)
religiously remitting the premium
contributions and loan amortization of its
member-employees to the defendant;
11. To effect the property transfer, a Deed
of Assignment has to be executed between
the plaintiffs and the defendant. Because of
SSS failure to come up with the required
Deed of Assignment to effect said transfer,
AG&P prepared the draft and submitted it to
the Office of the Vice-President NCR thru
SSS Baclaran Branch in July 2001.
Unfortunately, the defendant failed to take
any action on said Deed of Assignment
causing AG&P to re-submit it to the same
office of the Vice-President NCR in
December 2001. From its original
submission of the Deed of Assignment in
July 2001 to its re-submission in December
2001, and SSS returning of the revised draft
in February 28, 2003 AG&P was consistent
in its regular follow ups with SSS as to the
status of its submitted Deed of Assignment;
12. On February 28, 2003, or more than a
year after the approval of AG&Ps proposal,
defendant sent the revised copy of the Deed
of Assignment to AG&P. However, the
amount of the plaintiffs obligation appearing
in the approved Deed of Assignment has
ballooned from P29,261,902.45
to P40,846,610.64 allegedly because of the
additional interests and penalty charges
assessed on plaintiffs outstanding
obligation from April 2001, the date of
approval of the proposal, up to January
2003;
13. AG&P demanded for the waiver and
deletion of the additional interests on the
ground that delay in the approval of the

deed and the subsequent delay in
conveyance of the property in defendants
name was solely attributable to the
defendant; hence, to charge plaintiffs with
additional interests and penalties amounting
to more than P10,000,000.00, would be
unreasonable.;
14. AG&P and SEMIRARA maintain their
willingness to settle their alleged obligation
of P29,261,902.45 to SSS. Defendant,
however, refused to accept the payment
through dacion en pago, unless plaintiffs
also pay the additional interests and
penalties being charged;
xxx
Instead of filing an answer, SSS moved for the
dismissal of the complaint for lack of jurisdiction
and non-exhaustion of administrative remedies. In
an order dated 28 July 2004, the trial court granted
SSSs motion and dismissed private respondents
complaint. The pertinent portions of the assailed
order are as follows:
Clearly, the motion is triggered on the issue
of the courts jurisdiction over the subject
matter and the nature of the instant
complaint. The length and breadth of the
complaint as perused, boils down to the
questions of premium and loan amortization
delinquencies of the plaintiff, the option
taken for the payment of the same in favor
of the defendant and the disagreement
between the parties as to the amount of the
unpaid contributions and salary loan
repayments. In other words, said questions
are directly related to the collection of
contributions due the defendant. Republic
Act No. 1161 as amended by R.A. No.
8282, specifically provides that any dispute
arising under the said Act shall be
cognizable by the Commission and any
case filed with respect thereto shall be
heard by the Commission. Hence, a
procedural process mandated by a special
law.
Observingly, the running dispute between
plaintiffs and defendant originated from the
disagreement as to the amount of unpaid
contributions and the amount of the
penalties imposed appurtenant thereto. The
alleged dacion en pago is crystal clear
manifestation of offering a special form of
payment which to the mind of the court will
produce effect only upon acceptance by the
offeree and the observance and compliance
of the required formalities by the parties. No
matter in what form it may be, still the court
believes that the subject matter is the
payment of contributions and the
corresponding penalties which are within
the ambit of Sec. 5 (a) of R.A. No. 1161, as
amended by R.A. No. 8282.
WHEREFORE, the Court having no
jurisdiction over the subject matter of the
instant complaint, the motion is granted and
this case is hereby ordered DISMISSED.
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SO ORDERED.4
Private respondents moved for the reconsideration
of the order but the same was denied in an Order
dated 15 September 2004.
Consequently, private respondents filed an appeal
before the Court of Appeals alleging that the trial
court erred in its pronouncement that it had no
jurisdiction over the subject matter of the complaint
and in granting the motion to dismiss.
The Court of Appeals reversed and set aside the
trial courts challenged order, granted private
respondents appeal and ordered the trial court to
proceed with the civil case with dispatch. From the
averments in their complaint, the appellate court
observed that private respondents are seeking to
implement the Deed of Assignment which they had
drafted and submitted to SSS sometime in July
2001, pursuant to SSSs letter addressed to AG& P
dated 23 April 2001 approving AG&P and
SEMIRARAS delinquencies through dacion en
pago, which as of 31 March 2001, amounted
to P29,261,902.45. The appellate court thus held
that the subject of the complaint is no longer the
payment of the premium and loan amortization
delinquencies, as well as the penalties appurtenant
thereto, but the enforcement of the dacion en
pago pursuant to SSS Resolution No. 270. The
action then is one for specific performance which
case law holds is an action incapable of pecuniary
estimation falling under the jurisdiction of the
Regional Trial Court.5
SSS filed a motion for reconsideration of the
appellate courts decision but the same was denied
in a Resolution dated 19 December 2006.
Now before the Court, SSS insists on the Social
Security Commissions (the Commission)
jurisdiction over the complaint pursuant to Section 5
(a) of Republic Act (R.A.) No. 8282. SSS maintains
the Commissions jurisdiction over all disputes
arising from the provisions of R.A. No. 1161,
amended by R.A. No. 8282 to the exclusion of trial
courts.6
The main issue in this case pertains to which body
has jurisdiction to entertain a controversy arising
from the non-implementation of a dacion en
pago agreed upon by the parties as a means of
settlement of private respondents liabilities.
At the outset, it is well to restate the rule that what
determines the nature of the action as well as the
tribunal or body which has jurisdiction over the case
are the allegations in the complaint.7
The pertinent provision of law detailing the
jurisdiction of the Commission is Section 5(a) of
R.A. No. 1161, as amended by R.A. No. 8282,
otherwise known as the Social Security Act of
1997, to wit:
SEC. 5. Settlement of Disputes. (a) Any
dispute arising under this Act with respect to
coverage, benefits, contributions and
penalties thereon or any other matter
related thereto, shall be cognizable by the
Commission, and any case filed with
 Sales Cases (2017-2018) ni Treeng
respect thereto shall be heard by the the Court ruled in Singson v. Isabela Sawmill,13 as
Commission, or any of its members, or by follows:
hearing officers duly authorized by the
Commission and decided within the In determining whether an action is one the
mandatory period of twenty (20) days after subject matter of which is not capable of
the submission of the evidence. The filing, pecuniary estimation this Court has adopted
determination and settlement of disputes the criterion of first ascertaining the nature
shall be governed by the rules and of the principal action or remedy sought. If it
regulations promulgated by the is primarily for the recovery of a sum of
Commission. money, the claim is considered capable of
pecuniary estimation, and whether
The law clearly vests upon the Commission jurisdiction in the municipal courts or in the
jurisdiction over "disputes arising under this Act courts of first instance would depend on the
with respect to coverage, benefits, contributions amount of the claim. However, where the
and penalties thereon or any matter related basic issue is something other than the right
thereto..." Dispute is defined as "a conflict or to recover a sum of money, where the
controversy."8 money claim is purely incidental to, or a
consequence of, the principal relief sought,
From the allegations of respondents complaint, it this Court has considered such actions as
readily appears that there is no longer any dispute cases where the subject of the litigation may
with respect to respondents accountability to the not be estimated in terms of money, and are
SSS. Respondents had, in fact, admitted their cognizable exclusively by courts of first
delinquency and offered to settle them by way instance (now Regional Trial Courts).14
of dacion en pago subsequently approved by the
SSS in Resolution No. 270-s. 2001. SSS stated in In fine, the Court finds the decision of the Court of
said resolution that "the dacion en pago proposal of Appeals in accord with law and jurisprudence.
AG&P Co. of Manila and Semirara Coals
Corporation to pay their liabilities in the total WHEREFORE, the petition is DENIED. The
amount of P30,652,710.71 as of 31 March 2001 by Decision dated 31 August 2006 of the Court of
offering their 5.8 ha. property located in San Appeals Eleventh Division in CA-G.R. CV No.
Pascual, Batangas, be, as it is hereby, 83775 AFFIRMED.
approved.."9 This statement unequivocally evinces
its consent to the dacion en pago. In Vda. de Let the case be remanded to the trial court for
Jayme v. Court of Appeals,10 the Court ruled further proceedings.
significantly as follows:
SO ORDERED.
Dacion en pago is the delivery and
transmission of ownership of a thing by the
debtor to the creditor as an accepted
equivalent of the performance of the
obligation. It is a special mode of payment
where the debtor offers another thing to the
creditor who accepts it as equivalent of
payment of an outstanding debt. The
undertaking really partakes in one sense of
the nature of sale, that is the creditor is
really buying the thing or property of the
debtor, payment for which is to be charged
against the debtors debt. As such, the
essential elements of a contract of sale,
namely, consent, object certain, and cause
or consideration must be present. In its
modern concept, what actually takes place
in dacion en pago is an objective novation
of the obligation where the thing offered as
an accepted equivalent of the performance
of an obligation is considered as the object
of the contract of sale, while the debt is
considered as the purchase price. In any
case, common consent is an essential
prerequisite, be it sale or novation, to have
the effect of totally extinguishing the debt or
obligation.11

The controversy, instead, lies in the non-

implementation of the approved and agreed dacion
en pago on the part of the SSS. As such,
respondents filed a suit to obtain its enforcement
which is, doubtless, a suit for specific performance
and one incapable of pecuniary estimation beyond
the competence of the Commission.12 Pertinently,

MAR YUSON, complainant,
vs.
ATTY. JEREMIAS R. VITAN, respondent.
DECISION
PANGANIBAN, C.J.:
Once again this Court exhorts members of the bar
to live up to the strictures of the Lawyers' Oath, the
Code of Professional Responsibility, and the
Canons of Professional Ethics. Otherwise, they
shall be sanctioned by this Court.
The Case
Before us is a Letter-Complaint1 for the disbarment
of Atty. Jeremias R. Vitan, filed by Mar Yuson with
the Commission on Bar Discipline (CBD) of the
Integrated Bar of the Philippines (IBP). Respondent
was accused of taking advantage of complainant's
generosity and credulity.
On August 5, 2004, IBP-CBD directed Atty. Vitan to
submit his Answer within 15 days from receipt of
the Order;2otherwise, he would be considered in
default and the case heard ex parte.
Because respondent failed to submit his Answer
within the given period, the CBD considered his
failure and non-appearance as a waiver of his right
to participate in the proceedings.3 Thus, the hearing
scheduled for August 11, 2005, pushed through,
with the original copies of the checks he had issued
presented by complainant as evidence. Afterwards,
the CBD issued an Order submitting the case for
Resolution.4 On August 23, 2005, Commissioner
Milagros V. San Juan rendered her Report and
Recommendation.5
Respondent denied having received a copy of the
Complaint against him and alleged that it was only
on August 24, 2005, that he received the Order
submitting the case for resolution. Thus, he filed an
Urgent Motion to Revive/Re-open and with Leave
to Admit Attached Answer.6
In its Resolution No. XVII-2005-101 dated October
22, 2005, the IBP Board of Directors adopted and
approved, with modification, the investigating
commissioner's Report and Recommendation.
Upon respondent was imposed the penalty of
suspension from the practice of law for two years,
after the board found that he had taken advantage
of complainant through deceit and dishonesty. The
lawyer was further ordered to give back the money
he had received from complainant.
The Facts
Complainant Mar Yuson was a taxi driver with eight
children. In October 2002, he received a sum of
money by way of inheritance. According to him, he
and his wife intended to use the money to purchase
a taxi, repair their dilapidated house, and hold a
debut party for their daughter.7
They were able to purchase a secondhand taxi,
and Atty. Vitan helped him with all the legal matters
concerning this purchase. Regrettably, their other
plans were put on hold, because the lawyer
Sales Cases (2017-2018) ni Treeng
borrowed P100,000 from them in December 2002.
It was agreed that the loan would be repaid before
the end of the following year,8 in time for the debut
on November 24, 2003.9
To guarantee payment, respondent executed in
favor of complainant several postdated checks to
cover the loaned amount. Those checks, however,
turned out to be worthless, because they had been
drawn against the lawyer's closed account in the
Bank of Commerce in Escolta, Manila. The six
dishonored checks were presented during the
hearing before the IBP commissioner.10
Complainant maintained that he had repeatedly
tried to recover the debt, only to be turned away
empty-handed each time. He conceded, though,
that respondent had given an undisclosed amount
covered by the checks dated January and February
2003.11 The amounts covered by the dishonored
checks remained unpaid.
This development prompted complainant to seek
the aid of the IBP National Committee on Legal Aid
(NCLA) in obtaining payment. On November 14,
2003, the IBP-NCLA, through Deputy Director
Rosalie J. de la Cruz, sent him a letter.12 It informed
him of the impending administrative case and
advised him to confer with complainant,
presumably to settle the matter. Upon receipt13 of
the letter, he again gave assurances that he would
pay the loan in time for the debut.14
When the date passed without any payment,
complainant demanded a collateral to secure the
loan. Thus, in his favor, Atty. Vitan executed a
document denominated as a Deed of Absolute
Sale, covering the latter's parcel of land located in
Sta. Maria, Bulacan. According to complainant,
their intention was to transfer the title of the
property to him temporarily, so that he could either
sell or mortgage15 it. It was further agreed that, if it
was mortgaged, respondent would redeem it as
partial or full payment of the loan.16
Curiously, however, the parties executed
a second Deed of Absolute Sale,17 this time in favor
of Atty. Vitan, with complainant as vendor. The
purpose of this particular document was not
explained by either party.
On April 12, 2004, complainant was able to
mortgage18 the property for P30,000.19 Contrary to
their earlier agreement, respondent did not redeem
it from the mortgagee and, instead, simply sent
complainant a letter20dated July 7, 2004, promising
to pay on or before July 12, 2004. As this promise
was not fulfilled, the mortgagee demanded
payment from complainant and thereby allegedly
exposed the latter to shame and ridicule.21
On July 19, 2004, IBP-NCLA sent another
letter22 on behalf of complainant. Respondent was
informed that an administrative case would be filed
against him, unless he settled his obligations by
July 30, 2004, the date given by complainant.
On August 30, 2004, the IBP-NCLA received the
reply23 dated July 30, 2004, submitted by Atty.
Vitan who explained that he had already settled his
obligation. He maintained that he had in fact

executed, in complainant's favor, a Deed of
Absolute Sale over his 203-square-meter
residential property in Sta. Maria, Bulacan. He
clarified that "[their] understanding was that
[complainant] ha[d] the option to use, mortgage or
sell [the property] and return to me the excess of
the proceeds after obtaining his money represented
by my six (6) dishonored checks."24 Interestingly,
respondent attached the Deed of Absolute Sale in
which he was the vendee and complainant the
vendor.25 It appears that this was the second Deed
of Absolute Sale, also referred to in the
Complaint.26
Only after the IBP investigating commissioner had
rendered her Report and Recommendation27 did
Atty. Vitan submit his Answer to the Letter-
Complaint. He called the second document a
"Counter Deed of Sale," executed as a "sort of
collateral/security for the account of [his] liaison
officer [Evelyn Estur]."28 He admitted having given
several postdated checks amounting to P100,000,
supposedly to guarantee the indebtedness of Estur
to complainant. Atty. Vitan argued for the first time
that it was she who had incurred the debts, and that
he had acted only as a "character reference and/or
guarantor."29 He maintained that he had given in to
the one-sided transactions, because he was
"completely spellbound by complainant's seeming
sincerity and kindness."30 To corroborate his
statements, he attached Estur's Affidavit.31
Report of the Investigating Commissioner
In her Report and Recommendation, Commissioner
San Juan recommended that Atty. Vitan be
suspended until his restitution of the amount he had
borrowed. She held that respondent, having taken
advantage of complainant and thus shown
dishonesty and untrustworthiness, did not deserve
to retain his membership in the bar.
On November 24, 2005, the Supreme Court
received the IBP Resolution adopting, with
modification, the Report and Recommendation of
the investigating commissioner.
The Court's Ruling
We agree with the findings of the IBP Board of
Governors, but reduce the period of suspension to
six months.
Respondent's Administrative Liability
Lawyers are instruments for the administration of
justice. They are expected to maintain not only
legal proficiency but also a high standard of ethics,
honesty, integrity and fair dealing. In this way, the
people's faith and confidence in the judicial system
is ensured.32
In the present case, Atty. Vitan undoubtedly owed
money to complainant. In a letter33 to IBP Deputy
Director de la Cruz, respondent admitted having
incurred the P100,000 loan. It was only in his
Answer34 that the lawyer suddenly denied that he
had personally incurred this obligation. This time,
he pointed to his employee, Estur, as the true
debtor. We find his version of the facts implausible.
Sales Cases (2017-2018) ni Treeng
First, the story involving a certain Evelyn Estur was
clearly a mere afterthought, conjured simply to
escape his liability. If it were true that it was she
who owed the money, he should have mentioned
this alleged fact in his letter to the IBP NCLA
deputy director. Instead, respondent was
completely silent about Estur and merely asserted
that he had already settled his debt with
complainant.
Second, the promise of Atty. Vitan to settle his
obligations on particular dates is contained in two
handwritten notes signed by him and worded as
follows:
"I undertake to settle the financial
obligations of P100,000 plus before the
end of the year."35
"Mar:
"We will settle on July 12, 2004, on or
before said date."36
The wordings of these promissory notes disclose
that he had a personal obligation to complainant,
without any mention of Estur at all. If it were true
that Atty. Vitan had executed those notes for the
account of his liaison officer, he should have used
words to that effect. As a lawyer, he was aware that
the preparation of promissory notes was not a
"mere formality;" it had legal consequences. It is
quite far-fetched for a lawyer to assume the role of
guarantor, without saying so in the notes.
A lawyer may be disciplined for evading the
payment of a debt validly incurred.37 In this case,
the failure of Atty. Vitan to pay his debt for over
three years despite repeated demands puts in
question his standing as a member of the bar.
Worse, he made several promises to pay his debt
promptly, but reneged on all of them. He even
started to hide from complainant according to the
latter .38
Failure to honor just debts, particularly from clients,
constitutes dishonest conduct that does not speak
well of a member of the bar.39 It is vital that a
lawyer's conduct be kept beyond reproach and
above suspicion at all times. Rule 1.01 of the Code
of Professional Responsibility clearly provides that
lawyers must not engage in unlawful, immoral or
deceitful conduct. They must comport themselves
in a manner that will secure and preserve the
respect and confidence of the public for the legal
profession.40
Atty. Vitan contends that his obligation was already
extinguished, because he had allegedly sold his
Bulacan property to complainant.41 Basically,
respondent is asserting that what had transpired
was a dation in payment. Governed by the law on
sales, it is a transaction that takes place when a
piece of property is alienated to the creditor in
satisfaction of a debt in money.42 It involves
delivery and transmission of ownership of a thing --
by the debtor to the creditor -- as an accepted
equivalent of the performance of the obligation.43
Going over the records of this case, we find the
contention of Atty. Vitan undeserving of credence.

The records reveal that he did not really intend to
sell and relinquish ownership over his property in
Sta. Maria, Bulacan, notwithstanding the execution
of a Deed of Absolute Sale in favor of complainant.
The second Deed of Absolute Sale, which
reconveyed the property to respondent, is proof
that he had no such intention. This second Deed,
which he referred to as his "safety net,"44 betrays
his intention to counteract the effects of the first one
. administratively liable. In his letter of July 30, 2004,
In a manner of speaking, Atty. Vitan was taking
back with his right hand what he had given with his
left. The second Deed of Absolute Sale returned
the parties right back where they started, as if there
were no sale in favor of complainant to begin with.
In effect, on the basis of the second Deed of Sale,
respondent took back and asserted his ownership
over the property despite having allegedly sold it.
Thus, he fails to convince us that there was a bona
fide dation in payment or sale that took place
between the parties; that is, that there was an
extinguishment of obligation.
It appears that the true intention of the parties was
to use the Bulacan property to facilitate payment.
They only made it appear that the title had been
transferred to complainant to authorize him to sell
or mortgage the property.45 Atty. Vitan himself
admitted in his letter dated July 30, 2004, that their
intention was to convert the property into cash, so
that payment could be obtained by complainant and
the excess returned to respondent.46The records,
however, do not show that the proceeds derived
were sufficient to discharge the obligation of the
lawyer fully; thus, he is still liable to the extent of
the deficiency.
We hasten to add, however, that this administrative
case is not the proper venue for us to determine the
extent of the remaining liability. This Court will not
act as a collection agency from faltering debtors,
when the amount of the indebtedness is indefinite
and disputed.47
Nevertheless, the records satisfactorily reveal the
failure of respondent to live up to his duties as a
lawyer in consonance with the strictures of the
Lawyer's Oath, the Code of Professional
Responsibility, and the Canons of Professional
Ethics, thereby degrading not only his person but
his profession as well. So far, we find that his lack
of sincerity in fulfilling his obligations is revealed by
his acts of issuing promissory notes and reneging
on them; executing a simulated Deed of Absolute
Sale; and breaking his promise to redeem the
property from the mortgagee.
The repeated failure of Atty. Vitan to fulfill his
promise puts in question his integrity and character.
Indeed, not only his integrity as an individual but,
more important, his stature as a member of the bar
is affected by his acts of welching on his promises
and misleading complainant. Canon 1 and Rule
1.01 of the Code of Professional Responsibility
explicitly state thus:
"CANON 1 A lawyer shall uphold the
constitution, obey the laws of the land and
promote respect for law and legal
processes.
Sales Cases (2017-2018) ni Treeng
"Rule 1.01 A lawyer shall not engage in
unlawful, dishonest, immoral or deceitful
conduct."
Any wrongdoing, whether professional or
nonprofessional, indicating unfitness for the
profession justifies disciplinary action.48
There is yet another reason to find Atty. Vitan
was an admission that the personal checks he
issued in favor of complainant had all been
dishonored.49 Whether those checks were issued
for the account of respondent or of Estur is not
important. The fact remains that the lawyer
knowingly issued worthless checks and thus
revealed his disposition to defraud complainant.
The act of a lawyer in issuing a check without
sufficient funds to cover them -- or, worse, drawn
against a closed account --constitutes such willful
dishonesty and unethical conduct as to undermine
the public confidence in the law and in
lawyers.50 The act also manifests a low regard for
the Oath taken by the lawyer upon joining the
profession, whose image should be held in high
esteem, not seriously and irreparably tarnished.51
Moreover, the inimical effect of the issuance of
worthless checks has been recognized by this
Court in an earlier case, from which we quote:
"[T]he effect [of issuance of worthless
checks] transcends the private interests of
the parties directly involved in the
transaction and touches the interests of the
community at large. The mischief it creates
is not only a wrong to the payee or holder,
but also an injury to the public since the
circulation of valueless commercial papers
can very well pollute the channels of trade
and commerce, injure the banking system
and eventually hurt the welfare of society
and the public interest."52
We have also held that the deliberate failure to pay
just debts and the issuance of worthless checks
constitute gross misconduct,53 for which a lawyer
may be sanctioned with one year's suspension
from the practice of law,54or a suspension of six
months upon partial payment of the obligation.55
In the instant case, complainant himself admits that
respondent had already paid the amounts covered
by the January and February checks.56 Thus, there
has been a partial payment that justifies a
modification of IBP's recommended penalty.
WHEREFORE, Atty. Jeremias R. Vitan is hereby
found guilty of gross misconduct
and SUSPENDED from the practice of law for six
(6) months, effective upon his receipt of this
Decision, with the warning that a repetition of the
same or any other misconduct will be dealt with
more severely.
Let a copy of this Decision be entered in
respondent's record as a member of the Bar, and
notice served on the Integrated Bar of the
Philippines and on the Office of the Court
 Sales Cases (2017-2018) ni Treeng
Administrator for circulation to all courts in the
country.

SO ORDERED.
 Sales Cases (2017-2018) ni Treeng
FILINVEST LAND, G.R. No.138980
INC., Notwithstanding three
P e t i t i o n e r, Present: extensions granted by plaintiff to
defendant Pacific, the latter failed to
PUNO, finish the contracted works. (Annexes
Chairman, G, I and K, Complaint). On 16
- versus - AUSTRIA- October 1979, plaintiff wrote
MARTINEZ, defendant Pacific advising the latter
CALLEJO, SR., of its intention to takeover the project
TINGA and and to hold said defendant liable for
HON. COURT OF CHICO- all damages which it had incurred
APPEALS, NAZARIO, JJ. and will incur to finish the project.
PHILIPPINE (Annex L, Complaint).
AMERICAN
GENERAL Promulgated: On 26 October 1979, plaintiff
INSURANCE submitted its claim against defendant
COMPANY, and September 20, Philamgen under its performance
PACIFIC EQUIPMENT 2005 and guarantee bond (Annex M,
CORPORATION, Complaint) but Philamgen refused to
R e s p o n d e n t s. acknowledge its liability for the simple
x------------------------------------ reason that its principal, defendant
--------------x Pacific, refused to acknowledge
liability therefore. Hence, this action.

DECISION In defense, defendant Pacific

CHICO-NAZARIO, J.:
This is a petition for review on certiorari of the
Decision[1] of the Court of Appeals dated 27 May
1999 affirming the dismissal by the Regional Trial
Court of Makati, Branch 65,[2] of the complaint for
damages filed by Filinvest Land, Inc. (Filinvest)
against herein private respondents Pacific
Equipment Corporation (Pecorp) and Philippine
American General Insurance Company.
The essential facts of the case, as recounted
by the trial court, are as follows:
On 26 April 1978, Filinvest
Land, Inc. (FILINVEST, for brevity), a
corporation engaged in the
development and sale of residential
subdivisions, awarded to defendant
Pacific Equipment Corporation
(PACIFIC, for brevity) the
development of its residential
subdivisions consisting of two (2)
parcels of land located at Payatas,
Quezon City, the terms and
conditions of which are contained in
an Agreement. (Annex A, Complaint).
To guarantee its faithful compliance
and pursuant to the agreement,
defendant Pacific posted two (2)
Surety Bonds in favor of plaintiff
which were issued by defendant
Philippine American General
Insurance (PHILAMGEN, for brevity).
(Annexes B and C, Complaint).
claims that its failure to finish the
contracted work was due to
inclement weather and the fact that
several items of finished work and
change order which plaintiff refused
to accept and pay for caused the
disruption of work. Since the
contractual relation between plaintiff
and defendant Pacific created a
reciprocal obligation, the failure of the
plaintiff to pay its progressing bills
estops it from demanding fulfillment
of what is incumbent upon defendant
Pacific. The acquiescence by plaintiff
in granting three extensions to
defendant Pacific is likewise a waiver
of the formers right to claim any
damages for the delay. Further, the
unilateral and voluntary action of
plaintiff in preventing defendant
Pacific from completing the work has
relieved the latter from the obligation
of completing the same.
On the other hand, Philamgen
contends that the various
amendments made on the principal
contract and the deviations in the
implementation thereof which were
resorted to by plaintiff and co-
defendant Pacific without its
(defendant Philamgens) written
consent thereto, have automatically
released the latter from any or all
liability within the purview and
contemplation of the coverage of the
surety bonds it has issued. Upon
agreement of the parties to appoint a
commissioner to assist the court in
resolving the issues confronting the
parties, on 7 July 1981, an order was
issued by then Presiding Judge
Segundo M. Zosa naming Architect
Antonio Dimalanta as Court
Commissioner from among the
nominees submitted by the parties to
conduct an ocular inspection and to

determine the amount of work
accomplished by the defendant
Pacific and the amount of work done
by plaintiff to complete the project.
On 28 November 1984, the
Court received the findings made by
the Court Commissioner. In arriving
at his findings, the Commissioner
used the construction documents
pertaining to the project as basis.
According to him, no better basis in
the work done or undone could be
made other than the contract billings
and payments made by both parties
as there was no proper procedure
followed in terminating the contract,
lack of inventory of work
accomplished, absence of
appropriate record of work progress
(logbook) and inadequate
documentation and system of
construction management.
Based on the billings of
defendant Pacific and the payments
made by plaintiff, the work
accomplished by the former
amounted to P11,788,282.40 with the
exception of the last billing (which
was not acted upon or processed by
plaintiff) in the amount
of P844,396.42. The total amount of
work left to be accomplished by
plaintiff was based on the original
contract amount less value of work
accomplished by defendant Pacific in
the amount of P681,717.58
(12,470,000-11,788,282.42).
As regards the alleged repairs
made by plaintiff on the construction
deficiencies, the Court Commissioner
found no sufficient basis to justify the
same. On the other hand, he found
the additional work done by
defendant Pacific in the amount
of P477,000.00 to be in order.
On 01 April 1985, plaintiff filed
its objections to the Commissioners
Resolution on the following grounds:
a) Failure of the
commissioner to conduct a joint
survey which according to the latter is
indispensable to arrive at an
equitable and fair resolution of the
issues between the parties;
b) The cost estimates
of the commissioner were based on
pure conjectures and contrary to the
evidence; and,
c) The commissioner
made conclusions of law which were
beyond his assignment or
capabilities.
In its comment, defendant
Pacific alleged that the failure to
Sales Cases (2017-2018) ni Treeng
conduct joint survey was due to
plaintiffs refusal to cooperate. In fact,
it was defendant Pacific who initiated
the idea of conducting a joint survey
and inventory dating back 27
November 1983. And even assuming
that a joint survey were conducted, it
would have been an exercise in
futility because all physical traces of
the actual conditions then obtaining
at the time relevant to the case had
already been obliterated by plaintiff.
On 15 August 1990, a Motion
for Judgment Based on the
Commissioners Resolution was filed
by defendant Pacific.
On 11 October 1990, plaintiff
filed its opposition thereto which was
but a rehash of objections to the
commissioners report earlier filed by
said plaintiff.[3]
On the basis of the commissioners report,
the trial court dismissed Filinvests complaint as well
as Pecorps counterclaim. It held:
In resolving this case, the
court observes that the appointment
of a Commissioner was a joint
undertaking among the parties. The
findings of facts of the Commissioner
should therefore not only be
conclusive but final among the
parties. The court therefore agrees
with the commissioners findings with
respect to
1. Cost to repair
deficiency or
defect P532,324.02
2. Unpaid balance
of work done by
defendant
- P1,939,191.67
3. Additional
work/change order
(due to
defendant) P475,000.
00
The unpaid balance due
defendant therefore
is P1,939,191.67. To this amount
should be added additional work
performed by defendant at plaintiffs
instance in the sum of P475,000.00.
And from this total of P2,414,191.67
should be deducted the sum
of P532,324.01 which is the cost to
repair the deficiency or defect in the
work done by defendant. The
commissioner arrived at the figure
of P532,324.01 by getting the
average between plaintiffs claim
of P758,080.37 and defendants
 Sales Cases (2017-2018) ni Treeng
allegation of P306,567.67. The The foregoing considered, this case
amount due to defendant per the is dismissed. The counterclaim is
commissioners report is likewise dismissed.
therefore P1,881,867.66.
No Costs.[4]
Although the said amount
of P1,881,867.66 would be owing to
defendant Pacific, the fact remains
that said defendant was in delay
since April 25, 1979. The third The Court of Appeals, finding no reversible
extension agreement of September
15, 1979 is very clear in this regard. error in the appealed decision, affirmed the same.
The pertinent paragraphs read:

a) You will complete

all the unfinished Hence, the instant petition grounded solely
works not later
on the issue of whether or not the liquidated
than Oct. 15,
1979. It is agreed damages agreed upon by the parties should be
and understood
that this date shall reduced considering that: (a) time is of the essence
DEFINITELY be
the LAST and of the contract; (b) the liquidated damages was fixed
FINAL extension
& there will be no by the parties to serve not only as penalty in case
further extension
for any cause Pecorp fails to fulfill its obligation on time, but also
whatsoever.
as indemnity for actual and anticipated damages
b) We are willing to
waive all penalties which Filinvest may suffer by reason of such failure;
for delay which
have accrued and (c) the total liquidated damages sought is only
since April 25,
1979 provided that 32% of the total contract price, and the same was
you are able to
freely and voluntarily agreed upon by the parties.
finish all the items
of the contracted
works as per
revised CPM; At the outset, it should be stressed that as
otherwise you
shall continue to only the issue of liquidated damages has been
be liable to pay the
penalty up to the elevated to this Court, petitioner Filinvest is deemed
time that all the
contracted works to have acquiesced to the other matters taken up by
shall have been
actually finished, the courts below. Section 1, Rule 45 of the 1997
in addition to other
damages which Rules of Court states in no uncertain terms that this
we may suffer by
reason of the Courts jurisdiction in petitions for review
delays incurred.
on certiorari is limited to questions of law which must
Defendant Pacific therefore became be distinctly set forth.[5] By assigning only one legal
liable for delay when it did not finish
the project on the date agreed issue, Filinvest has effectively cordoned off any
on October 15, 1979. The court
however, finds the claim discussion into the factual issue raised before the
of P3,990,000.00 in the form of
penalty by reason of delay Court of Appeals.[6] In effect, Filinvest has yielded to
(P15,000.00/day from April 25, 1979
to Jan. 15, 1980) to be excessive. A the decision of the Court of Appeals, affirming that of
forfeiture of the amount due
defendant from plaintiff appears to be the trial court, in deferring to the factual findings of
a reasonable penalty for the delay in
finishing the project considering the the commissioner assigned to the parties case.
amount of work already performed
and the fact that plaintiff consented to Besides, as a general rule, factual matters cannot be
three prior extensions.
raised in a petition for review on certiorari. This Court

at this stage is limited to reviewing errors of law that


may have been committed by the lower courts.[7] We
do not perceive here any of the exceptions to this
rule; hence, we are restrained from conducting
further scrutiny of the findings of fact made by the
trial court which have been affirmed by the Court of
Appeals. Verily, factual findings of the trial court,
especially when affirmed by the Court of Appeals,
are binding and conclusive on the Supreme
Court.[8] Thus, it is settled that:
(a) Based on Pecorps billings and
the payments made by
Filinvest, the balance of work
to be accomplished by
Pecorp amounts
to P681,717.58 representing
5.47% of the contract work.
This means to say that
Pecorp, at the time of the
termination of its contract,
accomplished 94.53% of the
contract work;
(b) The unpaid balance of work done
by Pecorp amounts
to P1,939,191.67;
(c) The additional work/change order
due Pecorp amounts
to P475,000.00;
(d) The cost to repair deficiency or
defect, which is for the
account of Pecorp,
is P532,324.02; and
(e) The total amount due Pecorp
is P1,881,867.66.
Coming now to the main matter, Filinvest argues that
the penalty in its entirety should be respected as it
was a product of mutual agreement and it represents
only 32% of the P12,470,000.00 contract price, thus,
not shocking and unconscionable under the
circumstances. Moreover, the penalty was fixed to
provide for actual or anticipated liquidated damages
and not simply to ensure compliance with the terms
of the contract; hence, pursuant to Laureano v.
Kilayco,[9] courts should be slow in exercising the
authority conferred by Art. 1229 of the Civil Code.
Sales Cases (2017-2018) ni Treeng
We are not swayed.
There is no question that the penalty
of P15,000.00 per day of delay was mutually agreed
upon by the parties and that the same is sanctioned
by law. A penal clause is an accessory undertaking
to assume greater liability in case of breach.[10] It is
attached to an obligation in order to insure
performance[11] and has a double function: (1) to
provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the
threat of greater responsibility in the event of
breach.[12]Article 1226 of the Civil Code states:
Art. 1226. In obligations with a
penal clause, the penalty shall
substitute the indemnity for damages
and the payment of interests in case
of noncompliance, if there is no
stipulation to the contrary.
Nevertheless, damages shall be paid
if the obligor refuses to pay the
penalty or is guilty of fraud in the
fulfillment of the obligation.
The penalty may be enforced
only when it is demandable in
accordance with the provisions of this
Code.
As a general rule, courts are not at liberty to
ignore the freedom of the parties to agree on such
terms and conditions as they see fit as long as they
are not contrary to law, morals, good customs, public
order or public policy.[13] Nevertheless, courts may
equitably reduce a stipulated penalty in the contract
in two instances: (1) if the principal obligation has
been partly or irregularly complied; and (2) even if
there has been no compliance if the penalty is
iniquitous or unconscionable in accordance with
Article 1229 of the Civil Code which provides:
Art. 1229. The judge shall
equitably reduce the penalty when
the principal obligation has been
partly or irregularly complied with by
the debtor. Even if there has been no

performance, the penalty may also
be reduced by the courts if it is
iniquitous or unconscionable.
In herein case, the trial court ruled that the
penalty charge for delay pegged at P15,000.00 per
day of delay in the aggregate amount
of P3,990,000.00 -- was excessive and accordingly
reduced it to P1,881,867.66 considering the amount
of work already performed and the fact that
[Filinvest] consented to three (3) prior extensions.
The Court of Appeals affirmed the ruling but added
as well that the penalty was unconscionable as the
construction was already not far from completion.
Said the Court of Appeals:
Turning now to plaintiffs
appeal, We likewise agree with the
trial court that a penalty interest
of P15,000.00 per day of delay as
liquidated damages
or P3,990,000.00 (representing 32%
penalty of the P12,470,000.00
contract price) is unconscionable
considering that the construction was
already not far from completion.
Penalty interests are in the nature of
liquidated damages and may be
equitably reduced by the courts if
they are iniquitous or unconscionable
(Garcia v. Court of Appeals, 167
SCRA 815, Lambert v. Fox, 26 Phil.
588). The judge shall equitably
reduce the penalty when the principal
obligation has been partly or
irregularly complied with by the
debtor. Even if there has been no
performance, the penalty may also
be reduced by the courts if it is
iniquitous or unconscionable (Art.
1229, New Civil Code). Moreover,
plaintiffs right to indemnity due to
defendants delay has been cancelled
by its obligations to the latter
consisting of unpaid works.
This Court finds no fault in the
cost estimates of the court-appointed
commissioner as to the cost to repair
deficiency or defect in the works
which was based on the average
between plaintiffs claim
of P758,080.37 and
defendants P306,567.67 considering
the following factors: that plaintiff did
not follow the standard practice of
joint survey upon take over to
establish work already accomplished,
balance of work per contract still to be
done, and estimate and inventory of
Sales Cases (2017-2018) ni Treeng
repair (Exhibit H). As for the cost to
finish the remaining works, plaintiffs
estimates were brushed aside by the
commissioner on the reasoned
observation that plaintiffs cost
estimate for work (to be) done by the
plaintiff to complete the project is
based on a contract awarded to
another contractor (JPT), the nature
and magnitude of which appears to
be inconsistent with the basic
contract between defendant
PECORP and plaintiff FILINVEST.[14]
We are hamstrung to reverse the Court of
Appeals as it is rudimentary that the application of
Article 1229 is essentially addressed to the sound
discretion of the court.[15] As it is settled that the
project was already 94.53% complete and that
Filinvest did agree to extend the period for
completion of the project, which extensions Filinvest
included in computing the amount of the penalty, the
reduction thereof is clearly warranted.
Filinvest, however, hammers on the case
of Laureano v. Kilayco,[16] decided in 1915, which
cautions courts to distinguish between two kinds of
penalty clauses in order to better apply their
authority in reducing the amount recoverable. We
held therein that:
. . . [I]n any case wherein
there has been a partial or irregular
compliance with the provisions in a
contract for special indemnification in
the event of failure to comply with its
terms, courts will rigidly apply the
doctrine of strict construction
against the enforcement in its
entirety of the indemnification,
where it is clear from the terms of
the contract that the amount or
character of the indemnity is fixed
without regard to the probable
damages which might be anticipated
as a result of a breach of the terms of
the contract; or, in other words,
where the indemnity provided for is
essentially a mere penalty having for
its principal object the enforcement of
compliance with the contract. But the
courts will be slow in exercising
the jurisdiction conferred upon
them in article 1154[17] so as to
modify the terms of an agreed upon
indemnification where it appears that
in fixing such indemnification the
 Sales Cases (2017-2018) ni Treeng
parties had in mind a fair and indemnity or a penalty, shall be
reasonable compensation for actual equitably reduced if they are
damages anticipated as a result of a iniquitous or unconscionable.
breach of the contract, or, in other
words, where the principal purpose of
the indemnification agreed upon
appears to have been to provide for
the payment of actual anticipated and Thus, we lamented in one case that (t)here is no
liquidated damages rather than the
penalization of a breach of the justification for the Civil Code to make an apparent
contract. (Emphases supplied)
distinction between a penalty and liquidated

damages because the settled rule is that there is no

Filinvest contends that the subject penalty difference between penalty and liquidated damages

clause falls under the second type, i.e., the principal insofar as legal results are concerned and that either

purpose for its inclusion was to provide for payment may be recovered without the necessity of proving

of actual anticipated and liquidated damages rather actual damages and both may be reduced when

than the penalization of a breach of the contract. proper.[19]

Thus, Filinvest argues that had Pecorp completed

the project on time, it (Filinvest) could have sold the Finally, Filinvest advances the argument that while it

lots sooner and earned its projected income that may be true that courts may mitigate the amount of

would have been used for its other projects. liquidated damages agreed upon by the parties on

the basis of the extent of the work done, this

Unfortunately for Filinvest, the above-quoted contemplates a situation where the full amount of

doctrine is inapplicable to herein case. The Supreme damages is payable in case of total breach of

Court in Laureano instructed that a distinction contract. In the instant case, as the penalty clause

between a penalty clause imposed essentially as was agreed upon to answer for delay in the

penalty in case of breach and a penalty clause completion of the project considering that time is of

imposed as indemnity for damages should be the essence, the parties thus clearly contemplated

made in cases where there has been neither partial the payment of accumulated liquidated damages

nor irregular compliance with the terms of the despite, and precisely because of, partial

contract. In cases where there has been partial or performance.[20] In effect, it is Filinvests position that

irregular compliance, as in this case, there will be no the first part of Article 1229 on partial performance

substantial difference between a penalty and should not apply precisely because, in all likelihood,

liquidated damages insofar as legal results are the penalty clause would kick in in situations where

concerned.[18] The distinction is thus more apparent Pecorp had already begun work but could not finish

than real especially in the light of certain provisions it on time, thus, it is being penalized for delay in its

of the Civil Code of the Philippines which provides in completion.

Articles 2226 and Article 2227 thereof:

The above argument, albeit sound,[21] is insufficient
Art. 2226. Liquidated
to reverse the ruling of the Court of Appeals. It must
damages are those agreed upon by
the parties to a contract to be paid in be remembered that the Court of Appeals not only
case of breach thereof.
held that the penalty should be reduced because
Art. 2227. Liquidated
damages, whether intended as an there was partial compliance but categorically stated
 Sales Cases (2017-2018) ni Treeng

as well that the penalty was unconscionable. Before we write finis to this legal contest that

Otherwise stated, the Court of Appeals affirmed the had spanned across two and a half decades, we

reduction of the penalty not simply because there take note of Pecorps own grievance. From its

was partial compliance per se on the part of Pecorp Comment and Memorandum, Pecorp, likewise,

with what was incumbent upon it but, more seeks affirmative relief from this Court by praying

fundamentally, because it deemed the penalty that not only should the instant case be dismissed

unconscionable in the light of for lack of merit, but that Filinvest should likewise be

Pecorps 94.53% completion rate. made to pay what the Court Commissioner found

In Ligutan v. Court of Appeals,[22] we pointed was due defendant in the total amount

out that the question of whether a penalty is of P2,976,663.65 plus 12% interest from 1979 until

reasonable or iniquitous can be partly subjective and full payment thereof plus attorneys fees.[24] Pecorp,

partly objective as its resolution would depend on however, cannot recover that which it seeks as we

such factors as, but not necessarily confined to, the had already denied, in a Resolution dated 21 June

type, extent and purpose of the penalty, the nature 2000, its own petition for review of the 27 May

of the obligation, the mode of breach and its 1999 decision of the Court of Appeals. Thus, as far

consequences, the supervening realities, the as Pecorp is concerned, the ruling of the Court of

standing and relationship of the parties, and the like, Appeals has already attained finality and can no

the application of which, by and large, is addressed longer be disturbed.

to the sound discretion of the court.[23]

WHEREFORE, premises considered, the

In herein case, there has been substantial Decision of the Court of Appeals dated 27 May

compliance in good faith on the part of Pecorp which 1999 is AFFIRMED. No pronouncement as to costs.

renders unconscionable the application of the full SO ORDERED.

force of the penalty especially if we consider that in

MINITA
1979 the amount of P15,000.00 as penalty for delay

per day was quite steep indeed. Nothing in the

records suggests that Pecorps delay in the

performance of 5.47% of the contract was due to it

having acted negligently or in bad faith. Finally, we

factor in the fact that Filinvest is not free of blame

either as it likewise failed to do that which was

incumbent upon it, i.e., it failed to pay Pecorp for

work actually performed by the latter in the total

amount of P1,881,867.66. Thus, all things

considered, we find no reversible error in the Court

of Appeals exercise of discretion in the instant case.


JUANA ALMIRA, RENATO GARCIA, ROGELIO
GARCIA, RODOLFO GARCIA, ROSITA
GARCIA, RHODORA GARCIA,
ROSALINDA GARCIA, ROLANDO
GARCIA and RAFAEL GARCIA
Represented in this suit by EDGARDO
ALVAREZ, petitioners, vs. COURT OF
APPEALS AND FEDERICO
BRIONES, respondents.
DECISION
AZCUNA, J.:
Before us is a petition for review
on certiorari assailing the decision rendered by the
Court of Appeals in C.A. G.R. CV No. 40954[1] which
reversed the decision of the Regional Trial Court,
Branch 32, of San Pedro, Laguna that rescinded
the Kasunduan ng Pagbibilihan[2] entered into
between petitioners and private respondent over a
portion of a parcel of land situated in Sta. Rosa,
Laguna.
The facts of the case are as follows:
Petitioners are the wife and the children of the
late Julio Garcia who inherited from his mother,
Maria Alibudbud, a portion of a 90,655 square-meter
property denominated as Lot 1642 of the Sta. Rosa
Estate in Barangay Caingin, Sta. Rosa, Laguna and
covered by TCT No. RT-1076. Lot 1642 was co-
owned and registered in the names of three persons
with the following shares: Vicente de Guzman (),
Enrique Hemedes (1/4), and Francisco Alibudbud,
the father of Maria Alibudbud (). Although there was
no separate title in the name of Julio Garcia, there
were tax declarations in his name to the extent of his
grandfathers share covering an area of 21,460
square meters. On July 5, 1984, petitioners, as heirs
of Julio Garcia, and respondent Federico Briones
entered into a Kasunduan ng Pagbibilihan
(Kasunduan for brevity) over the 21,460 square-
meter portion for the sum of P150,000.00.
Respondent paid P65,000.00 upon execution of the
contract while the balance of P85,000.00 was made
payable within six (6) months from the date of the
execution of the instrument. At the time of the
execution of the Kasunduan, petitioners allegedly
informed respondent that TCT No. RT-1076 was in
the possession of their cousin, Conchalina
Alibudbud who having bought Vicente de Guzmans
share, owned the bigger portion of Lot 1642. This
notwithstanding, respondent willingly entered into
the Kasunduan provided that the full payment of the
purchase price will be made upon delivery to him of
the title.[3]
The Kasunduan provides:
Na ang UNANG BAHAGI ay siyang
magkakamayari (co-owners), bilang tagapagmana
ng yumaong Julio Garcia sa isang lagay na lupang
taniman ng palay, matatagpuan sa nayon ng
Caingin, Santa Rosa, Laguna, may buong lawak na
21,460 metrong parisukat, humigit kumulang, na
lalong makikilala sa mga katangiang inilalahad sa
pahayag ng Buwis Bilang 3472 na ganito ang
natutunguhan: Mga kahanggan: Hilaga-1641-
Nazario Lauriles; Timog-Barique Hemedez;
Silangan- Vicente de Guzman; at Kanluran-
Francisco Alibudbod; hinalagahan para sa
pagbabayad ng buwis pampamahalaan ng
P12,720.00; at kasalukuyang may nabibinbing
Sales Cases (2017-2018) ni Treeng
kahilingan sa hukuman upang magkaroon ng
sariling titulo; nalilibot ng batong mohon na
nagsisilbing hanganan sa bawat sulok.
Na ang UNANG BAHAGI ay inialok sa
IKALAWANG BAHAGI upang bilihin ang lupang
nabanggit sa kabuuang halagang ISANG DAAN AT
LIMAMPUNG LIBONG (P150,000.00) PISO,
Salaping Pilipino, at ang IKALAWANG BAHAGI ay
sumangayon na bilhin ang naulit na lupa batay sa
sumusunod na mga pasubali at Kasunduan:
(1) Na pinatutunayan ng UNANG BAHAGI
na tinanggap nila sa buong kasiyahan
ng kalooban buhat sa IKALAWANG
BAHAGI ang halagang ANIMNAPU AT
LIMANG LIBONG (P65,000.00) PISO,
salaping Pilipino, bilang paunang bayad,
at ang nalalabing WALUMPU AT
LIMANG LIBONG (85,000.00) PISO, ay
babayaran ng IKALAWANG BAHAGI sa
UNANG BAHAGI sa loob ng anim na
buwan simula sa takda ng kasulatang
ito, sa pasubali na ang kaukulang titulo
sa lupang nabanggit ay maipagkakaloob
ng UNANG BAHAGI;
(2) Na ang UNANG BAHAGI ang siyang
mananagot tungkol sa anumang
kasulatang inihanda ukol sa
pagbibilihang ito, gayundin sa gastos sa
notaryo publiko, capital gains tax at
pagpapatala ng kasulatan sa lalawigan
ng Laguna;
(3) Na ang UNANG BAHAGI ay lalagda sa
isang Kasulatan ng Bilihang Tuluyan
matapos na mabayarang lahat ng
IKALAWANG BAHAGI ang kaukulang
kabuuang halaga ng lupang nabanggit.
Respondent took possession of the property
subject of the Kasunduan and made various
payments to petitioners amounting to P58,500.00.
However, upon failure of petitioners to deliver to him
a separate title to the property in the name of Julio
Garcia, he refused to make further payments,
prompting petitioners to file a civil action before the
Regional Trial Court of San Pedro, Laguna, Branch
32, on May 13, 1991 for (a) rescission of
the Kasunduan; (b) return by respondent to
petitioners of the possession of the subject parcel of
land; and (c) payment by respondent of damages in
favor of petitioners.
Petitioners alleged that respondent was bound
to pay the balance of the purchase price within six
(6) months from the date of the execution of
the Kasunduan and upon delivery to him of TCT No.
RT-1076. Petitioners claimed that they approached
respondent several times to deliver TCT No. RT-
1076 but respondent told them that he did not have
money to pay the balance of the purchase
price.[4] Respondent, on the other hand, filed a
counterclaim for damages and averred that he
refused to make further payments because of
petitioners failure to deliver to him a separate title in
the name of Julio Garcia.
On November 26, 1992, the trial court rendered
a decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiffs and against the defendant

decreeing the rescission of the Kasunduan ng
Pagbibilihan dated July 5, 1984 and ordering the
defendant to return and restore possession of the
property subject of the Kasunduan ng Pagbibilihan
to the plaintiffs. For paucity of evidence, no
judgment can be rendered on the other reliefs
prayed for in the complaint.
On the other hand, plaintiffs are hereby ordered to
refund to the defendant the downpayment of
P65,000.00 and the partial payment of the balance
totaling to P58,500.00 plus legal
interest. Defendants counterclaim is hereby
dismissed for lack of merit. Costs against
defendant.[5]
In its decision, the trial court noted that
proceedings for the issuance of a separate title
covering the property subject of sale entail time and
the parties could not have intended delivery by
petitioners to respondent of a separate title in the
name of Julio Garcia as a condition for respondents
payment of the full purchase price within six months
from the time of the execution of
the Kasunduan. Said court observed that even if
petitioners were obliged to deliver a separate title in
the name of Julio Garcia to respondent, the latter
appeared to have insufficient funds to settle his
obligation as indicated by the fact that his payments
amounting to P58,500.00 were made in trickles,
having been given on thirty-nine occasions within a
span of two years from the time of the execution of
the Kasunduan. It concluded that respondent
refused to complete payment of the full purchase
price not because of the failure of petitioners to
deliver a separate title in the name of Julio Garcia
but because respondent simply did not have
sufficient funds at hand.
The Court of Appeals, however, noting that
the Kasunduan made no reference to TCT No. RT-
1076, reversed the decision of the trial court, and
dismissed the complaint. The appellate court opined
that the parties intended to refer to a separate title
over the 21,460 square meter lot when
the Kasunduan mentioned a kaukulang titulo ng
lupang nabanggit since it was the portion which was
covered by a separate tax declaration in the name of
Julio Garcia and it was the portion that petitioners
could sell. The appellate court noted that the
actuations of the parties subsequent to the
execution of the Kasunduan confirmed respondents
claim that a separate title to the property subject of
the Kasunduan should be delivered to him.
Nevertheless, respondents counterclaim for
damages was dismissed on the ground that the filing
of the complaint for rescission was not attended by
malice, there being an honest difference of opinion
between the parties as to the interpretation of
the Kasunduan.
Feeling aggrieved by the aforesaid decision,
petitioners filed before us the instant petition
for certiorari, raising issues which may essentially be
summarized as follows: (1) whether payment of the
balance of the purchase price is conditioned upon
delivery of a separate title in the name of Julio
Garcia; (2) whether petitioners are entitled to rescind
the Kasunduan for failure of respondent to complete
payment of the purchase price; and (3) whether the
Court of Appeals should have dismissed
respondents appeal for failure to comply with
Circular 28-91.
Sales Cases (2017-2018) ni Treeng
Petitioners contend that the Kasunduan never
made a reference to a title in the name of Julio
Garcia and that there was nothing in the actuations
of the parties which would indicate that full payment
of the purchase price is conditioned upon the
delivery to respondent of said title. Petitioners allege
that respondent refused to give further payments not
because of their failure to deliver a separate title in
the name of Julio Garcia but because he simply did
not have sufficient funds to complete payment of the
purchase price. Petitioners ask for rescission of
the Kasunduan pursuant to Article 1191 of the Civil
Code on the ground that respondent failed to
complete payment of the purchase price. They
further aver that the appellate court should have
dismissed respondents appeal in the first place for
failure of respondent to comply with Circular No. 28-
91[6] requiring parties to submit a certification of non-
forum shopping in petitions filed before the Supreme
Court and the Court of Appeals. Petitioners lament
that although they raised the issue regarding
respondents procedural lapse early on at the
appellate court, the latter still entertained
respondents appeal.
As a rule, our jurisdiction in cases brought
before us from the Court of Appeals under Rule 45
of the Rules of Court is limited to reviewing errors of
law. Factual findings of the appellate court are
generally binding on us.[7] However, this principle is
subject to certain exceptions such as the situation in
this case where the trial court and the appellate court
arrived at diverse factual findings.[8]
The subject of conflicting interpretations
between the parties pertains to the provision in
the Kasunduan which states:
(1) Na pinatutunayan ng UNANG BAHAGI na
tinanggap nila sa buong kasiyahan ng kalooban
buhat sa IKALAWANG BAHAGI ang halagang
ANIMNAPU AT LIMANG LIBO (P65,000.00) PISO,
Salaping Pilipino, bilang paunang bayad, at ang
nalalabing WALUMPU AT LIMANG LIBONG
(85,000.00) PISO ay babayaran ng IKALAWANG
BAHAGI sa UNANG BAHAGI sa loob ng anim na
buwan simula sa takda ng kasulatang ito,
sa pasubali na ang kaukulang titulo ng lupang
nabanggit ay maipagkakaloob ng UNANG BAHAGI
sa IKALAWANG BAHAGI
Petitioners allege that the kaukulang titulo ng
lupang nabanggit refers to TCT No. RT-1076 and not
to a separate title in the name of Julio Garcia.
Petitioners stress the implausibility of delivering the
separate title to respondent within six (6) months
from the time of the execution of
the Kasunduan considering that issuance of the title
required prior settlement of the estates of Francisco
Alibudbud, Vicente de Guzman and Enrique
Hemedes; partition of Lot 1642; and segregation of
the portion pertaining to the share acquired by Julio
Garcia. Respondent, for his part, insists that
the kaukulang titulo ng lupang nabanggit refers to a
separate title in the name of Julio Garcia. He argues
that he only acceded to the Kasunduan upon having
been assured by petitioners that they would be able
to deliver to him a separate title in the name of Julio
Garcia. Petitioners allegedly told respondent that
there was a pending petition in the court of Bian for
the issuance of a separate title to the subject
property.[9]

It is basic in the interpretation and construction
of contracts that the literal meaning of the
stipulations shall control if the terms of the contract
are clear and leave no doubt on the intention of the
contracting parties. However, if the terms of the
agreement are ambiguous, resort is made to
contract interpretation which is the determination of
the meaning attached to written or spoken words
that make the contract.[10] To ascertain the true
intention of the parties, their subsequent or
contemporaneous actions must be principally
considered.
The tenor of the correspondence between
petitioners and respondent shows that the parties
intended that a separate title to the property in the
name of Julio Garcia shall be delivered to
respondent as a condition for the latters payment of
the balance of the purchase price. Thus, petitioner
Juana Almiras letter dated July 24, 1986 to
respondent reads:
Ang totoo po ngayon ay kailangan naming ang
halagang LABING LIMANG LIBO (P15,000.00)
PISO, yan po ang dahilan kung bakit kami ay
sumulat sa inyo, sapagkat sa mga unang
naghawak at nag-ayos ng papeles ng lupang ito ay
hindi nila naayos at hindi nila natapos, kaya po
kami ay nakakita at malaki po ang nagastos
naming sa una na walang nangyari, kaya nga itong
huli ay lalong lumaki
Unawain po naman ninyo kami sa halagang
kailangan naming para sa huling gumagawa ng
Titulo ng lupa para naman po maayos na ito.[11]
Respondent signified his willingness to pay the
balance of the purchase price but reminded
petitioners of their obligation to deliver title to the
property in the following reply:
Hindi lingid sa inyong kaalaman na sa ilalim ng
naubit na Kasunduan ng Pagbibilihan ay
maliwanag ang inyong tungkulin na ipagkaboob sa
amin ang kaukulang titulo ng lupa sa boob ng anim
(6) na buwan simula sa takda ng nasabing
kasulatan at kami naman ay nahahandang
magbayad ng lahat ng nalababing kabayaran x x x
at tuwing kayo ay kukuha ng pera ang lagi niyong
idinadahilan ay ang diumano ay paglalakad tungkol
sa titulo. x x x[12]
Had the parties intended that petitioners deliver
TCT No. RT-1076 instead of a separate title in the
name of Julio Garcia to respondent, then there
would have been no need for petitioners to ask for
partial sums on the ground that this would be used
to pay for the processing of the title to the property.
Petitioners had only to present the existing title, TCT
No. RT-1076, to respondent and demand the
balance of the purchase price. This, petitioners did
not do. Instead, they were content to ask small sums
from respondent on thirty-nine occasions for two
years before filing an action in court for rescission of
the Kasunduan another five years later. It is readily
discernible from the tenor of various
receipts[13] issued by petitioners that the sums given
by respondent on these thirty-nine occasions were
made upon request of petitioners seeking
respondents indulgence. A letter[14] dated October
11, 1984 and addressed to respondents father, Tata
Omy, whom respondent authorized to give
Sales Cases (2017-2018) ni Treeng
payments during the time he was working abroad
reads:
Tata Omy,
Ako si Rogelio A. Garcia ang sumulat nito at ang
maydala ay si Rolando Garcia na kapatid kong
bunso at ito ay pinagawa ng aking ina si Juana
Garcia. Ang dahilan ay mayroon silang nabiling t.v.
17 inches at ngayon ay naririto sa amin. Kaya ako
ay labis na nahihiya sa inyo ni Viring ngunit ano
ang magagawa ko para diyan kaya kayo na ang
bahalang magpasensiya sa amin. Ang kailangan
nila ay halagang P800.00 at para mabili nila ang T.
V. + P200.00
Ang gumagalang,
(Sgd.) Rogelio
Garcia
Received: P1,000.00
By( Sgd). Rosita Garcia
There is thus no basis to conclude that
insufficiency of funds rather than failure of
petitioners to deliver a separate title in the name of
Julio Garcia prevented respondent from completing
payment of the purchase price.
That the parties agreed on delivery of a
separate title in the name of Julio Garcia as a
condition for respondents payment of the balance of
the purchase price is bolstered by the fact that there
was already an approved subdivision plan of the
21,460 square-meter lot years before petitioners
filed an action in court for rescission.[15] The parties
evidently assumed petitioners would be able to
deliver a separate title in the name of Julio Garcia to
respondent within six (6) months from the time of the
execution of the Kasunduan since there was already
a pending petition in court for the issuance of a
separate title to 21,460 square-meter lot at that time.
Unfortunately, the petitioners were not able to
secure a separate title in the name of Julio Garcia
within the stipulated period.
Finally, we note that, as quoted earlier,
the Kasunduan itself in its opening paragraph refers
to the subject property being sold as buong lawak na
21,640 metrong parisukat, x x x at sa kasalukuyan
may nabibinbing kahilingan sa hukuman upang
magkaroon ng sariling titulo; x x x. The next
paragraph of the Kasunduan, therefore, which
speaks of ang kaukulang titulo sa lupang nabanggit,
clearly refers to the separate title being applied for,
even without resort to extraneous evidence.
Petitioners, however, insist that it was
respondents counsel who prepared
the Kasunduan and any ambiguity therein should be
construed against respondent pursuant to Article
1377 of the Civil Code which states that the
interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the
obscurity.
We find no reason to apply Article 1377 of the
Civil Code in this case where the evident intention of
the parties can be readily discerned by their
subsequent and contemporaneous acts. While it is
true that the Kasunduan was prepared by the
counsel of respondent, there is no indication that
respondent took unfair advantage of petitioners
when he had the terms of the Kasunduan drawn by

his counsel. Petitioners freely assented to
the Kasunduan which is written entirely in a
language spoken and understood by both parties.
That petitioners were fully aware of the terms of
the Kasunduan is evidenced by their attempts to
comply with their obligation by securing a
subdivision plan and technical description[16] of the
property subject of sale.
Having ruled that the kaukulang titulo ng lupang
nabanggit refers to a separate title in the name of
Julio Garcia, we proceed to the issue as to whether
petitioners may rescind the Kasunduan pursuant to
Article 1191 of the Civil Code for failure of
respondent to give full payment of the balance of the
purchase price.
The rights of the parties are governed by the
terms and the nature of the contract they enter into.
Hence, although the nature of the Kasunduan was
never placed in dispute by both parties, it is
necessary to ascertain whether the Kasunduan is a
contract to sell or a contract of sale before the issue
as to whether petitioners may ask for rescission of
the contract may be resolved. In a contract to sell,
ownership is, by agreement, reserved to the vendor
and is not to pass until full payment of the purchase
price; whereas, in contract of sale, title to the
property passes to the vendee upon delivery of the
thing sold.[17] Non-payment by the vendee in a
contract of sale entitles the vendor to demand
specific performance or rescission of the contract,
with damages, under Article 1191 of the Civil Code.
Although both parties have consistently referred
to the Kasunduan as a contract to sell, a careful
reading of the provisions of the Kasunduan reveals
that it is a contract of sale. A deed of sale is absolute
in nature in the absence of any stipulation reserving
title to the vendor until full payment of the purchase
price. In such cases ownership of the thing sold
passes to the vendee upon actual or constructive
delivery thereof.[18] There is nothing in
the Kasunduan which expressly provides that
petitioners retain title or ownership of the property,
until full payment of the purchase price. The absence
of such stipulation in the Kasunduan coupled with
the fact that respondent took possession of the
property upon the execution of
the Kasunduan indicate that the parties have
contemplated a contract of absolute sale.
Stated otherwise, there was a perfected
contract of sale. The parties agreed on the sale of a
determinate object, i.e., 21, 460 square meters of Lot
1642, covered by a tax declaration in the name of
Julio Garcia, and the price certain therefor, without
any reservation of title on the part of petitioners.
Ownership was effectively conveyed by petitioners
to respondent, who was given possession of the
property. The delivery of a separate title in the name
of Julio Garcia was a condition imposed on
respondents obligation to pay the balance of the
purchase price. It was not a condition imposed on
the perfection of the contract of sale. In Laforteza v.
Machuca,[19] we stated that the fact that the
obligation to pay the balance of the purchase price
was made subject to the condition that the seller first
deliver the reconstituted title of the property does not
make the agreement a contract to sell for such
condition is not inconsistent with a contract of sale.
Addressing now the issue as to whether
rescission of the Kasunduan by petitioners may
Sales Cases (2017-2018) ni Treeng
prosper, we rule in the negative. The power to
rescind is only given to the injured party. The injured
party is the party who has faithfully fulfilled his
obligation or is ready and willing to perform with his
obligation. In the case at bar, petitioners were not
ready, willing and able to comply with their obligation
to deliver a separate title in the name of Julio Garcia
to respondent. Therefore, they are not in a position
to ask for rescission of the Kasunduan. Moreover,
respondents obligation to pay the balance of the
purchase price was made subject to delivery by
petitioners of a separate title in the name of Julio
Garcia within six (6) months from the time of the
execution of the Kasunduan, a condition with which
petitioners failed to comply. Failure to comply with a
condition imposed on the performance of an
obligation gives the other party the option either to
refuse to proceed with the sale or to waive that
condition under Article 1545 of the Civil
Code.[20] Hence, it is the respondent who has the
option either to refuse to proceed with the sale or to
waive the performance of the condition imposed on
his obligation to pay the balance of the purchase
price.
It follows that, not having established that they
were ready, able and willing to comply with their
obligation to deliver to respondent a separate title in
the name of Julio Garcia, petitioners may not ask for
rescission of the Kasunduan nor recover damages.
As regards the issue that the appellate court
should have dismissed respondents appeal for
failure of respondent to comply with Circular No. 28-
91 requiring the submission of a certificate of non-
forum shopping in petitions filed before us and the
Court of Appeals, suffice it to say that when
technicality deserts its function of being an aid to
justice, the courts are justified in exempting from its
operations a particular case.[21] Procedural rules are
intended to insure the orderly conduct of litigation,
because of the higher objective they seek, which is
to protect the parties substantive rights.[22]
WHEREFORE, the petition is DENIED and the
decision rendered by the Court of Appeals in CA
G.R. No. 40954 entitled, Juana Almira, et
al., plaintiffs-appellees v. Federico
Briones, defendant-appellant is AFFIRMED. No
costs.
SO ORDERED.

SPS. NONILON (MANOY) and IRENE
MONTECALVO, Petitioners,
vs.
HEIRS (Substitutes) OF EUGENIA T. PRIMERO,
represented by their Attorney-in-Fact,
ALFREDO T. PRIMERO, JR., Respondents.
DECISION
DEL CASTILLO, J.:
Jurisprudence is replete with rulings that in civil
cases, the party who alleges a fact has the burden
of proving it. Burden of proof is the duty of a party
to present evidence on the facts in issue necessary
to prove the truth of his claim or defense by the
amount of evidence required by law.11 In this case,
the petitioners awfully failed to discharge their
burden to prove by preponderance of evidence that
the Agreement they entered into with respondents'
predecessor-in-interest is a contract of sale and not
a mere contract to sell, or that said Agreement was
novated after the latter subsequently entered into
an oral contract of sale with them over a
determinate portion of the subject property more
than a decade ago.
Petitioners filed this appeal from the Decision of the
Court of Appeals (CA) affirming the Regional Trial
Court's (RTC's) dismissal of their action for specific
performance where they sought to compel the
respondents to convey the property subject of their
purported oral contract of sale.
Factual Antecedents
The property involved in this case is a portion of a
parcel of land known as Lot No. 263 located at
Sabayle Street, Iligan City. Lot No. 263 has an area
of 860 square meters covered by Original
Certificate of Title (OCT) No. 0-2712 registered in
the name of Eugenia Primero (Eugenia), married to
Alfredo Primero, Sr. (Alfredo).
In the early 1980s, Eugenia leased the lot to
petitioner Irene Montecalvo (Irene) for a monthly
rental of P500.00. On January 13, 1985, Eugenia
entered into an un-notarized Agreement3 with
Irene, where the former offered to sell the property
to the latter for P1,000.00 per square meter. They
agreed that Irene would deposit the amount
of P40,000.00 which shall form part of the down
payment equivalent to 50% of the purchase price.
They also stipulated that during the term of
negotiation of 30 to 45 days from receipt of said
deposit, Irene would pay the balance
of P410,000.00 on the down payment. In case
Irene defaulted in the payment of the down
payment, the deposit would be returned within 10
days from the lapse of said negotiation period and
the Agreement deemed terminated. However, if the
negotiations pushed through, the balance of the full
value of P860,000.00 or the net amount
of P410,000.00 would be paid in 10 equal monthly
installments from receipt of the down payment, with
interest at the prevailing rate.
Irene failed to pay the full down payment within the
stipulated 30-45-day negotiation period.
Nonetheless, she continued to stay on the disputed
property, and still made several payments with an
Sales Cases (2017-2018) ni Treeng
aggregate amount of P293,000.00. On the other
hand, Eugenia did not return the P40,000.00
deposit to Irene, and refused to accept further
payments only in 1992.
Thereafter, Irene caused a survey of Lot No. 263
and the segregation of a portion equivalent to 293
square meters in her favor. However, Eugenia
opposed her claim and asked her to vacate the
property. Then on May 13, 1996, Eugenia and the
heirs of her deceased husband Alfredo filed a
complaint for unlawful detainer against Irene and
her husband, herein petitioner Nonilon Montecalvo
(Nonilon) before the Municipal Trial Court (MTC) of
Iligan City. During the preliminary conference, the
parties stipulated that the issue to be resolved was
whether their Agreement had been rescinded and
novated. Hence, the MTC dismissed the case for
lack of jurisdiction since the issue is not susceptible
of pecuniary estimation. The MTC's Decision
dismissing the ejectment case became final as
Eugenia and her children did not appeal therefrom.4
On June 18, 1996, Irene and Nonilon retaliated by
instituting Civil Case No. II-3588 with the RTC of
Lanao del Norte for specific performance, to
compel Eugenia to convey the 293-square meter
portion of Lot No. 263.5
Proceedings before the Regional Trial Court
Trial on the merits ensued and the contending
parties adduced their respective testimonial and
documentary evidence before the trial court.
Irene testified that after their Agreement for the
purpose of negotiating the sale of Lot No. 263 failed
to materialize, she and Eugenia entered into an oral
contract of sale and agreed that the amount
of P40,000.00 she earlier paid shall be considered
as down payment. Irene claimed that she made
several payments amounting to P293,000.00 which
prompted Eugenia's daughters Corazon Calacat
(Corazon) and Sylvia Primero (Sylvia) to ask Engr.
Antonio Ravacio (Engr. Ravacio) to conduct a
segregation survey on the subject property.
Thereafter, Irene requested Eugenia to execute the
deed of sale, but the latter refused to do so
because her son, Atty. Alfredo Primero, Jr. (Atty.
Primero), would not agree.
On March 22, 1999, herein respondents filed with
the court a quo a "Notice of Death of the
Defendant"6manifesting that Eugenia passed away
on February 28, 1999 and that the decedent's
surviving legal heirs agreed to appoint their co-heir
Atty. Primero, to act as their representative in said
case. In an Order7 dated April 8, 1999, the trial
court substituted the deceased defendant with Atty.
Primero.
Respondents, on the other hand, presented the
testimony of Atty. Primero to establish that Eugenia
could not have sold the disputed portion of Lot No.
263 to the petitioners. According to Atty. Primero, at
the time of the signing of the Agreement on
January 13, 1985, Eugenia's husband, Alfredo, was
already dead. Eugenia merely managed or
administered the subject property and had no
authority to dispose of the same since it was a
conjugal property. In addition, respondents

asserted that the deposit of P40,000.00 was
retained as rental for the subject property.
Respondents likewise presented Sylvia, who
testified that the receipts issued to petitioners were
for the lot rentals.8 Another sister of Atty. Primero,
Corazon, testified that petitioners were their tenants
in subject land, which she co-owns with her mother
Eugenia.9 She denied having sold the purported
293-square meter portion of Lot No. 263 to the
petitioners.10
As rebuttal witness, petitioners presented Engr.
Ravacio, a surveyor who undertook the segregation
of the 293-square meter portion out of the subject
property.11
On October 22, 2001, the RTC rendered a
Decision:12 (1) dismissing the complaint and the
counterclaim for lack of legal and factual bases; (2)
ordering petitioners to pay respondents P2,500.00
representing rentals due, applying therefrom the
amount deposited and paid; and (3) ordering
petitioner to pay 12% legal interest from finality of
decision until full payment of the amount due.13
Aggrieved, petitioners appealed the Decision of the
trial court to the CA.
Proceedings before the Court of Appeals
Both parties filed their respective briefs before the
appellate court.14 Thereafter, on November 28,
2003, the CA rendered a Decision15 affirming the
RTC Decision.16
Petitioners timely filed a Motion for
Reconsideration.17 However, in a
Resolution18 dated June 27, 2004, the CA resolved
to deny the same for lack of merit.19
Issues
Petitioners thus filed this Petition for Review on
Certiorari anchored on the following grounds.
1. WHETHER AN ORAL CONTRACT OF
SALE OF A PORTION OF [A] LOT IS
BINDING [UPON] THE SELLER.
2. WHETHER A SELLER IN AN ORAL
CONTRACT OF SALE OF A PORTION OF
[A] LOT CAN BE COMPELLED TO
EXECUTE THE REQUIRED DEED OF
SALE AFTER THE AGREED
CONSIDERATION WAS PAID AND
POSSESSION THEREOF DELIVERED TO
AND ENJOYED BY THE BUYER.
3. WHETHER THE BUYER HAS A RIGHT
TO ENFORCE AN ORAL CONTRACT OF
SALE AFTER THE PORTION SOLD IS
SEGREGATED BY AGREEMENT OF THE
PARTIES.
4. WHETHER THE SELLER IS BOUND BY
THE HANDWRITTEN RECEIPTS
PREPARED AND SIGNED BY HER
EXPRESSLY INDICATING PAYMENTS OF
LOTS.
Sales Cases (2017-2018) ni Treeng
5. WHETHER THE TRIAL COURT COULD
RENDER A JUDGMENT ON ISSUES NOT
DEFINED IN THE PRE-TRIAL ORDER.
Our Ruling
The petition lacks merit.
The Agreement dated January 13, 1985 is a
contract to sell. Hence, with petitioners' non-
compliance with its terms and conditions, the
obligation of the respondents to deliver and execute
the corresponding deed of sale never arose.
The CA found that the Agreement dated January
13, 1985 is not a contract of sale but a mere
contract to sell, the efficacy of which is dependent
upon the resolutory condition that Irene pay at least
50% of the purchase price as down payment within
30-45 days from the day Eugenia received
the P40,000.00
deposit.20 Said court further found that such
condition was admittedly not met.21
Petitioners admit that the Agreement dated January
13, 1985 is at most, "a preliminary agreement for
an eventual contract."22 However, they argue that
contrary to the findings of the appellate court, it was
not only the buyer, Irene, who failed to meet the
condition of paying the balance of the 50% down
payment.23 They assert that the Agreement
explicitly required Eugenia to return the deposit
of P40,000.00 within 10 days, in case Irene failed to
pay the balance of the 50% down payment within
the stipulated period.24 Thus, petitioners posit that
for the cancellation clause to operate, two
conditions must concur, namely, (1) buyer fails to
pay the balance of the 50% down payment within
the agreed period and (2) seller should return the
deposit of P40,000.00 within 10 days if the first
condition was not complied with. Petitioners
conclude that since both seller and buyer failed to
discharge their reciprocal obligations, being in pari
delictu, the seller could not repudiate their
agreement to sell.
The petitioners' contention is without merit.
There is no dispute as to the due execution and
existence of the Agreement. The issue thus
presented is whether the said Agreement is a
contract of sale or a contract to sell. For a better
understanding and resolution of the issue at hand,
it is apropos to reproduce herein the Agreement
in haec verba:
Agreement
This Agreement, made and executed by and
between:
EUGENIA T. PRIMERO, a Filipino of legal age and
residing in Camague, Iligan City (hereinafter called
the OWNER)
- and -
IRENE P. MONTECALVO, Filipino of legal age and
presently residing at Sabayle St., Iligan City
(hereinafter [called] the INTERESTED PARTY);

WITNESSETH:
1. That the OWNER is the true and
absolute owner of a parcel of land
located at Sabayle St. immediately
fronting the St. Peter's College
which is presently leased to the
INTERESTED PARTY;
2. That the property referred to
contains an area of EIGHT
HUNDRED SIXTY SQUARE
METERS at the value of One
Thousand Pesos (P1,000.00) per
square meters;
3. That this agreement is entered
into for the purpose of negotiating
the sale of the above referred
property between the same parties
herein under the following terms and
conditions, to wit:
a) That the term of this
negotiation is for a period of
Thirty to Forty Five (30-45)
days from receipt of a
deposit;
b) That Forty Thousand
Pesos (P40,000.00) shall be
deposited to demonstrate the
interest of the Interested
Party to acquire the property
referred to above, which
deposit shall not earn any
interest;
c) That should the contract or
agreement push through the
deposit shall form part of the
down payment of Fifty
percent (50%) of the total or
full value. Otherwise the
deposit shall be returned
within TEN (10) days from
the lapse of the period of
negotiation;
4. That should this push through, the
balance of Four Hundred Ten
Thousand on the down payment
shall be made upon execution of the
Agreement to Sell and the balance
of the full value of Eight Hundred
Sixty Thousand or Four Hundred
Ten Thousand Pesos shall be paid
in equal monthly installment within
Ten (10) months from receipt of the
down payment with [sic] according to
prevailing interest.
IN WITNESS WHEREOF, the parties have signed
these presents in the City of Iligan this 13th day of
January 1985.
(Signed) (Signed)
IRENE PEPITO EUGENIA TORRES
MONTECALVO PRIMERO
SIGNED IN THE PRESENCE OF:
Sales Cases (2017-2018) ni Treeng
(Signed) (Signed)
In Salazar v. Court of Appeals,25 we distinguished a
contract of sale from a contract to sell in that in a
contract of sale the title to the property passes to
the buyer upon the delivery of the thing sold; in
a contract to sell, ownership is, by agreement,
reserved in the seller and is not to pass to the
buyer until full payment of the purchase price.
Otherwise stated, in a contract of sale, the seller
loses ownership over the property and cannot
recover it until and unless the contract is resolved
or rescinded; whereas, in a contract to sell, title is
retained by the seller until full payment of the
price.26 In the latter contract, payment of the price is
a positive suspensive condition, failure of which is
not a breach but an event that prevents the
obligation of the vendor to convey title from
becoming effective.27
In the Agreement, Eugenia, as owner, did not
convey her title to the disputed property to Irene
since the Agreement was made for the purpose of
negotiating the sale of the 860-square meter
property.28
On this basis, we are more inclined to characterize
the agreement as a contract to sell rather than a
contract of sale. Although not by itself controlling,
the absence of a provision in the Agreement
transferring title from the owner to the buyer is
taken as a strong indication that the Agreement is a
contract to sell.29
In a contract to sell, the prospective seller explicitly
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 subject 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.30 What the seller agrees or obliges himself to
do is to fulfill his promise to sell the subject property
when the entire amount of the purchase price is
delivered to him.31 In 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.32 A contract to
sell is commonly entered into in order 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.33
In this case, the Agreement expressly provided that
it was "entered into for the purpose of negotiating
the sale of the above referred property between the
same parties herein x x x." The term of the
negotiation shall be for a period of 30-45 days from
receipt of the P40,000.00 deposit and the buyer
has to pay the balance of the 50% down payment
amounting to P410,000.00 within the said period of
negotiation. Thereafter, an Agreement to Sell shall
be executed by the parties and the remainder of the
purchase price amounting to another P410,000.00
shall be paid in 10 equal monthly installments from
receipt of the down payment. The assumption of
both parties that the purpose of the Agreement was

for negotiating the sale of Lot No. 263, in its
entirety, for a definite price, with a specific period
for payment of a specified down payment, and the
execution of a subsequent contract for the sale of
the same on installment payments leads to no other
conclusion than that the predecessor-in-interest of
the herein respondents and the herein petitioner
Irene entered into a contract to sell.
As stated in the Agreement, the payment of the
purchase price, in installments within the period
stipulated, constituted a positive suspensive
condition, the failure of which is not really a breach
but an event that prevents the obligation of the
seller to convey title in accordance with Article 1184
of the Civil Code.34 Hence, for petitioners' failure to
comply with the terms and conditions laid down in
the Agreement, the obligation of the predecessor-
in-interest of the respondents to deliver and
execute the corresponding deed of sale never
arose.
The fact that the predecessor-in-interest of the
respondents failed to return the P40,000.00 deposit
subsequent to the expiration of the period of
negotiation did not prevent the respondents from
repudiating the Agreement. The obligation of the
respondent to convey the property never came to
pass as the petitioners did not comply with the
positive suspensive condition of full payment of the
purchase price within the period as stipulated.
The alleged oral contract of sale for the 293-square
meter portion of the property was not proved by
preponderant evidence. Hence, petitioners cannot
compel the successors-in-interest of the deceased
Eugenia to execute a deed of absolute sale in their
favor.
Petitioners alleged in their Complaint that in 1992,
Eugenia refused to accept further payments and
suggested that she will convey to petitioners 293
square meters of her 860-square meter property, in
proportion to payments already made. Thus,
Eugenia caused the segregation of the area where
the petitioners' building now stands, consisting of
293 square meters.1avvphi1
In support of their contention, petitioners presented
the testimony of Irene, who testified that Eugenia
segregated for them an area of 293 square meters
for the agreed price of P1,000.00 per square
meter.35 The total purchase price allegedly agreed
upon by the parties, amounting to P293,000.00,
corresponded to the amount of payments already
made by Irene.36 They likewise presented (1) 82
receipts covering the period October 13, 1986 to
July 10, 1994;37 (2) the testimony of the surveyor,
Engr. Ravacio, to show that the segregation survey
of the 293-square meter portion of the property was
made with the knowledge and consent of Eugenia;
and (3) the resulting subdivision plan.
On the other hand, respondents counter that the
alleged contract of sale is contradicted by
petitioners' own evidence.
We cannot sustain the contention of the petitioners.
The primal issue to be resolved is whether the
parties subsequently entered into a contract of sale
over the segregated 293-square meter portion of
Lot No. 263. It is a fundamental principle that for a
Sales Cases (2017-2018) ni Treeng
contract of sale to be valid, the following elements
must be present: (a) consent or meeting of the
minds; (b) determinate subject matter; and (3) price
certain in money or its equivalent.38 Until the
contract of sale is perfected, it cannot, as an
independent source of obligation, serve as a
binding juridical relation between the parties.39
Contrary to petitioners' allegations that the 82
receipts indicated that they were issued "for
payment of lot (at Sabayle)",40 a cursory
examination thereof shows that the receipts from
1986 to 1992 do not consistently indicate "Sabayle
Lot" or "Sabayle Lot Deposit". More than half of the
receipts presented merely indicated receipt of
differing sums of money from the petitioners. In
addition, the receipts for the years 1993 to 1994 do
not establish installment payments for the purchase
of the disputed portion of Lot No. 263. Rather, the
receipts indicate that the same were issued as
proof of "cash advance",41 "cash for groceries,
electric bill, water bill, telephone/long
distance",42 "cash",43 "cash for mktg"44 and "x x x
cash to be paid a month after".45 These are not
consistent with the allegation of the petitioners that
they have paid the full amount of the purchase
price for the 293-square meter portion of the lot by
1992.
Moreover, the testimony of petitioners' witness,
surveyor Engr. Ravacio, shows that Eugenia was
neither around when the survey was conducted nor
gave her express consent to the conduct of the
same.46 On the other hand, respondents' witness,
Sylvia, testified that the receipts issued to the
petitioners were for the lot rentals.47 In addition,
respondents' third witness, Corazon, testified that
petitioners were their tenants in subject land, which
she co-owns with her mother Eugenia, and
disclaimed any sale of any portion of their lot to the
petitioners.48
Thirdly, since the surveyor himself, Engr. Ravacio,
admitted that Eugenia did not give her express
consent to the conduct of the segregation plan, the
resulting subdivision plan, submitted by the
petitioners to the trial court to prove that Eugenia
caused the segregation of the 293-square meter
area, cannot be appreciated.
Section 1 of Rule 133 of the Rules of Court
provides that in civil cases, the party having the
burden of proof must establish his case by a
preponderance of evidence. However, the evidence
presented by the petitioners, as considered above,
fails to convince this Court that Eugenia gave her
consent to the purported oral deed of sale for the
293-square meter portion of her property. We are
hence in agreement with the finding of the CA that
there was no contract of sale between the parties.
As a consequence, petitioners cannot rightfully
compel the successors-in-interest of Eugenia to
execute a deed of absolute sale in their favor.
The courts below correctly modified the rental
award to P2,500.00 per month.
Lastly, petitioners argue that the courts below erred
in imposing a P2,500.00 monthly rental from 1985
onwards, since said amount is far greater than the
last agreed monthly rental (December 1984)
of P500.00.
 Sales Cases (2017-2018) ni Treeng
In its Decision, the CA affirmed the ruling of the
RTC "that the trial court had authority to fix a
reasonable value for the continued use and
occupancy of the leased premises after the
termination of the lease contract, and that it was not
bound by the stipulated rental in the contract of
lease since it is equally settled that upon
termination or expiration of the contract of lease,
the rental stipulated therein may no longer be the
reasonable value for the use and occupation of the
premises as a result of the change or rise in values.
Moreover, the trial court can take judicial notice of
the general increase in rentals of real estate
especially of business establishments".49 The
appellate court likewise held that the petitioners
failed to discharge their burden to show that the
said price was exorbitant or
unconscionable.50 Hence, the CA found no reason
to disturb the trial court's decision ordering the
petitioners to pay P2,500.00 as monthly
rentals.51 The appellate court further held that "to
deprive Eugenia of the rentals due her as the
owner-lessor of the subject property would result to
unjust enrichment on the part of Irene."52

The courts below correctly took judicial notice of the

nature of the leased property subject of the case at
bench based on its location and commercial
viability. As described in the Agreement, the
property is immediately in front of St. Peter's
College.53 More significantly, it is stated in the
Declaration of Real Property submitted by the
petitioners as evidence in the trial court, that the
property is used predominantly for commercial
purposes.54 The assessment by the trial court of the
area where the property is located is therefore fairly
grounded.

Furthermore, the trial court also had factual basis in

arriving at the said conclusion, the same being
based on the un-rebutted testimony of a witness
who is a real estate broker. With respect to the
prevailing valuation of the property in litigation,
witness Atty. Primero, a licensed real estate broker
testified that:

x x x There is no fixed pricing for each year

because it always depends on the environment so
that if the price in 1986, as you were referring to
1986, it would have risen or increased
from P1,000.00, then it would increase
to P3,000.00, then it would increase to P7,000.00
and again increase to P15,000.00 and right now the
current price of property in that area is P25,000.00
per square meter.55

The RTC rightly modified the rental award

to P2,500.00 per month, considering that it is
settled jurisprudence that courts may take judicial
notice of the general increase in rentals, particularly
in business establishments.

WHEREFORE, the petition is DENIED. The

November 28, 2003 Decision of the Court of
Appeals affirming the October 22, 2001 Decision of
the Regional Trial Court of Lanao del Norte, Branch
2, is hereby AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

MILA A. REYES ,
Petitioner,
- versus -
VICTORIA T. TUPARAN,
Respondent.
X -----------------------------------------------------------------
------------------------------------X
DECISION
MENDOZA, J.:
Subject of this petition for review is the
February 13, 2009 Decision[1] of the Court of
Appeals (CA) which affirmed with modification the
February 22, 2006 Decision[2] of the Regional Trial
Court, Branch 172, Valenzuela City (RTC), in Civil
Case No. 3945-V-92, an action for Rescission of
Contract with Damages.
On September 10, 1992, Mila
Reyes (petitioner) filed a complaint for Rescission of
Contract with Damages against Victoria
Tuparan (respondent) before the RTC. In her
Complaint, petitioner alleged, among others, that
she was the registered owner of a 1,274 square
meter residential and commercial lot located in
Karuhatan, Valenzuela City, and covered by TCT
No. V-4130; that on that property, she put up a three-
storey commercial building known as RBJ Building
and a residential apartment building; that since
1990, she had been operating a drugstore and
cosmetics store on the ground floor of RBJ Building
where she also had been residing while the other
areas of the buildings including the sidewalks were
Sales Cases (2017-2018) ni Treeng
G.R. No. 188064
being leased and occupied by tenants and street
vendors.
Present:
In December 1989, respondent leased from
CARPIO, J., Chairperson,
petitioner a space on the ground floor of
NACHURA,the RBJ Building for her pawnshop business for a
PERALTA, monthly rental of 4,000.00. A close friendship
ABAD, and developed between the two which led to the
respondent investing thousands of pesos in
MENDOZA, JJ.
petitioners financing/lending business from February
7, 1990 to May 27, 1990, with interest at the rate of
6% a month.
Promulgated:
June 1, 2011
On June 20, 1988, petitioner mortgaged the
subject real properties to the Farmers Savings Bank
and Loan Bank, Inc. (FSL Bank) to secure a loan of
2,000,000.00 payable in installments.
On November 15, 1990, petitioners outstanding
account on the mortgage reached 2,278,078.13.
Petitioner then decided to sell her real properties for
at least 6,500,000.00 so she could liquidate her
bank loan and finance her businesses. As a gesture
of friendship, respondent verbally offered to
conditionally buy petitioners real properties for
4,200,000.00 payable on installment basis without
interest and to assume the bank loan. To induce the
petitioner to accept her offer, respondent offered the
following conditions/concessions:
1. That the conditional sale
will be cancelled if the plaintiff
(petitioner) can find a buyer of said
A. properties for the amount of
6,500,000.00 within the next three
(3) months provided all amounts
T.
received by the plaintiff from the
defendant (respondent) including
payments actually made by
defendant to Farmers Savings and
Loan Bank would be refunded to the
defendant with additional interest of
six (6%) monthly;
2. That the plaintiff would
continue using the space occupied by
her and drugstore and cosmetics
store without any rentals for the
duration of the installment payments;

3. That there will be a lease
for fifteen (15) years in favor of the
plaintiff over the space for drugstore
and cosmetics store at a monthly
rental of only 8,000.00 after full
payment of the stipulated installment
payments are made by the
defendant;
4. That the defendant will
undertake the renewal and payment
of the fire insurance policies on the
two (2) subject buildings following the
expiration of the then existing fire
insurance policy of the plaintiff up to
the time that plaintiff is fully paid of
the total purchase price of
4,200,000.00.[3]
After petitioners verbal acceptance of all the
conditions/concessions, both parties worked
together to obtain FSL Banks approval for
respondent to assume her (petitioners) outstanding
bank account. The assumption would be part of
respondents purchase price for petitioners
mortgaged real properties. FSL Bank approved their
proposal on the condition that petitioner would sign
or remain as co-maker for the mortgage obligation
assumed by respondent.
On November 26, 1990, the parties and FSL
Bank executed the corresponding Deed of
Conditional Sale of Real Properties with Assumption
of Mortgage. Due to their close personal friendship
and business relationship, both parties chose not to
reduce into writing the other terms of their
agreement mentioned in paragraph 11 of the
complaint. Besides, FSL Bank did not want to
incorporate in the Deed of Conditional Sale of Real
Properties with Assumption of Mortgage any other
side agreement between petitioner and respondent.
Under the Deed of Conditional Sale of Real
Properties with Assumption of Mortgage,
respondent was bound to pay the petitioner a lump
sum of 1.2 million pesos without interest as part of
the purchase price in three (3) fixed installments as
follows:
a) 200,000.00 due January 31, 1991
Sales Cases (2017-2018) ni Treeng
b) 200,000.00 due June 30, 1991
c) 800,000.00 due December 31, 1991
Respondent, however, defaulted in the
payment of her obligations on their due dates.
Instead of paying the amounts due in lump sum on
their respective maturity dates, respondent paid
petitioner in small amounts from time to time. To
compensate for her delayed payments, respondent
agreed to pay petitioner an interest of 6% a month.
As of August 31, 1992, respondent had only paid
395,000.00, leaving a balance of 805,000.00 as
principal on the unpaid installments and
466,893.25 as unpaid accumulated interest.
Petitioner further averred that despite her
success in finding a prospective buyer for the subject
real properties within the 3-month period agreed
upon, respondent reneged on her promise to allow
the cancellation of their deed of conditional sale.
Instead, respondent became interested in owning
the subject real properties and even wanted to
convert the entire property into a modern
commercial complex. Nonetheless, she consented
because respondent repeatedly professed
friendship and assured her that all their verbal side
agreement would be honored as shown by the fact
that since December 1990, she (respondent) had
not collected any rentals from the petitioner for the
space occupied by her drugstore and cosmetics
store.
On March 19, 1992, the residential building
was gutted by fire which caused the petitioner to lose
rental income in the amount of 8,000.00 a month
since April 1992. Respondent neglected to renew
the fire insurance policy on the subject buildings.
Since December 1990, respondent had
taken possession of the subject real properties and
had been continuously collecting and receiving
monthly rental income from the tenants of the
buildings and vendors of the sidewalk fronting the
RBJ building without sharing it with petitioner.

On September 2, 1992, respondent offered
the amount of 751,000.00 only payable
on September 7, 1992, as full payment of the
purchase price of the subject real properties and
demanded the simultaneous execution of the
corresponding deed of absolute sale.
Respondents Answer
Respondent countered, among others, that
the tripartite agreement erroneously designated by
the petitioner as a Deed of Conditional Sale of Real
Property with Assumption of Mortgage was actually
a pure and absolute contract of sale with a term
period. It could not be considered a conditional sale
because the acquisition of contractual rights and the
performance of the obligation therein did not depend
upon a future and uncertain event. Moreover, the
capital gains and documentary stamps and other
miscellaneous expenses and real estate taxes up to
1990 were supposed to be paid by petitioner but she
failed to do so.
Respondent further averred that she
successfully rescued the properties from a definite
foreclosure by paying the assumed mortgage in the
amount of 2,278,078.13 plus interest and other
finance charges. Because of her payment, she was
able to obtain a deed of cancellation of mortgage
and secure a release of mortgage on the subject real
properties including petitioners ancestral residential
property in Sta. Maria, Bulacan.
Petitioners claim for the balance of the
purchase price of the subject real properties was
baseless and unwarranted because the full amount
of the purchase price had already been paid, as she
did pay more than 4,200,000.00, the agreed
purchase price of the subject real properties, and
she had even introduced improvements thereon
worth more than 4,800,000.00. As the parties could
no longer be restored to their original positions,
rescission could not be resorted to.
Respondent added that as a result of their
business relationship, petitioner was able to obtain
Sales Cases (2017-2018) ni Treeng
from her a loan in the amount of 400,000.00 with
interest and took several pieces of jewelry worth
120,000.00. Petitioner also failed and refused to
pay the monthly rental of 20,000.00
since November 16, 1990 up to the present for the
use and occupancy of the ground floor of the building
on the subject real property, thus, accumulating
arrearages in the amount of 470,000.00 as of
October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its
decision finding that respondent failed to pay in full
the 4.2 million total purchase price of the subject
real properties leaving a balance of 805,000.00. It
stated that the checks and receipts presented by
respondent refer to her payments of the mortgage
obligation with FSL Bank and not the payment of the
balance of 1,200,000.00. The RTC also considered
the Deed of Conditional Sale of Real Property with
Assumption of Mortgage executed by and among
the two parties and FSL Bank a contract to sell, and
not a contract of sale. It was of the opinion that
although the petitioner was entitled to a rescission of
the contract, it could not be permitted because her
non-payment in full of the purchase price may not be
considered as substantial and fundamental breach
of the contract as to defeat the object of the parties
in entering into the contract.[4] The RTC believed that
the respondents offer stated in her counsels letter
dated September 2, 1992 to settle what she thought
was her unpaid balance of 751,000.00 showed her
sincerity and willingness to settle her obligation.
Hence, it would be more equitable to give
respondent a chance to pay the balance plus interest
within a given period of time.
Finally, the RTC stated that there was no factual or
legal basis to award damages and attorneys fees
because there was no proof that either party acted
fraudulently or in bad faith.
Thus, the dispositive portion of the RTC
Decision reads:

WHEREFORE, judgment is
hereby rendered as follows:
1. Allowing the defendant to
pay the plaintiff within thirty (30) days
from the finality hereof the amount
of 805,000.00, representing the
unpaid purchase price of the subject
property, with interest thereon at 2%
a month from January 1, 1992until
fully paid. Failure of the defendant to
pay said amount within the said
period shall cause the automatic
rescission of the contract (Deed of
Conditional Sale of Real Property
with Assumption of Mortgage) and
the plaintiff and the defendant shall
be restored to their former positions
relative to the subject property with
each returning to the other whatever
benefits each derived from the
transaction;
2. Directing the defendant to
allow the plaintiff to continue using
the space occupied by her for
drugstore and cosmetic store without
any rental pending payment of the
aforesaid balance of the purchase
price.
3. Ordering the defendant,
upon her full payment of the
purchase price together with interest,
to execute a contract of lease for
fifteen (15) years in favor of the
plaintiff over the space for the
drugstore and cosmetic store at a
fixed monthly rental of 8,000.00;
and
4. Directing the plaintiff, upon
full payment to her by the defendant
of the purchase price together with
interest, to execute the necessary
deed of sale, as well as to pay the
Capital Gains Tax, documentary
stamps and other miscellaneous
expenses necessary for securing the
BIR Clearance, and to pay the real
estate taxes due on the subject
property up to 1990, all necessary to
transfer ownership of the subject
property to the defendant.
Sales Cases (2017-2018) ni Treeng
No pronouncement as to
damages, attorneys fees and costs.
SO ORDERED.[5]
Ruling of the CA
On February 13, 2009, the CA rendered its decision
affirming with modification the RTC Decision. The
CA agreed with the RTC that the contract entered
into by the parties is a contract to sell but ruled that
the remedy of rescission could not apply because
the respondents failure to pay the petitioner the
balance of the purchase price in the total amount of
805,000.00 was not a breach of contract, but
merely an event that prevented the seller (petitioner)
from conveying title to the purchaser (respondent). It
reasoned that out of the total purchase price of the
subject property in the amount of 4,200,000.00,
respondents remaining unpaid balance was only
805,000.00. Since respondent had already paid a
substantial amount of the purchase price, it was but
right and just to allow her to pay the unpaid balance
of the purchase price plus interest. Thus, the
decretal portion of the CA Decision reads:
WHEREFORE, premises
considered, the Decision dated 22
February 2006 and Order dated 22
December 2006 of the Regional Trial
Court of Valenzuela City, Branch 172
in Civil Case No. 3945-V-92 are
AFFIRMED with MODIFICATION in
that defendant-appellant Victoria T.
Tuparan is hereby ORDERED to pay
plaintiff-appellee/appellant Mila A.
Reyes, within 30 days from finality of
this Decision, the amount
of 805,000.00 representing the
unpaid balance of the purchase price
of the subject property, plus interest
thereon at the rate of 6% per annum
from 11 September 1992 up to finality
of this Decision and, thereafter, at the
rate of 12% per annum until full
payment. The ruling of the trial court
on the automatic rescission of the
Deed of Conditional Sale with
Assumption of Mortgage is hereby
DELETED. Subject to the foregoing,
the dispositive portion of the trial
courts decision is AFFIRMED in all
other respects.
 Sales Cases (2017-2018) ni Treeng
SO ORDERED. [6]
PETITIONER THE 805,000.00
PLUS INTEREST THEREON.

After the denial of petitioners motion for

reconsideration and respondents motion for partial
C. EVEN ASSUMING
reconsideration, petitioner filed the subject petition ARGUENDO THAT PETITIONER IS
for review praying for the reversal and setting aside NOT ENTITLED TO THE
of the CA Decision anchored on the following RESCISSION OF THE SUBJECT
CONTRACT, THE COURT OF
ASSIGNMENT OF ERRORS APPEALS STILL SERIOUSLY
ERRED AND ABUSED ITS
DISCRETION IN REDUCING THE
A. THE COURT OF INTEREST ON THE 805,000.00 TO
APPEALS SERIOUSLY ERRED ONLY 6% PER ANNUM STARTING
AND ABUSED ITS DISCRETION IN FROM THE DATE OF FILING OF
DISALLOWING THE OUTRIGHT THE COMPLAINT ON SEPTEMBER
RESCISSION OF THE SUBJECT 11, 1992 DESPITE THE PERSONAL
DEED OF CONDITIONAL SALE OF COMMITMENT OF THE
REAL PROPERTIES WITH RESPONDENT AND AGREEMENT
ASSUMPTION OF MORTGAGE ON BETWEEN THE PARTIES THAT
THE GROUND THAT RESPONDENT WILL PAY
RESPONDENT TUPARANS INTEREST ON THE 805,000.00 AT
FAILURE TO PAY PETITIONER THE RATE OF 6% MONTHLY
REYES THE BALANCE OF THE STARTING THE DATE OF
PURCHASE PRICE OF 805,000.00 DELINQUENCY ON DECEMBER
IS NOT A BREACH OF CONTRACT 31, 1991.
DESPITE ITS OWN FINDINGS
THAT PETITIONER STILL RETAINS
OWNERSHIP AND TITLE OVER
THE SUBJECT REAL PROPERTIES
DUE TO RESPONDENTS REFUSAL D. THE COURT OF
TO PAY THE BALANCE OF THE APPEALS SERIOUSLY ERRED
TOTAL PURCHASE PRICE OF AND ABUSED ITS DISCRETION IN
805,000.00 WHICH IS EQUAL TO THE APPRECIATION AND/OR
20% OF THE TOTAL PURCHASE MISAPPRECIATION OF FACTS
PRICE OF 4,200,000.00 OR 66% RESULTING INTO THE DENIAL OF
OF THE STIPULATED LAST THE CLAIM OF PETITIONER
INSTALLMENT OF 1,200,000.00 REYES FOR ACTUAL DAMAGES
PLUS THE INTEREST THEREON. WHICH CORRESPOND TO THE
IN EFFECT, THE COURT OF MILLIONS OF PESOS OF
APPEALS AFFIRMED AND RENTALS/FRUITS OF THE
ADOPTED THE TRIAL COURTS SUBJECT REAL PROPERTIES
CONCLUSION THAT THE WHICH RESPONDENT TUPARAN
RESPONDENTS NON-PAYMENT COLLECTED CONTINUOUSLY
OF THE 805,000.00 IS ONLY A SINCE DECEMBER 1990, EVEN
SLIGHT OR CASUAL BREACH OF WITH THE UNPAID BALANCE OF
CONTRACT. 805,000.00 AND DESPITE THE
FACT THAT RESPONDENT DID
NOT CONTROVERT SUCH CLAIM
OF THE PETITIONER AS
B. THE COURT OF CONTAINED IN HER AMENDED
APPEALS SERIOUSLY ERRED COMPLAINT DATED APRIL 22,
AND ABUSED ITS DISCRETION IN 2006.
DISREGARDING AS GROUND FOR
THE RESCISSION OF THE
SUBJECT CONTRACT THE
OTHER FRAUDULENT AND
MALICIOUS ACTS COMMITTED E. THE COURT OF
BY THE RESPONDENT AGAINST APPEALS SERIOUSLY ERRED
THE PETITIONER WHICH BY AND ABUSED ITS DISCRETION IN
THEMSELVES SUFFICIENTLY THE APPRECIATION OF FACTS
JUSTIFY A DENIAL OF A GRACE RESULTING INTO THE DENIAL OF
PERIOD OF THIRTY (30) DAYS TO THE CLAIM OF PETITIONER
THE RESPONDENT WITHIN REYES FOR THE 29,609.00 BACK
WHICH TO PAY TO THE RENTALS THAT WERE
COLLECTED BY RESPONDENT
 Sales Cases (2017-2018) ni Treeng
TUPARAN FROM THE OLD
In sum, the crucial issue that needs to be
TENANTS OF THE PETITIONER.
resolved is whether or not the CA was correct in
ruling that there was no legal basis for the rescission
of the Deed of Conditional Sale with Assumption of
F. THE COURT OF Mortgage.
APPEALS SERIOUSLY ERRED
AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONERS
EARLIER URGENT MOTION FOR Position of the Petitioner
ISSUANCE OF A PRELIMINARY
MANDATORY AND PROHIBITORY
INJUNCTION DATED JULY 7, 2008
The petitioner basically argues that the CA should
AND THE SUPPLEMENT
THERETO DATED AUGUST 4, 2008 have granted the rescission of the subject Deed of
THEREBY CONDONING THE Conditional Sale of Real Properties with Assumption
UNJUSTIFIABLE
of Mortgage for the following reasons:
FAILURE/REFUSAL OF JUDGE
FLORO ALEJO TO RESOLVE
WITHIN ELEVEN (11) YEARS THE
PETITIONERS THREE (3) 1. The subject deed of
SEPARATE MOTIONS FOR conditional sale is a reciprocal
PRELIMINARY INJUNCTION/ obligation whose outstanding
TEMPORARY RESTRAINING characteristic is reciprocity arising
ORDER, ACCOUNTING AND from identity of cause by virtue of
DEPOSIT OF RENTAL INCOME which one obligation is correlative of
DATED MARCH 17, 1995, AUGUST the other.
19, 1996 AND JANUARY 7, 2006
THEREBY PERMITTING THE
RESPONDENT TO UNJUSTLY 2. The petitioner was
ENRICH HERSELF BY rescinding not enforcing the subject
CONTINUOUSLY COLLECTING Deed of Conditional Sale pursuant to
ALL THE RENTALS/FRUITS OF Article 1191 of the Civil Code
THE SUBJECT REAL because of the respondents
PROPERTIES WITHOUT ANY failure/refusal to pay the 805,000.00
ACCOUNTING AND COURT balance of the total purchase price of
DEPOSIT OF THE COLLECTED the petitioners properties within the
RENTALS/FRUITS AND THE stipulated period ending December
PETITIONERS URGENT MOTION 31, 1991.
TO DIRECT DEFENDANT
VICTORIA TUPARAN TO PAY THE
ACCUMULATED UNPAID REAL 3. There was no slight or
ESTATE TAXES AND SEF TAXES casual breach on the part of the
ON THE SUBJECT REAL respondent because she
PROPERTIES DATED JANUARY (respondent) deliberately failed to
13, 2007 THEREBY EXPOSING comply with her contractual
THE SUBJECT REAL obligations with the petitioner by
PROPERTIES TO IMMINENT violating the terms or manner of
AUCTION SALE BY THE CITY payment of the 1,200,000.00
TREASURER balance and unjustly enriched herself
OF VALENZUELA CITY. at the expense of the petitioner by
collecting all rental payments for her
personal benefit and enjoyment.

G. THE COURT OF
APPEALS SERIOUSLY ERRED Furthermore, the petitioner claims that the
AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONERS respondent is liable to pay interest at the rate of 6%
CLAIM FOR MORAL AND per month on her unpaid installment of 805,000.00
EXEMPLARY DAMAGES AND from the date of the delinquency, December 31,
ATTORNEYS FEES AGAINST THE
RESPONDENT. 1991, because she obligated herself to do so.

Finally, the petitioner asserts that her claim

for damages or lost income as well as for the back

rentals in the amount of 29,609.00 has been fully
substantiated and, therefore, should have been
granted by the CA. Her claim for moral and
exemplary damages and attorneys fees has been
likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of
Conditional Sale with Assumption of Mortgage
entered into between the parties is a contract to sell
and not a contract of sale because the title of the
subject properties still remains with the petitioner as
she failed to pay the installment payments in
accordance with their agreement.
Respondent echoes the RTC position that her
inability to pay the full balance on the purchase price
may not be considered as a substantial and
fundamental breach of the subject contract and it
would be more equitable if she would be allowed to
pay the balance including interest within a certain
period of time. She claims that as early as 1992, she
has shown her sincerity by offering to pay a certain
amount which was, however, rejected by the
petitioner.
Finally, respondent states that the subject deed of
conditional sale explicitly provides that the
installment payments shall not bear any interest.
Moreover, petitioner failed to prove that she was
entitled to back rentals.
The Courts Ruling
The petition lacks merit.
The Court agrees with the ruling of the courts
below that the subject Deed of Conditional Sale with
Assumption of Mortgage entered into by and among
the two parties and FSL Bank on November 26,
1990 is a contract to sell and not a contract of
sale. The subject contract was correctly classified as
a contract to sell based on the following pertinent
stipulations:
Sales Cases (2017-2018) ni Treeng
8. That the title and ownership
of the subject real properties shall
remain with the First Party until the
full payment of the Second Party of
the balance of the purchase price and
liquidation of the mortgage obligation
of 2,000,000.00. Pending payment
of the balance of the purchase price
and liquidation of the mortgage
obligation that was assumed by the
Second Party, the Second Party shall
not sell, transfer and convey and
otherwise encumber the subject real
properties without the written consent
of the First and Third Party.
9. That upon full payment by
the Second Party of the full balance
of the purchase price and the
assumed mortgage obligation herein
mentioned the Third Party shall issue
the corresponding Deed of
Cancellation of Mortgage and the
First Party shall execute the
corresponding Deed of Absolute Sale
in favor of the Second Party.[7]
Based on the above provisions, the title and
ownership of the subject properties remains with the
petitioner until the respondent fully pays the balance
of the purchase price and the assumed mortgage
obligation. Thereafter, FSL Bank shall then issue the
corresponding deed of cancellation of mortgage and
the petitioner shall execute the corresponding deed
of absolute sale in favor of the respondent.
Accordingly, the petitioners obligation to sell
the subject properties becomes demandable only
upon the happening of the positive suspensive
condition, which is the respondents full payment of
the purchase price. Without respondents full
payment, there can be no breach of contract to
speak of because petitioner has no obligation yet to
turn over the title. Respondents failure to pay in full
the purchase price is not the breach of contract
contemplated under Article 1191 of the New Civil
Code but rather just an event that prevents the
petitioner from being bound to convey title to the
respondent. The 2009 case of Nabus v. Joaquin &
Julia Pacson[8] is enlightening:
The Court holds that the
contract entered into by the Spouses

Nabus and respondents was a
contract to sell, not a contract of sale.
A contract of sale is defined in
Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of
sale, one of the contracting parties
obligates himself to transfer the
ownership of and to deliver a
determinate thing, and the other to
pay therefor a price certain in money
or its equivalent.
xxx
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:
a) Consent or meeting
of the minds, that
is, consent to
transfer ownership
in exchange for
the price;
b) Determinate
subject matter;
and
c) Price certain in
money or its
equivalent.
Under this definition, a
Contract to Sell may not be
considered as a Contract of Sale
because the first essential element is
lacking. In a contract to sell, the
prospective seller explicitly 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 subject 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. What the seller
agrees or obliges himself to do is to
fulfill his promise to sell the subject
property when the entire amount of
the purchase price is delivered to
him. In 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,
Sales Cases (2017-2018) ni Treeng
thus, ownership is retained by the
prospective seller without further
remedies by the prospective buyer.
xxx xxx xxx
Stated positively, upon the
fulfillment of the suspensive condition
which is the full payment of the
purchase price, the prospective
sellers obligation to sell the subject
property by entering into a contract of
sale with the prospective buyer
becomes demandable as provided in
Article 1479 of the Civil Code which
states:
Art. 1479. A promise to buy
and sell a determinate thing for a
price certain is reciprocally
demandable.
An accepted unilateral
promise to buy or to sell a
determinate thing for a price certain is
binding upon the promissor if the
promise is supported by a
consideration distinct from the price.
A contract to sell may thus be
defined as a bilateral contract
whereby the prospective seller, while
expressly reserving the ownership of
the subject 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 subject of
the sale until the fulfillment of a
suspensive condition, because in a
conditional contract of sale, the first
element of consent is present,
although it is conditioned upon the
happening of a contingent event
which may or may not occur. If the
suspensive condition is not fulfilled,
the perfection of the contract of sale
is completely abated. However, 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
subject 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.
In 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.
Further, Chua v. Court of
Appeals, cited this distinction
between a contract of sale and a
contract to sell:
Sales Cases (2017-2018) ni Treeng
In this case, the contract entitled
Deed of Conditional Sale is actually a
contract to sell. The contract
stipulated that as soon as the full
consideration of the sale has been
paid by the vendee, the
corresponding transfer documents
shall be executed by the vendor to
the vendee for the portion sold.
Where the vendor promises to
execute a deed of absolute sale upon
the completion by the vendee of the
payment of the price, the contract is
only a contract to sell. The aforecited
stipulation shows that the vendors
reserved title to the subject property
until full payment of the purchase
price.
xxx

Unfortunately for the Spouses

In a contract of Pacson, since the Deed of
sale, the title to the Conditional Sale executed in their
property passes to the favor was merely a contract to sell,
vendee upon the the obligation of the seller to sell
delivery of the thing becomes demandable only upon the
sold; in a contract to happening of the suspensive
sell, ownership is, by condition. The full payment of the
agreement, reserved purchase price is the positive
in the vendor and is suspensive condition, the failure of
not to pass to the which is not a breach of contract, but
vendee until full simply an event that prevented the
payment of the obligation of the vendor to convey
purchase price. title from acquiring binding
Otherwise stated, in a force. Thus, for its non-fulfilment,
contract of sale, the there is no contract to speak of, the
vendor loses obligor having failed to perform the
ownership over the suspensive condition which enforces
property and cannot a juridical relation. With this
recover it until and circumstance, there can be no
unless the contract is rescission or fulfillment of an
resolved or rescinded; obligation that is still non-existent, the
whereas, in a contract suspensive condition not having
to sell, title is retained occurred as yet. Emphasis should be
by the vendor until full made that the breach contemplated
payment of the in Article 1191 of the New Civil
price. In the latter Code is the obligors failure to
contract, payment of comply with an obligation already
the price is a positive extant, not a failure of a condition
suspensive condition, to render binding that
failure of which is not obligation. [Emphases and
a breach but an event underscoring supplied]
that prevents the
obligation of the
vendor to convey title
from becoming
Consistently, the Court handed down a
effective.
similar ruling in the 2010 case of Heirs of Atienza v.
Espidol, [9] where it was written:

It is not the title of the

contract, but its express terms or Regarding the right to
stipulations that determine the kind of cancel the contract for non-
contract entered into by the parties. payment of an installment, there is
 Sales Cases (2017-2018) ni Treeng
need to initially determine if what
Tuparan to pay the said unpaid balance of the
the parties had was a contract of
sale or a contract to sell. In a purchase price to Reyes.[10]
contract of sale, the title to the
property passes to the buyer upon
the delivery of the thing sold. In a
Granting that a rescission can be permitted
contract to sell, on the other hand, the
ownership is, by agreement, retained under Article 1191, the Court still cannot allow it for
by the seller and is not to pass to the the reason that, considering the circumstances,
vendee until full payment of the
there was only a slight or casual breach in the
purchase price. In the contract of
sale, the buyers non-payment of the fulfillment of the obligation.
price is a negative resolutory
condition; in the contract to sell, the
buyers full payment of the price is a
positive suspensive condition to the Unless the parties stipulated it, rescission is
coming into effect of the allowed only when the breach of the contract is
agreement. In the first case, the seller substantial and fundamental to the fulfillment of the
has lost and cannot recover the
obligation. Whether the breach is slight or
ownership of the property unless he
takes action to set aside the contract substantial is largely determined by the attendant
of sale. In the second case, the title circumstances.[11] In the case at bench, the subject
simply remains in the seller if the
contract stipulated the following important
buyer does not comply with the
condition precedent of making provisions:
payment at the time specified in the
contract. Here, it is quite evident that
the contract involved was one of a
contract to sell since the Atienzas, as
2. That the purchase price of
sellers, were to retain title of
4,200,000.00 shall be paid as
ownership to the land until
follows:
respondent Espidol, the buyer, has
paid the agreed price. Indeed, there
seems no question that the parties
understood this to be the case. a) 278,078.13 received in
cash by the First Party but directly
paid to the Third Party as partial
payment of the mortgage obligation
Admittedly, Espidol was
of the First Party in order to reduce
unable to pay the second installment
the amount to 2,000,000.00 only as
of P1,750,000.00 that fell due in
of November 15, 1990;
December 2002. That payment, said
both the RTC and the CA, was a
positive suspensive condition failure
of which was not regarded a breach b) 721,921.87 received in
in the sense that there can be no cash by the First Party as additional
rescission of an obligation (to turn payment of the Second Party;
over title) that did not yet exist
since the suspensive condition
had not taken place. x x x. c) 1,200,000.00 to
[Emphases and underscoring be paid in installments as follows:
supplied]

1. 200,000.00
payable on or
Thus, the Court fully agrees with the CA before January
when it resolved: Considering, however, that the 31, 1991;
Deed of Conditional Sale was not cancelled by 2. 200,000.00
Vendor Reyes (petitioner) and that out of the total payable on or
before June 30,
purchase price of the subject property in the amount
1991;
of 4,200,000.00, the remaining unpaid balance of
3. 800,000.00
Tuparan (respondent) is only 805,000.00, a
payable on or
substantial amount of the purchase price has before Decemb
already been paid. It is only right and just to allow er 31, 1991;

Note: All the installments shall
not bear any interest.
d) 2,000,000.00
outstanding balance of the mortgage
obligation as of November 15,
1990 which is hereby assumed by the
Second Party.
xxx
3. That the Third Party
hereby acknowledges receipts from
the Second Party P278,078.13 as
partial payment of the loan obligation
of First Party in order to reduce the
account to only 2,000,000.00 as of
November 15, 1990 to be assumed
by the Second Party effective
November 15, 1990.[12]
From the records, it cannot be denied that
respondent paid to FSL Bank petitioners mortgage
obligation in the amount of 2,278,078.13, which
formed part of the purchase price of the subject
property. Likewise, it is not disputed that respondent
paid directly to petitioner the amount of 721,921.87
representing the additional payment for the
purchase of the subject property. Clearly, out of the
total price of 4,200,000.00, respondent was able to
pay the total amount of 3,000,000.00, leaving a
balance of 1,200,000.00 payable in three (3)
installments.
Out of the 1,200,000.00 remaining balance,
respondent paid on several dates the first and
second installments of 200,000.00 each. She,
however, failed to pay the third and last installment
of 800,000.00 due on December 31, 1991.
Nevertheless, on August 31, 1992, respondent,
through counsel, offered to pay the amount of
751,000.00, which was rejected by petitioner for
the reason that the actual balance was 805,000.00
excluding the interest charges.
Considering that out of the total purchase
price of 4,200,000.00, respondent has already paid
the substantial amount of 3,400,000.00, more or
less, leaving an unpaid balance of only
805,000.00, it is right and just to allow her to settle,
within a reasonable period of time, the balance of the
Sales Cases (2017-2018) ni Treeng
unpaid purchase price. The Court agrees with the
courts below that the respondent showed her
sincerity and willingness to comply with her
obligation when she offered to pay the petitioner the
amount of 751,000.00.
On the issue of interest, petitioner failed to
substantiate her claim that respondent made a
personal commitment to pay a 6% monthly interest
on the 805,000.00 from the date of
delinquency, December 31, 1991. As can be
gleaned from the contract, there was a stipulation
stating that: All the installments shall not bear
interest. The CA was, however, correct in imposing
interest at the rate of 6% per annum starting from the
filing of the complaint on September 11, 1992.
Finally, the Court upholds the ruling of the
courts below regarding the non-imposition of
damages and attorneys fees. Aside from petitioners
self-serving statements, there is not enough
evidence on record to prove that respondent acted
fraudulently and maliciously against the petitioner. In
the case of Heirs of Atienza v. Espidol,[13] it was
stated:
Respondents are not entitled
to moral damages because contracts
are not referred to in Article 2219 of
the Civil Code, which enumerates the
cases when moral damages may be
recovered. Article 2220 of the Civil
Code allows the recovery of moral
damages in breaches of contract
where the defendant acted
fraudulently or in bad faith. However,
this case involves a contract to sell,
wherein full payment of the purchase
price is a positive suspensive
condition, the non-fulfillment of which
is not a breach of contract, but merely
an event that prevents the seller from
conveying title to the
purchaser. Since there is no breach
of contract in this case, respondents
are not entitled to moral damages.
 Sales Cases (2017-2018) ni Treeng

In the absence of moral,

temperate, liquidated or
compensatory damages, exemplary
damages cannot be granted for they
are allowed only in addition to any of
the four kinds of damages
mentioned.

WHEREFORE, the petition is DENIED.

 Sales Cases (2017-2018) ni Treeng
SPOUSES G.R. No. 139173
balance of the purchase price on or before March
ONNIE
SERRANO 23, 1990, thus:
AND AMPARO
HERRERA, L
Present: as
Petitioners, Pias,
Metro
PUNO, C.J., Chairperson, Manila
SANDOVAL-GUTIERREZ,
March 19,
CORONA, 1990
*
AZCUNA, and
RECEIPT FOR
GARCIA, JJ. PARTIAL PAYMENT
- versus -
OF LOT NO. 23
COVERED BY TCT
NO. T-9905, LAS
PIAS,
Promulgated:
METRO MANILA

GODOFREDO
February 28, 2007 RECEIVED FROM MR.
CAGUIAT,
GODOFREDO CAGUIAT THE
Respondent. AMOUNT OF ONE HUNDRED
THOUSAND PESOS (P100,000.00)
AS PARTIAL PAYMENT OF
x------------------------------------------------------------------- OUR LOT SITUATED IN LAS PIAS,
-----------------------------------x M.M. COVERED BY TCT NO. T-
9905 AND WITH AN AREA OF 439
SQUARE METERS.
D E C I S I O N
MR. CAGUIAT PROMISED TO PAY
THE BALANCE OF THE
PURCHASE PRICE ON OR
SANDOVAL-GUTIERREZ, J.: BEFORE MARCH 23, 1990, AND
THAT WE WILL EXECUTE AND
SIGN THE FINAL DEED
OF SALE ON THIS DATE.

Before us is a petition for review on certiorari under

SIGNED THIS 19TH DAY OF
Rule 45 of the 1997 Rules of Civil Procedure, as MARCH, 1990 AT LAS PIAS, M.M.
amended, assailing the Decision[1] of the Court of
Appeals dated January 29, 1999 and its Resolution (SGD) AMPARO HERRERA (SGD)
ONNIE SERRANO[2]
dated July 14, 1999 in CA-G.R. CV No. 48824.

On March 28, 1990, respondent, through his

Spouses Onnie and Amparo Herrera, counsel Atty. Ponciano Espiritu, wrote petitioners
petitioners, are the registered owners of a lot located informing them of his readiness to pay the balance
of the contract price and requesting them to prepare
in Las Pias, Metro Manila covered by Transfer
the final deed of sale.[3]
Certificate of Title No. T-9905.

On April 4, 1990, petitioners, through Atty.

Sometime in
1990, Godofredo Caguiat, respondent, offered to
buy the lot. Petitioners agreed to sell it
at P1,500.00 per square meter. Respondent then
gave petitioners P100,000.00 as partial payment. In
turn, petitioners gave respondent the corresponding
receipt stating that respondent promised to pay the
March
Ruben V. Lopez, sent a letter[4] to respondent stating
that petitioner Amparo Herrera is leaving for abroad
on or before April 15, 1990 and that they are
canceling the transaction. Petitioners also informed
respondent that he can recover the earnest money
of P100,000.00 anytime.
Again, on April 6, 1990,[5] petitioners wrote
respondent stating that they delivered to his counsel

Philippine National Bank Managers Check No.
790537 dated April 6, 1990 in the amount
of P100,000.00 payable to him.
In view of the cancellation of the contract by
petitioners, respondent filed with the Regional Trial
Court, Branch 63, Makati City a complaint against
them for specific performance and damages,
[6]
docketed as Civil Case No. 90-1067.
On June 27, 1994, after hearing, the trial court
rendered its Decision[7] finding there was a perfected
contract of sale between the parties and ordering
petitioners to execute a final deed of sale in favor of
respondent. The trial court held:
xxx
In the evaluation of the
evidence presented by the parties as
to the issue as to who was ready to
comply with his obligation on the
verbal agreement to sell on March
23, 1990, shows that plaintiffs
position deserves more weight and
credibility. First, the P100,000.00 that
plaintiff paid whether as
downpayment or earnest money
showed that there was already a
perfected contract. Art. 1482 of the
Civil Code of the Philippines, reads
as follows, to wit:
Art. 1482. Whenever
earnest money is given in a
contract of sale, it shall be
considered as part of the
price and as proof of the
perfection of the contract.
Second, plaintiff was the first to
react to show his eagerness to push
through with the sale by sending
defendants the letter dated March 25,
1990. (Exh. D) and reiterated the
same intent to pursue the sale in a
letter dated April 6, 1990. Third,
plaintiff had the balance of the
purchase price ready for payment
(Exh. C). Defendants mere
allegation that it was plaintiff who
did not appear on March 23,
1990 is unavailing. Defendants
letters (Exhs. 2 and 5) appear to be
mere afterthought.
Sales Cases (2017-2018) ni Treeng
On appeal, the Court of Appeals, in its
assailed Decision of January 29, 1999, affirmed the
trial courts judgment.
Forthwith, petitioners filed their motion for
reconsideration but it was denied by the appellate
court in its Resolution[8] dated July 14, 1999.
Hence, the present recourse.
The basic issue to be resolved is whether
the document entitled Receipt for Partial
Payment signed by both parties earlier
mentioned is a contract to sell or a contract of
sale.
Petitioners contend that the Receipt is not a
perfected contract of sale as provided for in Article
1458[9] in relation to Article 1475[10] of the Civil
Code. The delivery to them of P100,000.00 as down
payment cannot be considered as proof of the
perfection of a contract of sale under Article
1482[11] of the same Code since there was no clear
agreement between the parties as to the amount
of consideration.
Generally, the findings of fact of the lower
courts are entitled to great weight and should not be
disturbed except for cogent reasons.14 Indeed, they
should not be changed on appeal in the absence of
a clear showing that the trial court overlooked,
disregarded, or misinterpreted some facts of
weight and significance, which if considered
would have altered the result of the case.[12] In the
present case, we find that both the trial court and the
Court of Appeals interpreted some significant facts
resulting in an erroneous resolution of the issue
involved.
In holding that there is
a perfected contract of sale, both courts mainly
relied on the earnest money given by respondent to
petitioners. They invoked Article 1482 of the Civil
Code which provides that "Whenever earnest money
is given in a contract of sale, it shall be considered
as part of the price and as proof of the perfection of
the contract."
 Sales Cases (2017-2018) ni Treeng
We are not convinced. A contract to sell is akin to a conditional sale
where the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the

In San Miguel Properties Philippines, Inc. v. happening of a future and uncertain event, so that if

Spouses Huang,[13] we held that the stages of a the suspensive condition does not take place, the

contract of sale are: (1) negotiation, covering the parties would stand as if the conditional obligation

period from the time the prospective contracting had never existed. The suspensive condition is

parties indicate interest in the contract to the time the commonly full payment of the purchase price.[15]

contract is perfected; (2) perfection, which takes

place upon the concurrence of the essential
elements of the sale, which is the meeting of the The differences between a contract to sell
minds of the parties as to the object of the contract and a contract of sale are well-settled in
and upon the price; and (3) consummation, which jurisprudence. As early as 1951, in Sing Yee v.
begins when the parties perform their respective Santos,[16] we held that:
undertakings under the contract of sale, culminating
in the extinguishment thereof.
x x x [a] distinction must be made
between a contract of sale in which
With the above postulates as guidelines, we title passes to the buyer upon
now proceed to determine the real nature of the delivery of the thing sold and a
contract entered into by the parties. contract to sell x x x where by
agreement the ownership is reserved
It is a canon in the interpretation of contracts in the seller and is not to pass until
the full payment, of the purchase
that the words used therein should be given their
price is made. In the first case, non-
natural and ordinary meaning unless a technical payment of the price is a
meaning was intended.[14] Thus, when petitioners negative resolutory condition; in the
declared in the said Receipt for Partial Payment that second case, full payment is a
positive suspensive condition. Being
they contraries, their effect in law cannot
be identical. In the first case, the
vendor has lost and cannot recover
the ownership of the land sold until
and unless the contract of sale is
RECEIVED FROM MR. itself resolved and set aside. In the
GODOFREDO CAGUIAT THE second case, however, the title
AMOUNT OF ONE HUNDRED remains in the vendor if the vendee
THOUSAND PESOS (P100,000.00) does not comply with the condition
AS PARTIAL PAYMENT OF precedent of making payment at the
OUR LOT SITUATED IN LAS PIAS, time specified in the contract.
M.M. COVERED BY TCT NO. T-
9905 AND WITH AN AREA OF 439
SQUARE METERS.
In other words, in a contract to sell,
MR. CAGUIAT PROMISED TO PAY ownership is retained by the seller and is not to pass
THE BALANCE OF THE
PURCHASE PRICE ON OR to the buyer until full payment of the price.[17]
BEFORE MARCH 23, 1990, AND
THAT WE WILL EXECUTE AND
SIGN THE FINAL DEED In this case, the Receipt for Partial Payment
OF SALE ON THIS DATE.
shows that the true agreement between the parties
is a contract to sell.

there can be no other interpretation than that they First, ownership over the property was
agreed to a conditional contract of sale, retained by petitioners and was not to pass to
consummation of which is subject only to the full respondent until full payment of the purchase
payment of the purchase price. price. Thus, petitioners need not push through with
the sale should respondent fail to remit the balance
 Sales Cases (2017-2018) ni Treeng
of the purchase price before the deadline on March SO ORDERED.
23, 1990. In effect, petitioners have the right to
rescind unilaterally the contract the moment
respondent fails to pay within the fixed period.[18]

Second, the agreement between the parties

was not embodied in a deed of sale. The absence of
a formal deed of conveyance is a strong indication
that the parties did not intend immediate transfer of
ownership, but only a transfer after full payment of
the purchase price.[19]

Third, petitioners retained possession of the

certificate of title of the lot. This is an additional
indication that the agreement did not transfer to
respondent, either by actual or constructive delivery,
ownership of the property.[20]

It is true that Article 1482 of the Civil Code

provides that Whenever earnest money is given in a
contract of sale, it shall be considered as part of the
price and proof of the perfection of the
contract. However, this article speaks of earnest
money given in a contract of sale. In this case,
the earnest money was given in a contract to
sell. The earnest money forms part of the
consideration only if the sale is consummated upon
full payment of the purchase price.[21] Now, since the
earnest money was given in a contract to sell, Article
1482, which speaks of a contract of sale, does not
apply.

As previously discussed, the suspensive

condition (payment of the balance by respondent)
did not take place. Clearly, respondent cannot
compel petitioners to transfer ownership of the
property to him.

WHEREFORE, we GRANT the instant

Petition for Review. The challenged Decision of the
Court of Appeals is REVERSED and respondents
complaint is DISMISSED.
 Sales Cases (2017-2018) ni Treeng
1,000 square meters of the 1,665 square meters
* *
JULIE NABUS, MICHELLE NABUS and G.R.of
No. 161318
land in favor of respondents Spouses Pacson for
BETTY TOLERO, a consideration of P170,000.00, which was duly
Petitioners, Present:
CORONA,notarized on February 21, 1977. The consideration
J., Chairperson,
was to be paid, thus:
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and THAT, the consideration of
- versus - PERALTA, JJ.the amount of P170,000.00 will be
paid by the VENDEE herein in my
Promulgated:favor in the following manner:
November 25, 2009
a. That the sum
JOAQUIN PACSON and JULIA PACSON, of P13,000.00, more or
Respondents. less, on or
before February 21, 1977
and which amount will be
paid directly to the PNB,
x------------------------------------------------------------------- La Trinidad Branch, and
----------------------x which will form part of the
purchase price;

b. That after paying the

DECISION
above amount to the PNB,
La Trinidad, Benguet
branch, a balance of
PERALTA, J.:
about P17,500.00
remains as my mortgage
This is a petition for review on certiorari [1] of balance and this amount
the Decision[2] of the Court of Appeals in CA-G.R. will be paid by the
VENDEE herein at the
CV No. 44941 dated November 28, 2003. The Court rate of not less
of Appeals affirmed with modification the Decision of than P3,000.00 a month
beginning March 1977,
the Regional Trial Court of La Trinidad, Benguet, until the said mortgage
Branch 10, ordering petitioner Betty Tolero to balance is fully liquidated,
and that all payments
execute a deed of absolute sale in favor of
made by the VENDEE to
respondents, spouses Joaquin and Julia Pacson, the PNB, La Trinidad,
over the lots covered by Transfer Certificate of Title Benguet branch, shall
form part of
(TCT) Nos. T-18650 and T-18651 upon payment to the consideration of this
her by respondents of the sum of P57,544.[8]4 sale;
representing the balance due for the full payment of
the property subject of this case; and c. That, as soon as the
mortgage obligation with
ordering petitioner Betty Tolero to surrender to the PNB as cited above is
respondents her owners duplicate copy of TCT Nos. fully paid, then
the VENDEE herein
T-18650 and T-18651.
hereby obligates himself,
his heirs and assigns, to
The facts, as stated by the trial court,[3] are pay the amount of not less
as follows: than P2,000.00 a month in
favor of the VENDOR, his
heirs and assigns, until
The spouses Bate and Julie Nabus were the the full amount
owners of parcels of land with a total area of of P170,000.00 is fully
covered (including the
1,665 square meters, situated in Pico, La Trinidad, payments cited in Pars. a
Benguet, duly registered in their names under TCT and b above);
No. T-9697 of the Register of Deeds of
THAT, as soon as the full
the Provinceof Benguet. The property was
consideration of this sale has been
mortgaged by the Spouses Nabus to the Philippine paid by the VENDEE, the
National Bank (PNB), La Trinidad Branch, to secure corresponding transfer documents
shall be executed by the VENDOR to
a loan in the amount of P30,000.00.
the VENDEE for the portion sold;
THAT, the portion sold is as
On February 19, 1977, the Spouses Nabus shown in the simple sketch hereto
executed a Deed of Conditional Sale[4] covering attached as Annex "A" and made part
hereof;

THAT, a segregation survey
for the portion sold in favor of the
VENDEE and the portion remaining
in favor of the VENDOR shall be
executed as soon as possible, all at
the expense of the VENDEE herein;
THAT, it is mutually
understood that in as much as there
is a claim by other persons of the
entire property of which the portion
subject of this Instrument is only a
part, and that this claim is now the
subject of a civil case now pending
before Branch III of the Court of First
Instance of Baguio and Benguet,
should the VENDOR herein be
defeated in the said civil action to the
end that he is divested of title over the
area subject of this Instrument, then
he hereby warrants that he shall
return any and all monies paid by the
VENDEE herein whether paid to the
PNB, La Trinidad, Benguet Branch,
or directly received by herein
VENDOR, all such monies to be
returned upon demand by the
VENDEE;
THAT, [a] portion of the
parcel of land subject of this
instrument is presently in the
possession of Mr. Marcos Tacloy,
and the VENDOR agrees to
cooperate and assist in any manner
possible in the ouster of said Mr.
Marcos Tacloy from said possession
and occupation to the end that the
VENDEE herein shall make use of
said portion as soon as is practicable;
THAT, finally, the PARTIES
hereby agree that this Instrument
shall be binding upon their respective
heirs, successors or assigns.[5]
Pursuant to the Deed of Conditional
Sale, respondents paid PNB the amount
of P12,038.86 on February
1977[6] and P20,744.30 on July 17, 1978[7] for the full
payment of the loan.
At the time of the transaction, Mr. Marcos
Tacloy had a basket-making shop on the property,
while the spouses Delfin and Nelita Flores had a
store. Tacloy and the Spouses Flores vacated the
property after respondents paid them P4,000.00
each.
Thereafter, respondents took possession of
the subject property. They constructed an 80 by 32-
feet building and a steel-matting fence around the
property to house their truck body-building shop
Sales Cases (2017-2018) ni Treeng
which they called the Emiliano Trucking Body
Builder and Auto Repair Shop.
On December 24, 1977, before the payment
of the balance of the mortgage amount with PNB,
Bate Nabus died. On August 17, 1978, his
surviving spouse, Julie Nabus, and their minor
daughter, Michelle Nabus, executed a Deed of Extra
Judicial Settlement over the registered land covered
by TCT No. 9697. On the basis of the said
document, TCT No. T- 17718[8] was issued
on February 17, 1984 in the names of Julie Nabus
and Michelle Nabus.
Meanwhile, respondents continued paying
their balance, not in installments of P2,000.00 as
agreed upon, but in various, often small amounts
ranging from as low as P10.00[9] to as high
as P15,566.00,[10] spanning a period of almost
seven years, from March 9, 1977[11] to January 17,
1984.[12]
There was a total of 364 receipts of
payment,[13] which receipts were mostly signed by
Julie Nabus, who also signed as Julie Quan when
she remarried. The others who signed were Bate
Nabus; PNB, La Trinidad Branch; Maxima Nabus;
Sylvia Reyes; Michelle Nabus and the second
husband of Julie Nabus, Gereon Quan. Maxima
Nabus is the mother of Bate Nabus, while Sylvia
Reyes is a niece.
The receipts showed that the total sum paid
by respondents to the Spouses Nabus
[14]
was P112,455.16, leaving a balance
of P57,544.84. The sum of P30,000.00 which was
22,
the value of the pick-up truck allegedly sold and
delivered in 1978 to the Spouses Nabus, was not
considered as payment because the registration
papers remained in the name of its owner, Dominga
D. Pacson, who is the sister of Joaquin Pacson. The
vehicle was also returned to respondents.
During the last week of January 1984, Julie
Nabus, accompanied by her second husband,
approached Joaquin Pacson to ask for the full
payment of the lot. Joaquin Pacson agreed to pay,
but told her to return after four days as his daughter,
Catalina Pacson, would have to go over the
numerous receipts to determine the balance to be
paid. When Julie Nabus returned after four days,
 Sales Cases (2017-2018) ni Treeng
Joaquin sent her and his daughter, Catalina, to Atty.
Elizabeth Rillera for the execution of the deed of
On March 26, 1984, Catalina Pacson filed an
absolute sale. Since Julie was a widow with a minor
affidavit-complaint regarding the padlocking incident
daughter, Atty. Rillera required Julie Nabus to return
of their repair shop with the police station at La
in four days with the necessary documents, such as
Trinidad, Benguet.
the deed of extrajudicial settlement, the transfer
certificate of title in the names of Julie Nabus and
minor Michelle Nabus, and the guardianship papers On March 28, 2008, respondents Joaquin
of Michelle. However, Julie Nabus did not return. and Julia Pacson filed with the Regional Trial Court
of La Trinidad, Benguet (trial court) a
[21]
Complaint for Annulment of Deeds, with damages
Getting suspicious, Catalina Pacson went to
and prayer for the issuance of a writ of preliminary
the Register of Deeds of
injunction.[22] They sought the annulment of (1) the
the Province of Benguet and asked for a copy of the
Extra-judicial Settlement of Estate, insofar as their
title of the land. She found that it was still in the
right to the 1,000-square-meter lot subject of the
name of Julie and Michelle Nabus.
Deed of Conditional Sale[23] was affected; (2) TCT
No. T-17718 issued in the names of Julie and
After a week, Catalina Pacson heard a rumor Michelle Nabus; and (3) the Deed of Absolute
that the lot was already sold to petitioner Betty Sale[24] in favor of Betty Tolero and the transfer
Tolero. Catalina Pacson and Atty. Rillera went to the certificates of title issued pursuant thereto. They
Register of Deeds of the Province of Benguet, and also prayed for the award of actual, moral and
found that Julie Nabus and her minor daughter, exemplary damages, as well as attorneys fees.
Michelle Nabus, represented by the formers mother
as appointed guardian by a court order dated
In their Answer,[25] Julie and Michelle Nabus
October 29, 1982, had executed a Deed of Absolute
alleged that respondent Joaquin Pacson did not
Sale in favor of Betty Tolero on March 5, 1984,
proceed with the conditional sale of the subject
covering the whole lot comprising 1,665 square
property when he learned that there was a pending
meters.[15] The property was described in the deed
case over the whole property. Joaquin proposed
of sale as comprising four lots: (1) Lot A-2-A, with an
that he would rather lease the property with a
area of 832 square meters; (2) Lot A-2-B, 168
monthly rental of P2,000.00 and apply the sum
square meters; (3) Lot A-2-C, 200 square meters;
of P13,000.00 as rentals, since the amount was
and (4) Lot A-2-D, 465 square meters. Lots A-2-A
already paid to the bank and could no longer be
and A-2-B, with a combined area of 1,000 square
withdrawn. Hence, he did not affix his signature to
meters, correspond to the lot previously sold to
the second page of a copy of the Deed of
Joaquin and Julia Pacson in the Deed of Conditional
Conditional Sale.[26] Julie Nabus alleged that in
Sale.
March 1994, due to her own economic needs and
those of her minor daughter, she sold the property
Catalina Pacson and Atty. Rillera also found to Betty Tolero, with authority from the court.
that the Certificate of Title over the property in the
name of Julie and Michelle Nabus was cancelled
During the hearing on the merits, Julie Nabus
on March 16, 1984, and four titles to the fours lots
testified that she sold the property to Betty Tolero
were issued in the name of Betty Tolero, namely:
because she was in need of money. She stated that
TCT No. T-18650[16] for Lot A-2-A; TCT No.
she was free to sell the property because the Deed
18651[17] for Lot A-2-B; TCT No. T-
of Conditional Sale executed in favor of the Spouses
18652[18] for Lot A-2-C; and T-18653[19] for Lot A-2-
Pacson was converted into a contract of lease. She
D.
claimed that at the time when the Deed of
Conditional Sale was being explained to them by the
On March 22, 1984, the gate to the repair notary public, Joaquin Pacson allegedly did not like
shop of the Pacsons was padlocked. A sign was the portion of the contract stating that there was a
[20]
displayed on the property stating No Trespassing. pending case in court involving the subject

property. Consequently, Joaquin Pacson did not
continue to sign the document; hence, the second
[27]
page of the document was unsigned. Thereafter,
it was allegedly their understanding that the
Pacsons would occupy the property as lessees and
whatever amount paid by them would be considered
rentals.
Betty Tolero put up the defense that she was
a purchaser in good faith and for value. She testified
that it was Julie Nabus who went to her house and
offered to sell the property consisting of two lots with
a combined area of 1,000 square meters. She
consulted Atty. Aurelio de Peralta before she agreed
to buy the property. She and Julie Nabus brought to
Atty. De Peralta the pertinent papers such as TCT
No. T-17718 in the names of Julie and Michelle
Nabus, the guardianship papers of Michelle Nabus
and the blueprint copy of the survey plan showing
the two lots. After examining the documents
and finding that the title was clean, Atty. De Peralta
gave her the go-signal to buy the property.
Tolero testified that upon payment of the
agreed price of P200,000.00, the Deed of Absolute
Sale was executed and registered, resulting in the
cancellation of the title of Julie and Michelle Nabus
and the issuance in her name of TCT Nos. T-18650
and T-18651[28] corresponding to the two lots.
Thereafter, she asked her common-law husband,
Ben Ignacio, to padlock the gate to the property and
hang the No Trespassing sign.
Tolero also testified that as the new owner,
she was surprised and shocked to receive the
Complaint filed by the Spouses Pacson. She
admitted that she knew very well the Spouses
Pacson, because they used to buy vegetables
regularly from her.She had been residing along the
highway at Kilometer 4, La Trinidad, Benguet since
1971. She knew the land in question, because it was
only 50 meters away across the highway. She also
knew that the Spouses Pacson had a shop on the
property for the welding and body-building of
vehicles. She was not aware of the Deed of
Conditional Sale executed in favor of the Pacsons,
and she saw the document for the first time when
Joaquin Pacson showed it to her after she had
already bought the property and the title had been
transferred in her name. At the time she was buying
Sales Cases (2017-2018) ni Treeng
the property, Julie Nabus informed her that the
Pacsons were merely renting the property. She did
not bother to verify if that was true, because the
Pacsons were no longer in the property for two
years before she bought it.
In a Decision dated September 30, 1993, the
trial court ruled in favor of respondents. The
dispositive portion of the Decision reads:
WHEREFORE, premises
considered, judgment is hereby
rendered in favor of the plaintiffs,
ordering defendant Betty Tolero to
execute a deed of absolute sale in
favor of the Spouses Joaquin and
Julia Pacson over the lots covered by
Transfer Certificates of Title Nos. T-
18650 and T-18651 upon payment to
her by the plaintiffs of the sum
of P57,544.[8]4 representing the
balance due for the full payment of
the property subject of this case. In
addition to the execution of a deed of
absolute sale, defendant Betty Tolero
shall surrender to the plaintiffs her
owners duplicate copy of Transfer
Certificates of Title Nos. T-18650 and
T-18651.
Defendants Julie Nabus,
Michelle Nabus, and Betty Tolero
shall also pay the plaintiffs damages
as follows: P50,000.00 for moral
damages; P20,000.00 for exemplary
damages; and P10,000.00 for
attorneys fees and expenses for
litigation.[29]
Two issues determined by the trial court
were: (1) Was the Deed of Conditional Sale
between the Spouses Pacson and the Nabuses
converted into a contract of lease? and (2) Was
Betty Tolero a buyer in good faith?
The trial court held that the Deed of
Conditional Sale was not converted into a contract
of lease because the original copy of the
contract[30] showed that all the pages were signed
by all the parties to the contract. By the presumption
of regularity, all other carbon copies must have been
duly signed. The failure of Joaquin Pacson to sign
the second page of one of the carbon copies of the
contract was by sheer inadvertence. The omission
was of no consequence since the signatures of the
parties in all the other copies of the contract were
 Sales Cases (2017-2018) ni Treeng
complete. Moreover, all the receipts of payment WHEREFORE, finding no
reversible error in the September 30,
expressly stated that they were made in payment of 1993 Decision of the Regional Trial
the lot. Not a single receipt showed payment for Court of La Trinidad, Benguet,
rental. Branch 10, in Civil Case No. 84-CV-
0079, the instant appeal is hereby
DISMISSED for lack of merit, and the
assailed Decision is hereby
Further, the trial court held that Betty Tolero
AFFIRMED and UPHELD with the
was not a purchaser in good faith as she had actual modification that the award of
knowledge of the Conditional Sale of the property to attorneys fees is deleted.[32]
the Pacsons.

Petitioners filed this petition raising the

The trial court stated that the Deed of following issues:
Conditional Sale contained reciprocal obligations I
THE [COURT OF APPEALS]
between the parties, thus:
ERRED IN CONSIDERING THE
CONTRACT ENTERED INTO
BETWEEN THE SPOUSES BATE
THAT, as soon as the full
NABUS AND JULIE NABUS AND
consideration of this sale has been
SPOUSES JOAQUIN PACSON AND
paid by the VENDEE, the
JULIA PACSON TO BE A
corresponding transfer documents
CONTRACT OF SALE.
shall be executed by the VENDOR to
the VENDEE for the portion sold;
II
xxxx
THE COURT A QUO ERRED
IN FINDING THAT THERE ARE
THAT, finally, the PARTIES
ONLY TWO ISSUES IN THE CASE
hereby agree that this Instrument
ON APPEAL AND THEY ARE:
shall be binding upon their respective
WHETHER THE DEED OF
heirs, successors or assigns.[31]
CONDITIONAL SALE WAS CONVE
RTED INTO A CONTRACT OF
LEASE; AND THAT [WHETHER]
PETITIONER BETTY TOLERO WAS
In other words, the trial court stated, when A BUYER IN GOOD FAITH.
the vendees (the Spouses Pacson) were already
III
ready to pay their balance, it was the corresponding THAT THE TRIAL COURT
obligation of the vendors (Nabuses) to execute the ERRED IN HOLDING THAT
[RESPONDENTS] BALANCE TO
transfer documents. THE SPOUSES NABUS UNDER
THE CONDITIONAL SALE IS
ONLY P57,544.[8]4.
The trial court held that [u]nder Article 1191
IV
of the Civil Code, an injured party in a reciprocal
THAT ASSUMING WITHOUT
obligation, such as the Deed of Conditional Sale in ADMITTING THAT PETITIONER
the case at bar, may choose between the fulfillment BETTY TOLERO WAS AWARE OF
THE EXISTENCE OF THE DEED
[or] the rescission of the obligation, with the OF CONDITIONAL SALE, THE
payment of damages in either case. It stated that in TRIAL COURT, AS WELL AS THE
[COURT OF APPEALS], ERRED IN
filing the case, the Spouses Pacson opted for ORDERING PETITIONER BETTY
fulfillment of the obligation, that is, the execution of TOLERO TO EXECUTE A DEED OF
the Deed of Absolute Sale in their favor upon ABSOLUTE SALE IN FAVOR OF
THE [RESPONDENTS] AND TO
payment of the purchase price. SURRENDER THE OWNER'S
DUPLICATE COPY OF TCT NOS. T-
18650 AND T-18651, WHICH WAS
Respondents appealed the decision of the NOT PRAYED FOR IN THE
trial court to the Court of Appeals. PRAYER IN THE COMPLAINT.

V
In the Decision dated November 28, 2003, THAT THE [COURT OF
the Court of Appeals affirmed the trial courts APPEALS] ERRED IN FINDING
BETTY TOLERO [AS] A BUYER
decision, but deleted the award of attorneys [WHO] FAILED TO TAKE STEPS IN
fees. The dispositive portion of the Decision reads: INQUIRING FROM THE
[RESPONDENTS] THE STATUS OF

THE PROPERTY IN QUESTION
BEFORE HER PURCHASE,
CONTRARY TO FACTS
ESTABLISHED BY EVIDENCE.
VI
THE [COURT OF
APPEALS] ERRED IN
CONSIDERING PETITIONER
BETTY TOLERO A BUYER IN BAD
FAITH, IGNORING THE
APPLICATION OF THE DOCTRINE
IN THE RULING OF THE SUPREME
COURT IN THE CASE
OF RODOLFO ALFONSO, ET
AL. VS. COURT OF APPEALS, G.R.
NO. 63745.[33]
The main issues to be resolved are:
1) Whether or not the Deed of
Conditional Sale was converted
into a contract of lease;
2) Whether the Deed of Conditional
Sale was a contract to sell or a
contract of sale.
As regards the first issue, the Deed of
Conditional Sale entered into by the Spouses
Pacson and the Spouses Nabus was not converted
into a contract of lease. The 364 receipts issued to
the Spouses Pacson contained either the phrase as
partial payment of lot located in Km. 4 or cash vale
or cash vale (partial payment of lot located in Km.
4), evidencing sale under the contract and not the
lease of the property. Further, as found by the trial
court, Joaquin Pacsons non-signing of the second
page of a carbon copy of the Deed of Conditional
Sale was through sheer inadvertence, since the
original contract[34] and the other copies of the
contract were all signed by Joaquin Pacson and the
other parties to the contract.
On the second issue, petitioners contend
that the contract executed by the respondents and
the Spouses Nabus was a contract to sell, not a
contract of sale. They allege that the contract was
subject to the suspensive condition of full payment of
the consideration agreed upon before ownership of
the subject property could be transferred to the
vendees. Since respondents failed to pay the full
amount of the consideration, having an unpaid
balance of P57,544.84, the obligation of the vendors
to execute the Deed of Absolute Sale in favor of
respondents did not arise. Thus, the subsequent
Deed of Absolute Sale executed in favor of Betty
Tolero, covering the same parcel of land was valid,
Sales Cases (2017-2018) ni Treeng
even if Tolero was aware of the previous deed of
conditional sale.
Moreover, petitioners contend that
respondents violated the stipulated condition in the
contract that the monthly installment to be paid
was P2,000.00, as respondents gave meager
amounts as low as P10.00.
Petitioners also assert that respondents
allegation that Julie Nabus failure to bring the
pertinent documents necessary for the execution of
the final deed of absolute sale, which was the reason
for their not having paid the balance of the purchase
price, was untenable, and a lame and shallow
excuse for violation of the Deed of Conditional
Sale. Respondents could have made a valid tender
of payment of their remaining balance, as it had
been due for a long time, and upon refusal to accept
payment, they could have consigned their payment
to the court as provided by law. This, respondents
failed to do.
The Court holds that the contract entered
into by the Spouses Nabus and respondents was a
contract to sell, not a contract of sale.
A contract of sale is defined in Article 1458 of
the Civil Code, thus:
Art. 1458. By the contract of
sale, one of the contracting parties
obligates himself to transfer the
ownership of and to deliver a
determinate thing, and the other to
pay therefor a price certain in money
or its equivalent.
A contract of sale may be
absolute or conditional.
Ramos v. Heruela[35] differentiates a contract
of absolute sale and a contract of conditional sale as
follows:
Article 1458 of the Civil Code
provides that a contract of sale may
be absolute or conditional. A contract
of sale is absolute when title to the
property passes to the vendee upon
delivery of the thing sold. A deed of
sale is absolute when there is no
stipulation in the contract that title to
the property remains with the seller
until full payment of the purchase
price. The sale is also absolute if
there is no stipulation giving the
vendor the right to cancel unilaterally

the contract the moment the vendee
fails to pay within a fixed period. In a
conditional sale, as in a contract to
sell, ownership remains with the
vendor and does not pass to the
vendee until full payment of the
purchase price. The full payment of
the purchase price partakes of a
suspensive condition, and non-
fulfillment of the condition prevents
the obligation to sell from arising.[36]
Coronel v. Court of Appeals[37] distinguished
a contract to sell from a contract of sale, thus:
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:
a) Consent or
meeting of the
minds, that is,
consent to transfer
ownership in
exchange for the
price;
b) Determinate subject matter; and
c) Price certain in money or its
equivalent.
Under this definition, a
Contract to Sell may not be
considered as
a Contract of Sale because the first
essential element is lacking. In a
contract to sell, the prospective
seller explicitly 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 subject 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. What the seller agrees or
obliges himself to do is to fulfill his
promise to sell the subject
property when the entire amount
of the purchase price is delivered
to him. In other words, the full
payment of the purchase price
partakes of a suspensive
condition, the non-fulfilment 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.
xxxx
Sales Cases (2017-2018) ni Treeng
Stated positively, upon the
fulfillment of the suspensive condition
which is the full payment of the
purchase price, the prospective
sellers obligation to sell the subject
property by entering into a contract of
sale with the prospective buyer
becomes demandable as provided in
Article 1479 of the Civil Code which
states:
Art. 1479. A
promise to buy and
sell a determinate
thing for a price
certain is reciprocally
demandable.
An accepted
unilateral promise to
buy or to sell a
determinate thing for
a price certain is
binding upon the
promissor if the
promise is supported
by a consideration
distinct from the price.
A contract to sell may thus be
defined as a bilateral contract
whereby the prospective seller, while
expressly reserving the ownership of
the subject 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 subject of
the sale until the fulfillment of a
suspensive condition, because in
a conditional contract of sale, the first
element of consent is present,
although it is conditioned upon the
happening of a contingent event
which may or may not occur. If the
suspensive condition is not fulfilled,
the perfection of the contract of
sale is completely abated. However,
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 subject 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.
In 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.[38]
Further, Chua v. Court of Appeals[39] cited
this distinction between a contract of sale and a
contract to sell:
In a contract of sale, the title
to the property passes to the vendee
upon the delivery of the thing sold; in
a contract to sell, ownership is, by
agreement, reserved in the vendor
and is not to pass to the vendee until
full payment of the purchase
price. Otherwise stated, in a contract
of sale, the vendor loses ownership
over the property and cannot recover
it until and unless the contract is
resolved or rescinded; whereas, in a
contract to sell, title is retained by the
vendor until full payment of the
price. In the latter contract, payment
of the price is a positive suspensive
condition, failure of which is not a
breach but an event that prevents the
obligation of the vendor to convey
title from becoming effective.[40]
It is not the title of the contract, but its
express terms or stipulations that determine the kind
of contract entered into by the parties. In this
case, the contract entitled Deed of Conditional
Sale is actually a contract to sell. The contract
stipulated that as soon as the full consideration of
the sale has been paid by
vendee, the corresponding transfer
documents shall be executed by the vendor to
the vendee for the portion sold.[41] Where the vendor
promises to execute a deed of absolute sale upon
the completion by the vendee of the payment of the
[42]
price, the contract is only a contract to sell.
aforecited stipulation shows that the vendors
reserved title to the subject property until full
payment of the purchase price.
If respondents paid the Spouses Nabus in
accordance with the stipulations in the Deed of
Conditional Sale, the consideration would have
been fully paid in June 1983. Thus, during the last
week of January 1984, Julie Nabus
approached Joaquin Pacson to ask for the full
payment of the lot. Joaquin Pacson agreed to pay,
but told her to return after four days as his daughter,
Catalina Pacson, would have to go over the
Sales Cases (2017-2018) ni Treeng
numerous receipts to determine the balance to be
paid.
When Julie Nabus returned after four days,
Joaquin Pacson sent Julie Nabus and his daughter,
Catalina, to Atty. Elizabeth Rillera for the execution
of the deed of sale. Since Bate Nabus had already
died, and was survived by Julie and their minor
daughter, Atty. Rillera required Julie Nabus to return
in four days with the necessary documents such as
the deed of extrajudicial settlement, the transfer
certificate of title in the names of Julie Nabus and
minor Michelle Nabus, and the guardianship papers
of Michelle. However, Julie Nabus did not return.
As vendees given possession of the subject
property, the ownership of which was still with the
vendors, the Pacsons should have protected their
interest and inquired from Julie Nabus why she did
not return and then followed through with full
payment of the purchase price and the execution of
the deed of absolute sale. The Spouses Pacson had
the legal remedy of consigning their payment to the
court; however, they did not do so. A rumor that the
property had been sold to Betty Tolero prompted
them to check the veracity of the sale with the
Register of Deeds of the Province of Benguet. They
found out that on March 5, 1984, Julie Nabus sold
the same property to Betty Tolero through a Deed
of Absolute Sale, and new transfer certificates of
title to the property were issued to Tolero.
the
Thus, the Spouses Pacson filed this case for
the annulment of the contract
of absolute sale executed in favor of Betty Tolero
and the transfer certificates of title issued in her
name.
The
Unfortunately for the Spouses Pacson, since
the Deed of Conditional Sale executed in their favor
was merely a contract to sell, the obligation of the
seller to sell becomes demandable only upon the
happening of the suspensive condition.[43] The full
payment of the purchase price is the positive
suspensive condition, the failure of which is not a
breach of contract, but simply an event that
prevented the obligation of the vendor to convey
title from acquiring binding force.[44] Thus, for its
non-fulfilment, there is no contract to speak of, the
obligor having failed to perform the suspensive
condition which enforces a juridical relation.[45] With

this circumstance, there can be no rescission or
fulfilment of an obligation that is still non-existent,
the suspensive condition not having occurred as
yet.[46] Emphasis should be made that the breach
contemplated in Article 1191 of the New Civil Code
is the obligors failure to comply with an obligation
already extant, not a failure of a condition to render
binding that obligation.[47]
The trial court, therefore, erred in applying
Article 1191 of the Civil Code[48] in this case by
ordering fulfillment of the obligation, that is, the
execution of the deed of absolute sale in favor of the
Spouses Pacson upon full payment of the purchase
price, which decision was affirmed by the Court of
Appeals. Ayala Life Insurance, Inc. v. Ray Burton
[49]
Development Corporation held:
Evidently, before the remedy
of specific performance may be
availed of, there must be a breach of
the contract.
Under a contract to sell, the
title of the thing to be sold is retained
by the seller until the purchaser
makes full payment of the agreed
purchase price. Such payment is a
positive suspensive condition, the
non-fulfillment of which
is not a breach of contract but
merely an event that prevents the
seller from conveying title to the
purchaser. The non-payment of the
purchase price renders the contract
to sell ineffective and without force
and effect. Thus, a cause of action
for specific performance does not
arise.[50]
Since the contract to sell was without force
and effect, Julie Nabus validly conveyed the
subject property to another buyer, petitioner Betty
Tolero, through a contract of absolute sale, and on
the strength thereof, new transfer certificates of title
over the subject property were duly issued to
Tolero.[51]
The Spouses Pacson, however, have the
right to the reimbursement of their payments to the
Nabuses, and are entitled to the award of nominal
damages. The Civil Code provides:
Art. 2221. Nominal damages
are adjudicated in order that a right of
the plaintiff, which has been violated
Sales Cases (2017-2018) ni Treeng
or invaded by the defendant, may be
vindicated or recognized, and not for
the purpose of indemnifying the
plaintiff for any loss suffered by him.
Art. 2222. The court may
award nominal damages in every
obligation arising from any source
enumerated in article 1157, or in
every case where any property right
has been invaded.
As stated by the trial court, under the Deed
of Conditional Sale, respondents had the right to
demand from petitioners Julie and Michelle Nabus
that the latter execute in their favor a deed of
absolute sale when they were ready to pay the
remaining balance of the purchase price. The
Nabuses had the corresponding duty to respect the
respondents right, but they violated such right, for
they could no longer execute the document since
they had sold the property to Betty
Tolero.[52] Hence, nominal damages in the amount
of P10,000.00 are awarded to respondents.
Respondents are not entitled to moral
damages because contracts are not referred to in
Article 2219[53] of the Civil Code, which enumerates
the cases when moral damages may be
recovered. Article 2220[54] of the Civil Code allows
the recovery of moral damages in breaches of
contract where the defendant acted fraudulently or
in bad faith. However, this case involves a contract
to sell, wherein full payment of the purchase price is
a positive suspensive condition, the non-fulfillment
of which is not a breach of contract, but merely
an event that prevents the seller from conveying title
to the purchaser. Since there is no breach of
contract in this case, respondents are not entitled to
moral damages.
In the absence of moral, temperate,
liquidated or compensatory damages, exemplary
damages cannot be granted for they are allowed
only in addition to any of the four kinds of damages
mentioned.[55]
WHEREFORE, the petition is GRANTED. The
Decision of the Court of Appeals in CA-G.R. CV No.
44941, dated November 28, 2003,
is REVERSED and SET ASIDE. Judgment is hereby
rendered upholding the validity of the sale of the
subject property made by petitioners Julie Nabus
and Michelle Nabus in favor of petitioner Betty
Tolero, as well as the validity of Transfer Certificates
 Sales Cases (2017-2018) ni Treeng
of Title Nos. T-18650 and T-18651 issued in the
name of Betty Tolero. Petitioners Julie Nabus and
Michelle Nabus
are ORDERED to REIMBURSE respondents
spouses Joaquin and Julia Pacson the sum of One
Hundred Twelve Thousand Four Hundred Fifty-Five
Pesos and Sixteen Centavos (P112,455.16), and to
pay Joaquin and Julia Pacson nominal damages in
the amount of Ten Thousand Pesos (P10,000.00),
with annual interest of twelve percent (12%) until full
payment of the amounts due to Joaquin and Julia
Pacson.

No costs.

ACE FOODS, INC., Petitioner,
vs.
MICRO PACIFIC TECHNOLOGIES CO.,
LTD.1, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari2are
the Decision3 dated October 21, 2011 and
Resolution4 dated February 8, 2012 of the Court of
Appeals (CA) in CA-G.R. CV No. 89426 which
reversed and set aside the Decision5 dated
February 28, 2007 of the Regional Trial Court of
Makati, Branch 148 (RTC) in Civil Case No. 02-
1248, holding petitioner ACE Foods, Inc. (ACE
Foods) liable to respondent Micro Pacific
Technologies Co., Ltd. (MTCL) for the payment of
Cisco Routers and Frame Relay Products (subject
products) amounting to P646,464.00 pursuant to a
perfected contract of sale.
The Facts
ACE Foods is a domestic corporation engaged in
the trading and distribution of consumer goods in
wholesale and retail bases,6 while MTCL is one
engaged in the supply of computer hardware and
equipment.7
On September 26, 2001, MTCL sent a letter-
proposal8 for the delivery and sale of the subject
products to be installed at various offices of ACE
Foods. Aside from the itemization of the products
offered for sale, the said proposal further provides
for the following terms, viz.:9
TERMS : Thirty (30) days upon delivery
VALIDITY : Prices are based on current dollar rate
and subject to changes without prior notice.
DELIVERY : Immediate delivery for items on stock,
otherwise thirty (30) to forty-five days upon receipt
of [Purchase Order]
WARRANTY : One (1) year on parts and services.
Accessories not included in warranty.
On October 29, 2001, ACE Foods accepted
MTCLs proposal and accordingly issued Purchase
Order No. 10002310 (Purchase Order) for the
subject products amounting to P646,464.00
(purchase price). Thereafter, or on March 4, 2002,
MTCL delivered the said products to ACE Foods as
reflected in Invoice No. 7733 11 (Invoice Receipt).
The fine print of the invoice states, inter alia, that
"[t]itle to sold property is reserved in
MICROPACIFIC TECHNOLOGIES CO., LTD. until
full compliance of the terms and conditions of
above and payment of the price"12(title reservation
stipulation). After delivery, the subject products
were then installed and configured in ACE Foodss
premises. MTCLs demands against ACE Foods to
pay the purchase price, however, remained
unheeded.13 Instead of paying the purchase price,
ACE Foods sent MTCL a Letter14 dated September
19, 2002, stating that it "ha[s] been returning the
[subject products] to [MTCL] thru [its] sales
representative Mr. Mark Anteola who has agreed to
Sales Cases (2017-2018) ni Treeng
pull out the said [products] but had failed to do so
up to now."
Eventually, or on October 16, 2002, ACE Foods
lodged a Complaint15 against MTCL before the
RTC, praying that the latter pull out from its
premises the subject products since MTCL
breached its "after delivery services" obligations to
it, particularly, to: (a) install and configure the
subject products; (b) submit a cost benefit study to
justify the purchase of the subject products; and (c)
train ACE Foodss technicians on how to use and
maintain the subject products. 16 ACE Foods
likewise claimed that the subject products MTCL
delivered are defective and not working.17
For its part, MTCL, in its Answer with
Counterclaim,18 maintained that it had duly
complied with its obligations to ACE Foods and that
the subject products were in good working
condition when they were delivered, installed and
configured in ACE Foodss premises. Thereafter,
MTCL even conducted a training course for ACE
Foodss representatives/employees; MTCL,
however, alleged that there was actually no
agreement as to the purported "after delivery
services." Further, MTCL posited that ACE Foods
refused and failed to pay the purchase price for the
subject products despite the latters use of the
same for a period of nine (9) months. As such,
MTCL prayed that ACE Foods be compelled to pay
the purchase price, as well as damages related to
the transaction.19
The RTC Ruling
On February 28, 2007, the RTC rendered a
Decision, 20 directing MTCL to remove the subject
products from ACE Foodss premises and pay
actual damages and attorney fees in the amounts
of P200,000.00 and P100,000.00, respectively.21
At the outset, it observed that the agreement
between ACE Foods and MTCL is in the nature of a
contract to sell. Its conclusion was based on the
fine print of the Invoice Receipt which expressly
indicated that "title to sold property is reserved in
MICROPACIFIC TECHNOLOGIES CO., LTD. until
full compliance of the terms and conditions of
above and payment of the price," noting further that
in a contract to sell, the prospective seller explicitly
reserves the transfer of title to the prospective
buyer, and said transfer is conditioned upon the full
payment of the purchase price.22 Thus,
notwithstanding the execution of the Purchase
Order and the delivery and installation of the
subject products at the offices of ACE Foods, by
express stipulation stated in the Invoice Receipt
issued by MTCL and signed by ACE
Foods, i.e., the title reservation stipulation, it is still
the former who holds title to the products until full
payment of the purchase price therefor. In this
relation, it noted that the full payment of the price is
a positive suspensive condition, the non-payment
of which prevents the obligation to sell on the part
of the seller/vendor from materializing at all.23 Since
title remained with MTCL, the RTC therefore
directed it to withdraw the subject products from
ACE Foodss premises. Also, in view of the
foregoing, the RTC found it unnecessary to delve
into the allegations of breach since the non-
happening of the aforesaid suspensive

condition ipso jure prevented the obligation to sell
from arising.24
Dissatisfied, MTCL elevated the matter on appeal.25
The CA Ruling
26
In a Decision dated October 21, 2011, the CA
reversed and set aside the RTCs ruling, ordering
ACE Foods to pay MTCL the amount
of P646,464.00, plus legal interest at the rate of 6%
per annum to be computed from April 4, 2002, and
attorneys fees amounting to P50,000.00.27
It found that the agreement between the parties is
in the nature of a contract of sale, observing that
the said contract had been perfected from the time
ACE Foods sent the Purchase Order to MTCL
which, in turn, delivered the subject products
covered by the Invoice Receipt and subsequently
installed and configured them in ACE Foodss
premises.28 Thus, considering that MTCL had
already complied with its obligation, ACE Foodss
corresponding obligation arose and was then duty
bound to pay the agreed purchase price within
thirty (30) days from March 5, 2002.29 In this light,
the CA concluded that it was erroneous for ACE
Foods not to pay the purchase price therefor,
despite its receipt of the subject products, because
its refusal to pay disregards the very essence of
reciprocity in a contract of sale.30 The CA also
dismissed ACE Foodss claim regarding MTCLs
failure to perform its "after delivery services"
obligations since the letter-proposal, Purchase
Order and Invoice Receipt do not reflect any
agreement to that effect.31
Aggrieved, ACE Foods moved for reconsideration
which was, however, denied in a
Resolution 32 dated February 8, 2012, hence, this
petition.
The Issue Before the Court
The essential issue in this case is whether ACE
Foods should pay MTCL the purchase price for the
subject products.
The Courts Ruling
The petition lacks merit.
A contract is what the law defines it to be, taking
into consideration its essential elements, and not
what the contracting parties call it.33 The real nature
of a contract may be determined from the express
terms of the written agreement and from the
contemporaneous and subsequent acts of the
contracting parties. However, in the construction or
interpretation of an instrument, the intention of the
parties is primordial and is to be pursued. The
denomination or title given by the parties in their
contract is not conclusive of the nature of its
contents.34
The very essence of a contract of sale is the
transfer of ownership in exchange for a price
paid or promised. 35 This may be gleaned from
Article 1458 of the Civil Code which defines a
contract of sale as follows:
Sales Cases (2017-2018) ni Treeng
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and
the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
(Emphasis supplied)
Corollary thereto, a contract of sale is classified as
a consensual contract, which means that the sale
is perfected by mere consent. No particular form is
required for its validity. Upon perfection of the
contract, the parties may reciprocally demand
performance, i.e., the vendee may compel transfer
of ownership of the object of the sale, and the
vendor may require the vendee to pay the thing
sold.36
In contrast, a contract to sell is defined as a
bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the
property despite delivery thereof to the prospective
buyer, binds himself to sell the property exclusively
to the prospective buyer upon fulfillment of the
condition agreed upon, i.e., the full payment of the
purchase price. A contract to sell may not even be
considered as a conditional contract of
sale where the seller may likewise reserve title to
the property subject of the sale until the fulfillment
of a suspensive condition, because in a conditional
contract of sale, the first element of consent is
present, although it is conditioned upon the
happening of a contingent event which may or may
not occur.37
In this case, the Court concurs with the CA that the
parties have agreed to a contract of sale and not to
a contract to sell as adjudged by the RTC. Bearing
in mind its consensual nature, a contract of sale
had been perfected at the precise moment ACE
Foods, as evinced by its act of sending MTCL the
Purchase Order, accepted the latters proposal to
sell the subject products in consideration of the
purchase price of P646,464.00. From that point in
time, the reciprocal obligations of the parties i.e.,
on the one hand, of MTCL to deliver the said
products to ACE Foods, and, on the other hand, of
ACE Foods to pay the purchase price therefor
within thirty (30) days from delivery already arose
and consequently may be demanded. Article 1475
of the Civil Code makes this clear:
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the
price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions of
the law governing the form of contracts.
At this juncture, the Court must dispel the notion
that the stipulation anent MTCLs reservation of
ownership of the subject products as reflected in
the Invoice Receipt, i.e., the title reservation
stipulation, changed the complexion of the
transaction from a contract of sale into a contract to
sell. Records are bereft of any showing that the
said stipulation novated the contract of sale
between the parties which, to repeat, already
existed at the precise moment ACE Foods
 Sales Cases (2017-2018) ni Treeng
accepted MTCLs proposal. To be sure, novation, in
its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation
is terminated by the creation of a new obligation
that takes the place of the former; it is merely
modificatory when the old obligation subsists to the
extent it remains compatible with the amendatory
agreement. In either case, however, novation is
never presumed, and the animus novandi, whether
totally or partially, must appear by express
agreement of the parties, or by their acts that are
too clear and unequivocal to be mistaken.38

In the present case, it has not been shown that the

title reservation stipulation appearing in the Invoice
Receipt had been included or had subsequently
modified or superseded the original agreement of
the parties. The fact that the Invoice Receipt was
signed by a representative of ACE Foods does not,
by and of itself, prove animus novandi since: (a) it
was not shown that the signatory was authorized by
ACE Foods (the actual party to the transaction) to
novate the original agreement; (b) the signature
only proves that the Invoice Receipt was received
by a representative of ACE Foods to show the fact
of delivery; and (c) as matter of judicial notice,
invoices are generally issued at the consummation
stage of the contract and not its perfection, and
have been even treated as documents which are
not actionable per se, although they may prove
sufficient delivery. 39 Thus, absent any clear
indication that the title reservation stipulation was
actually agreed upon, the Court must deem the
same to be a mere unilateral imposition on the part
of MTCL which has no effect on the nature of the
parties original agreement as a contract of sale.
Perforce, the obligations arising thereto, among
others, ACE Foodss obligation to pay the
purchase price as well as to accept the delivery
of the goods,40 remain enforceable and
subsisting.1wphi1

As a final point, it may not be amiss to state that the

return of the subject products pursuant to a
rescissory action41 is neither warranted by ACE
Foodss claims of breach either with respect to
MTCLs breach of its purported "after delivery
services" obligations or the defective condition of
the products - since such claims were not
adequately proven in this case. The rule is clear:
each party must prove his own affirmative
allegation; one who asserts the affirmative of the
issue has the burden of presenting at the trial such
amount of evidence required by law to obtain a
favorable judgment, which in civil cases, is by
preponderance of evidence. 42 This, however, ACE
Foods failed to observe as regards its allegations of
breach. Hence, the same cannot be sustained.

WHEREFORE, the petition

is DENIED. Accordingly, the Decision dated
October 21, 2011 and Resolution dated February 8,
2012 of the Court of Appeals in CA-G.R. CV No.
89426 are hereby AFFIRMED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE

OLIVAREZ REALTY CORPORATION and DR.
PABLO R. OLIVAREZ, Petitioner,
vs.
BENJAMIN CASTILLO, Respondent.
DECISION
LEONEN, J.:
Trial may be dispensed with and a summary
judgment rendered if the case can be resolved
judiciously by plain resort to the pleadings,
affidavits, depositions, and other papers filed by the
parties.
This is a petition for review on certiorari1 of the
Court of Appeals' decision2 dated July 20, 2010 and
resolution3dated March 18, 2011 in CAG.R. CV No.
91244.
The facts as established from the pleadings of the
parties are as follows:
Benjamin Castillo was the registered owner of a
346,918-squaremeter parcel of land located in
Laurel, Batangas, covered by Transfer Certificate of
Title No. T-19972.4 The Philippine Tourism
Authority allegedly claimed ownership of the
sameparcel of land based on Transfer Certificate of
Title No. T-18493.5 On April 5, 2000, Castillo and
Olivarez Realty Corporation, represented by Dr.
Pablo R. Olivarez, entered into a contract of
conditional sale6over the property. Under the deed
of conditional sale, Castillo agreed to sell his
property to Olivarez Realty Corporation
for P19,080,490.00. Olivarez Realty Corporation
agreed toa down payment of P5,000,000.00, to be
paid according to the following schedule:
DATE AMOUNT
April 8, 2000 500,000.00
May 8, 2000 500,000.00
May 16, 2000 500,000.00
1,000,000.0
June 8, 2000
0
July 8, 2000 500,000.00
August 8, 2000 500,000.00
September 8, 2000 500,000.00
October 8, 2000 500,000.00
7
November 8, 2000 500,000.00
As to the balance of P14,080,490.00, Olivarez
Realty Corporation agreed to pay in 30 equal
monthly installments every eighth day of the month
beginning in the month that the parties would
receive a decision voiding the Philippine Tourism
Authoritys title to the property.8 Under the deed of
conditional sale, Olivarez RealtyCorporation shall
file the action against the Philippine Tourism
Authority "with the full assistance of
[Castillo]."9 Paragraph C of the deed of conditional
sale provides:
Sales Cases (2017-2018) ni Treeng
C. [Olivarez Realty Corporation] assumes the
responsibility of taking necessary legal action thru
Court to have the claim/title TCT T-18493 of
Philippine Tourism Authority over the above-
described property be nullified and voided; with the
full assistance of [Castillo][.]10
Should the action against the Philippine Tourism
Authority be denied, Castillo agreed to reimburse
all the amounts paid by Olivarez Realty
Corporation. Paragraph D of the deed of conditional
sale provides:
D. In the event that the Court denie[s] the petition
against the Philippine Tourism Authority, all sums
received by [Castillo] shall be reimbursed to
[Olivarez Realty Corporation] without interest[.]11
As to the "legitimate tenants" occupying the
property, Olivarez Realty Corporation undertook to
pay them "disturbance compensation," while
Castillo undertook to clear the land of the tenants
within six months from the signing of the deed of
conditional sale. Should Castillo fail to clear the
land within six months, Olivarez Realty Corporation
may suspend its monthly down payment until the
tenants vacate the property. Paragraphs E and F of
the deed of conditional sale provide: E. That
[Olivarez Realty Corporation] shall pay the
disturbance compensation to legitimate agricultural
tenants and fishermen occupants which in no case
shall exceed ONE MILLION FIVE HUNDRED
THOUSAND (P1,500,000.00) PESOS. Said
amountshall not form part of the purchase price. In
excess of this amount, all claims shall be for the
account of [Castillo];
F. That [Castillo] shall clear the land of [the]
legitimate tenants within a period of six (6) months
upon signing of this Contract, and in case [Castillo]
fails, [Olivarez Realty Corporation] shall have the
right to suspend the monthly down payment until
such time that the tenants [move] out of the land[.]12
The parties agreed thatOlivarez Realty Corporation
may immediately occupy the property upon signing
of the deed of conditional sale. Should the contract
be cancelled, Olivarez RealtyCorporation agreed to
return the propertys possession to Castillo and
forfeit all the improvements it may have introduced
on the property. Paragraph I of the deed of
conditional sale states:
I. Immediately upon signing thisContract, [Olivarez
Realty Corporation] shall be entitled to occupy,
possess and develop the subject property. In case
this Contract is canceled [sic], any improvement
introduced by [the corporation] on the property shall
be forfeited in favor of [Castillo][.]13
On September 2, 2004, Castillo filed a
complaint14 against Olivarez Realty Corporation
and Dr. Olivarez with the Regional Trial Court of
Tanauan City, Batangas.
Castillo alleged that Dr. Olivarez convinced him into
selling his property to Olivarez Realty Corporation
on the representation that the corporation shall be
responsible in clearing the property of the tenants
and in paying them disturbance compensation. He
further alleged that Dr. Olivarez solely prepared the

deed of conditional sale and that he was made to
sign the contract with its terms "not adequately
explained [to him] in Tagalog."15
After the parties had signed the deed of conditional
sale, Olivarez Realty Corporation immediately took
possession of the property. However, the
corporation only paid 2,500,000.00 ofthe purchase
price. Contrary to the agreement, the corporation
did not file any action against the Philippine
Tourism Authority to void the latters title to the
property. The corporation neither cleared the land
of the tenants nor paid them disturbance
compensation. Despite demand, Olivarez Realty
Corporation refused to fully pay the purchase
price.16
Arguing that Olivarez Realty Corporation committed
substantial breach of the contract of conditional
sale and that the deed of conditional sale was a
contract of adhesion, Castillo prayed for rescission
of contract under Article 1191 of the Civil Code of
the Philippines. He further prayed that Olivarez
Realty Corporation and Dr. Olivarez be made
solidarily liable for moral damages, exemplary
damages, attorneys fees, and costs of suit.17
In their answer,18 Olivarez Realty Corporation and
Dr. Olivarez admitted that the corporation only
paid P2,500,000.00 ofthe purchase price. In their
defense, defendants alleged that Castillo failed to
"fully assist"19 the corporation in filing an action
against the Philippine Tourism Authority. Neither
did Castillo clear the property of the tenants within
six months from the signing of the deed of
conditional sale. Thus, according to defendants, the
corporation had "all the legal right to withhold the
subsequent payments to [fully pay] the purchase
price."20
Olivarez Realty Corporation and Dr. Olivarez
prayedthat Castillos complaint be dismissed. By
way of compulsory counterclaim, they prayed
for P100,000.00 litigation expenses
and P50,000.00 attorneys fees.21
Castillo replied to the counterclaim,22 arguing that
Olivarez Realty Corporation and Dr. Olivarez had
no right to litigation expenses and attorneys fees.
According to Castillo, the deed of conditional sale
clearly states that the corporation "assume[d] the
responsibility of taking necessary legal
action"23 against the Philippine Tourism Authority,
yet the corporation did not file any case. Also, the
corporation did not pay the tenants disturbance
compensation. For the corporations failure to fully
pay the purchase price, Castillo claimed that hehad
"all the right to pray for the rescission of the
[contract],"24 and he "should not be held liable . . .
for any alleged damages by way of litigation
expenses and attorneys fees."25
On January 10, 2005, Castillo filed a request for
admission,26 requesting Dr. Olivarez to admit under
oath the genuineness of the deed of conditional
sale and Transfer Certificate of Title No. T-19972.
He likewise requested Dr. Olivarez to admit the
truth of the following factual allegations:
1. That Dr. Olivarez is the president of
Olivarez Realty Corporation;
Sales Cases (2017-2018) ni Treeng
2. That Dr. Olivarez offered to purchase the
parcel of land from Castillo and that he
undertook to clear the property of the
tenants and file the court action to void the
Philippine Tourism Authoritys title to the
property;
3. That Dr. Olivarez caused the preparation
of the deed of conditional sale;
4. That Dr. Olivarez signed the deed of
conditional sale for and on behalf of
Olivarez Realty Corporation;
5. That Dr. Olivarez and the corporation did
not file any action against the Philippine
Tourism Authority;
6. That Dr. Olivarez and the corporation did
not pay the tenants disturbance
compensation and failed to clear the
property of the tenants; and
7. That Dr. Olivarez and the corporation
only paid P2,500,000.00 of the agreed
purchase price.27
On January 25, 2005, Dr. Olivarez and Olivarez
Realty Corporation filed their objections to the
request for admission,28 stating that they
"reiterate[d] the allegations [and denials] in their
[answer]."29
The trial court conducted pre-trial conference on
December 17, 2005.
On March 8, 2006, Castillo filed a motion for
summary judgment and/or judgment on the
pleadings.30 He argued that Olivarez Realty
Corporation and Dr. Olivarez "substantially
admitted the material allegations of [his]
complaint,"31 specifically:
1. That the corporation failed to fully pay the
purchase price for his property;32
2. That the corporation failed to file an
action to void the Philippine Tourism
Authoritys title to his property;33and
3. That the corporation failed to clear the
property of the tenants and pay them
disturbance compensation.34
Should judgment on the pleadings beimproper,
Castillo argued that summary judgment may still be
rendered asthere is no genuine issue as to any
material fact.35 He cited Philippine National Bank v.
Noahs Ark Sugar Refinery36 as authority.
Castillo attached to his motion for summary
judgment and/or judgment on the pleadings his
affidavit37 and the affidavit of a Marissa
Magsino38 attesting to the truth of the material
allegations of his complaint.
Olivarez Realty Corporation and Dr. Olivarez
opposed39 the motion for summary judgment and/or
judgment on the pleadings, arguing that the motion
was "devoid of merit."40 They reiterated their claim
that the corporation withheld further payments of

the purchase price because "there ha[d] been no
favorable decision voiding the title of the Philippine
Tourism Authority."41 They added that Castillo sold
the property to another person and that the sale
was allegedly litigated in Quezon City.42
Considering that a title adverse to that of Castillos
existed, Olivarez Realty Corporation and Dr.
Olivarez argued that the case should proceed to
trial and Castillo be required to prove that his title to
the property is "not spurious or fake and that he
had not sold his property to another person."43
In reply to the opposition to the motion for summary
judgment and/or judgment on the
pleadings,44 Castillo maintained that Olivarez
Realty Corporation was responsible for the filing of
an action against the Philippine Tourism Authority.
Thus, the corporation could not fault Castillo for not
suing the PhilippineTourism Authority.45The
corporation illegally withheld payments of the
purchase price.
As to the claim that the case should proceed to trial
because a title adverse to his title existed, Castillo
argued that the Philippine Tourism Authoritys title
covered another lot, not his property.46
During the hearing on August 3, 2006, Olivarez
Realty Corporation and Dr. Olivarez prayed that
they be given 30 days to file a supplemental
memorandum on Castillos motion for summary
judgment and/or judgment on the pleadings.47
The trial court granted the motion. Itgave Castillo
20 days to reply to the memorandum and the
corporation and Dr. Olivarez 15 days to respond to
Castillos reply.48
In their supplemental memorandum,49 Olivarez
Realty Corporation and Dr. Olivarez argued that
there was "an obvious ambiguity"50 as to which
should occur first the payment of disturbance
compensation to the tenants or the clearing of the
property of the tenants.51 This ambiguity, according
to defendants, is a genuine issue and "oughtto be
threshed out in a full blown trial."52
Olivarez Realty Corporation and Dr. Olivarez added
that Castillo prayed for irreconcilable reliefs of
reformation of instrument and rescission of
contract.53 Thus, Castillos complaint should be
dismissed.
Castillo replied54 to the memorandum, arguing that
there was no genuine issue requiring trial of the
case. According to Castillo, "common sense
dictates . . . that the legitimate tenants of the
[property] shall not vacate the premises without
being paid any disturbance compensation . .
."55 Thus, the payment of disturbance
compensation should occur first before clearing the
property of the tenants.
With respect to the other issuesraised in the
supplemental memorandum, specifically, that
Castillo sold the property to another person, he
argued that these issues should not be entertained
for not having been presented during pre-trial.56
Sales Cases (2017-2018) ni Treeng
In their comment on the reply
memorandum,57 Olivarez Realty Corporation and
Dr. Olivarez reiterated their arguments that certain
provisions of the deed of conditional sale were
ambiguous and that the complaint prayed for
irreconcilable reliefs.58
As to the additional issues raised in the
supplemental memorandum, defendants argued
that issues not raised and evidence not identified
and premarked during pre-trial may still be raised
and presented during trial for good cause shown.
Olivarez Realty Corporation and Dr. Olivarez
prayed that Castillos complaint be dismissed for
lack of merit.59
Ruling of the trial court
The trial court found that Olivarez Realty
Corporation and Dr. Olivarezs answer
"substantially [admitted the material allegations of
Castillos] complaint and [did] not . . . raise any
genuine issue [as to any material fact]."60
Defendants admitted that Castillo owned the parcel
of land covered by Transfer Certificate of Title No.
T-19972. They likewise admitted the genuineness
of the deed of conditional sale and that the
corporation only paid P2,500,000.00 of the agreed
purchase price.61
According to the trial court, the corporation was
responsible for suing the Philippine Tourism
Authority and for paying the tenants disturbance
compensation. Since defendant corporation neither
filed any case nor paid the tenants disturbance
compensation, the trial court ruled that defendant
corporation had no right to withhold payments from
Castillo.62
As to the alleged ambiguity of paragraphs E and F
of the deed of conditional sale, the trial court ruled
that Castillo and his witness, Marissa Magsino,
"clearly established"63 in their affidavits that the
deed of conditional sale was a contract of
adhesion. The true agreement between the parties
was that the corporation would both clear the land
of the tenants and pay them disturbance
compensation.
With these findings, the trial court ruled that
Olivarez Realty Corporation breached the contract
ofconditional sale.1wphi1 In its decision64 dated
April 23, 2007, the trial court ordered the deed of
conditional sale rescinded and the P2,500,000.00
forfeited in favor of Castillo "as damages under
Article 1191 of the Civil Code."65
The trial court declared Olivarez Realty Corporation
and Dr. Olivarez solidarily liable to Castillo for
500,000.00 as moral damages, P50,000.00 as
exemplary damages, and P50,000.00 as costs of
suit.66
Ruling of the Court of Appeals
Olivarez Realty Corporation and Dr. Olivarez
appealed to the Court of Appeals.67
In its decision68 dated July 20, 2010, the Court of
Appeals affirmed in totothe trial courts decision.

According to the appellate court, the trial court "did
not err in its finding that there is no genuine
controversy as to the facts involved [in this
case]."69 The trial court, therefore, correctly
rendered summary judgment.70
As to the trial courts award of damages, the
appellatecourt ruled that a court may award
damages through summary judgment "if the parties
contract categorically [stipulates] the respective
obligations of the parties in case of default."71 As
found by the trial court,paragraph I of the deed of
conditional sale categorically states that "in case
[the deed of conditional sale] is cancelled, any
improvementintroduced by [Olivarez Realty
Corporation] on the property shall be forfeited
infavor of [Castillo]."72 Considering that Olivarez
Realty Corporation illegally retained possession of
the property, Castillo forewent rentto the property
and "lost business
opportunities."73 The P2,500,000.00 down
payment, according to the appellate court,
shouldbe forfeited in favor of Castillo. Moral and
exemplary damages and costs ofsuit were properly
awarded.
On August 11, 2010, Olivarez RealtyCorporation
and Dr. Olivarez filed their motion for
reconsideration,74 arguing that the trial court
exceeded its authority in forfeiting
the P2,500,000.00 down payment and
awarding P500,000.00 in moral damages to
Castillo. They argued that Castillo only prayed for a
total of P500,000.00 as actual and moral damages
in his complaint.75 Appellants prayed that the Court
of Appeals "take a second hard look"76 at the case
and reconsider its decision.
In the resolution77 dated March 18, 2011, the Court
of Appeals denied the motion for reconsideration.
Proceedings before this court
Olivarez Realty Corporation and Dr. Olivarez filed
their petition for review on certiorari78 with this
court. Petitionersargue that the trial court and the
Court of Appeals erred in awarding damages to
Castillo. Under Section 3, Rule 35 of the 1997
Rules ofCivil Procedure, summary judgment may
be rendered except as to the amountof damages.
Thus, the Court of Appeals "violated the procedural
steps in rendering summary judgment."79
Petitioners reiterate that there are genuine issues
ofmaterial fact to be resolved in this case. Thus, a
full-blown trial is required, and the trial court
prematurely decided the case through summary
judgment. They cite Torres v. Olivarez Realty
Corporation and Dr. Pablo Olivarez,80 a case
decided by the Ninth Division of the Court of
Appeals.
In Torres, Rosario Torres was the registeredowner
of a parcel of land covered by Transfer Certificate
of Title No. T-19971. Under a deed of conditional
sale, she sold her property to OlivarezRealty
Corporation for P17,345,900.00. When the
corporation failed to fully pay the purchase price,
she sued for rescission of contractwith damages. In
their answer, the corporation and Dr. Olivarez
argued thatthey discontinued payment because
Sales Cases (2017-2018) ni Treeng
Rosario Torres failed to clear the land of the
tenants.
Similar to Castillo, Torres filed a motion for
summary judgment, which the trial court granted.
On appeal, the Court of Appeals set aside the trial
courts summary judgment and remanded the case
to the trial court for further proceedings.81 The
Court of Appeals ruled that the material allegations
of the complaint "were directly disputed by [the
corporation and Dr. Olivarez] in their
answer"82 when they argued that they refused to
pay because Torres failed to clear the land of the
tenants.
With the Court of Appeals decision in
Torres,Olivarez Realty Corporation and Dr.
Olivarez argue that this case should likewise be
remanded to the trial court for further proceedings
under the equipoise rule.
Petitioners maintain that Castillo availed himself of
the irreconcilable reliefs of reformation of
instrument and rescission of contract.83 Thus, the
trial court should have dismissed the case outright.
Petitioners likewise argue that the trial court had no
jurisdiction to decide the case as Castillo failed
topay the correct docket fees.84 Petitioners argue
that Castillo should have paid docket fees based on
the propertys fair market value since Castillos
complaint is a real action.85
In his comment,86 Castillo maintains that there are
no genuine issues as to any material fact inthis
case. The trial court, therefore, correctly rendered
summary judgment.
As to petitioners claim that the trial court had no
jurisdiction to decide the case, Castillo argues that
he prayed for rescission of contract in his
complaint. This action is incapable of pecuniary
estimation, and the Clerk of Court properly
computed the docket fees based on this
prayer.87 Olivarez Realty Corporation and Dr.
Olivarez replied,88reiterating their arguments in the
petition for review on certiorari.
The issues for our resolution are the following:
I. Whether the trial court erred in rendering
summary judgment;
II. Whether proper docket fees were paid in
this case.
The petition lacks merit.
I
The trial court correctly rendered
summary judgment, as there were no
genuine issues of material fact in this case
Trial "is the judicial examination and determination
of the issues between the parties to the
action."89 During trial, parties "present their
respective evidence of their claims and
defenses."90 Parties to an action have the right "to a
plenary trial of the case"91 to ensure that they were

given a right to fully present evidence on their
respective claims.
There are instances, however, whentrial may be
dispensed with. Under Rule 35 of the 1997 Rules of
Civil Procedure, a trial court may dispense with trial
and proceed to decide a case if from the pleadings,
affidavits, depositions, and other papers on file,
there is no genuine issue as to any material fact. In
such a case, the judgment issued is called a
summary judgment.
A motion for summary judgment is filed either by
the claimant or the defending party.92 The trial court
then hears the motion for summary judgment. If
indeed there are no genuine issues of material fact,
the trial court shall issue summary judgment.
Section 3, Rule 35 of the 1997 Rules of Civil
Procedure provides:
SEC. 3. Motion and proceedings thereon. The
motion shall be served at least ten (10) days
beforethe time specified for the hearing. The
adverse party may serve opposing affidavits,
depositions, or admission at least three (3) days
before the hearing. After the hearing, the judgment
sought shall be rendered forthwith ifthe pleadings,
supporting affidavits, depositions, and admissions
on file, showthat, except as to the amount of
damages, there is no genuine issue as to any
material fact and that the moving party is entitled to
a judgment as a matter of law.
An issue of material fact exists if the answer or
responsive pleading filed specifically denies the
material allegations of fact set forth in the complaint
or pleading. If the issue offact "requires the
presentation of evidence, it is a genuine issue of
fact."93 However, if the issue "could be resolved
judiciously by plain resort"94 to the pleadings,
affidavits, depositions, and other paperson file, the
issue of fact raised is sham, and the trial court may
resolve the action through summary judgment.
A summary judgment is usually distinguished from
a judgment on the pleadings. Under Rule 34 of the
1997 Rules of Civil Procedure, trial may likewise be
dispensed with and a case decided through
judgment on the pleadings if the answer filed fails
to tender an issue or otherwise admits the material
allegations of the claimants pleading.95
Judgment on the pleadings is proper when the
answer filed fails to tender any issue, or otherwise
admitsthe material allegations in the
complaint.96 On the other hand, in a summary
judgment, the answer filed tenders issues as
specific denials and affirmative defenses are
pleaded, but the issues raised are sham, fictitious,
or otherwise not genuine.97
In this case, Olivarez Realty Corporation admitted
that it did not fully pay the purchase price as agreed
upon inthe deed of conditional sale. As to why it
withheld payments from Castillo, it set up the
following affirmative defenses: First, Castillo did not
filea case to void the Philippine Tourism Authoritys
title to the property; second,Castillo did not clear
the land of the tenants; third, Castillo allegedly sold
the property to a third person, and the subsequent
sale is currently being litigated beforea Quezon City
court.
Sales Cases (2017-2018) ni Treeng
Considering that Olivarez RealtyCorporation and
Dr. Olivarezs answer tendered an issue, Castillo
properly availed himself of a motion for summary
judgment.
However, the issues tendered by Olivarez Realty
Corporation and Dr. Olivarezs answer are not
genuine issues of material fact. These are issues
that can be resolved judiciously by plain resort to
the pleadings, affidavits, depositions, and other
papers on file; otherwise, these issues are sham,
fictitious, or patently unsubstantial.
Petitioner corporation refused to fully pay the
purchase price because no court case was filed to
void the Philippine Tourism Authoritys title on the
property. However, paragraph C of the deed of
conditional sale is clear that petitioner Olivarez
Realty Corporation is responsible for initiating court
action against the Philippine Tourism Authority:
C. [Olivarez Realty Corporation] assumes the
responsibility of taking necessary legal action thru
Court to have the claim/title TCT T-18493 of
Philippine Tourism Authority over the above-
described property be nullified and voided; with the
full assistance of [Castillo].98
Castillos alleged failureto "fully assist"99 the
corporation in filing the case is not a defense. As
the trial court said, "how can [Castillo] assist [the
corporation] when [the latter] did not file the action
[in the first place?]"100
Neither can Olivarez Realty Corporation argue that
it refused to fully pay the purchase price due to the
Philippine Tourism Authoritys adverse claim on the
property. The corporation knew of this adverse
claim when it entered into a contract of conditional
sale. It even obligated itself under paragraph C of
the deed of conditional sale to sue the Philippine
Tourism Authority. This defense, therefore, is
sham.
Contrary to petitioners claim, there is no "obvious
ambiguity"101 as to which should occur first the
payment of the disturbance compensation or the
clearing of the land within six months from the
signing of the deed of conditional sale. The
obligations must be performed simultaneously. In
this case, the parties should have coordinated to
ensure that tenants on the property were paid
disturbance compensation and were made to
vacate the property six months after the signingof
the deed of conditional sale.
On one hand, pure obligations, or obligations
whose performance do not depend upon a future or
uncertainevent, or upon a past event unknown to
the parties, are demandable at once.102 On the
other hand, obligations with a resolutory period also
take effect at once but terminate upon arrival of the
day certain.103
Olivarez Realty Corporations obligation to pay
disturbance compensation is a pure obligation. The
performance of the obligation to pay disturbance
compensation did not depend on any condition.
Moreover, the deed of conditional sale did not give
the corporation a period to perform the obligation.
As such, the obligation to pay disturbance

compensation was demandable at once. Olivarez
RealtyCorporation should have paid the tenants
disturbance compensation upon execution of the
deed of conditional sale.
With respect to Castillos obligation to clear the land
of the tenants within six months from the signing of
the contract, his obligation was an obligation with a
resolutory period. The obligation to clear the land of
the tenants took effect at once, specifically, upon
the parties signing of the deed of conditional sale.
Castillo had until October 2, 2000, six months from
April 5, 2000 when the parties signed the deed of
conditional sale, to clear the land of the tenants.
Olivarez Realty Corporation, therefore, had no right
to withhold payments of the purchase price. As the
trial court ruled, Olivarez Realty Corporation "can
only claim non-compliance [of the obligation to
clear the land of the tenants in] October 2000."104 It
said:
. . . it is clear that defendant [Olivarez Realty
Corporation] should have paid the installments on
the P5 million downpayment up to October 8, 2000,
or a total of P4,500,000.00. That is the agreement
because the only time that defendant [corporation]
can claim non-compliance of the condition is after
October, 2000 and so it has the clear obligation
topay up to the October 2000 the agreed
installments. Since it paid only 2,500,000.00, then a
violation of the contract has already been
committed. . . .105
The claim that Castillo sold the property to another
is fictitious and was made in bad faith to prevent
the trial court from rendering summary judgment.
Petitioners did not elaborate on this defense and
insisted on revealing the identity of the buyer only
during trial.106 Even in their petition for review on
certiorari, petitioners never disclosed the name of
this alleged buyer. Thus, as the trial court ruled, this
defense did not tender a genuine issue of fact, with
the defense "bereft of details."107
Castillos alleged prayer for the irreconcilable reliefs
of rescission of contract and reformation of
instrument is not a ground to dismiss his complaint.
A plaintiff may allege two or more claims in the
complaint alternatively or hypothetically, either in
one cause of action or in separate causes of action
per Section 2, Rule 8 of the 1997 Rules of Civil
Procedure.108 It is the filing of two separatecases
for each of the causes of action that is prohibited
since the subsequently filed case may be
dismissed under Section 4, Rule 2 of the 1997
Rules of Civil Procedure109 on splitting causes of
action.
As demonstrated, there are no genuineissues of
material fact in this case. These are issues that can
be resolved judiciously by plain resort to the
pleadings, affidavits, depositions, and other papers
on file. As the trial court found, Olivarez Realty
Corporation illegally withheld payments of the
purchase price. The trial court did not err in
rendering summary judgment.
II
Castillo is entitled to cancel the contract
of conditional sale
Sales Cases (2017-2018) ni Treeng
Since Olivarez Realty Corporation illegally withheld
payments of the purchase price, Castillo is entitled
to cancel his contract with petitioner corporation.
However, we properly characterize the parties
contract as a contract to sell, not a contract of
conditional sale.
In both contracts to sell and contracts of conditional
sale, title to the property remains with the seller
until the buyer fully pays the purchase price.110 Both
contracts are subject to the positive suspensive
condition of the buyers full payment of the
purchase price.111
In a contract of conditional sale, the buyer
automatically acquires title to the property upon full
payment of the purchase price.112 This transfer of
title is "by operation of law without any further act
having to be performed by the seller."113 In a
contract to sell, transfer of title to the prospective
buyer is not automatic.114 "The prospective seller
[must] convey title to the property [through] a deed
of conditional sale."115
The distinction is important to determine the
applicable laws and remedies in case a party does
not fulfill his or her obligations under the contract. In
contracts of conditional sale, our laws on sales
under the Civil Code of the Philippines apply. On
the other hand, contracts to sell are not governed
by our law on sales116 but by the Civil Code
provisions on conditional obligations.
Specifically, Article 1191 of the Civil Code on the
right to rescind reciprocal obligations does not
apply to contracts to sell.117 As this court explained
in Ong v. Court of Appeals,118 failure to fully pay the
purchase price in contracts to sell is not the breach
of contract under Article 1191.119 Failure to fully pay
the purchase price is "merely an event which
prevents the [sellers] obligation to convey title from
acquiring binding force."120 This is because "there
can be no rescission of an obligation that is still
nonexistent, the suspensive condition not having
[happened]."121
In this case, Castillo reserved his title to the
property and undertook to execute a deed of
absolute sale upon Olivarez Realty Corporations
full payment of the purchase price.122 Since Castillo
still has to execute a deed of absolute sale to
Olivarez RealtyCorporation upon full payment of
the purchase price, the transfer of title is
notautomatic. The contract in this case is a contract
to sell.
As this case involves a contract tosell, Article 1191
of the Civil Code of the Philippines does not apply.
The contract to sell is instead cancelled, and the
parties shall stand as if the obligation to sell never
existed.123
Olivarez Realty Corporation shall return the
possession of the property to Castillo. Any
improvement that Olivarez Realty Corporation may
have introduced on the property shall be forfeited in
favor of Castillo per paragraph I of the deed of
conditional sale:
I. Immediately upon signing thisContract, [Olivarez
Realty Corporation] shall be entitled to occupy,

possess and develop the subject property. In case
this Contract is cancelled, any improvement
introduced by [Olivarez Realty Corporation] on the
property shall be forfeited in favor of [Castillo.]124
As for prospective sellers, thiscourt generally
orders the reimbursement of the installments
paidfor the property when setting aside contracts to
sell.125 This is true especially ifthe propertys
possession has not been delivered to the
prospective buyer prior to the transfer of title.
In this case, however, Castillo delivered the
possession of the property to Olivarez Realty
Corporation prior to the transfer of title. We cannot
order the reimbursement of the installments paid.
In Gomez v. Court of Appeals,126 the City of Manila
and Luisa Gomez entered into a contract to sell
over a parcel of land. The city delivered the
propertys possession to Gomez. She fully paid the
purchase price for the property but violated the
terms of the contract to sell by renting out the
property to other persons. This court set aside the
contract to sell for her violation of the terms of the
contract to sell. It ordered the installments paid
forfeited in favor of the City of Manila "as
reasonable compensation for [Gomezs] use of the
[property]"127 for eight years.
In this case, Olivarez Realty Corporation failed to
fully pay the purchase price for the property. It only
paid P2,500,000.00 out of the P19,080,490.00
agreed purchase price. Worse, petitioner
corporation has been in possession of Castillos
property for 14 years since May 5, 2000 and has
not paid for its use of the property.
Similar to the ruling in Gomez, we order
the P2,500,000.00 forfeited in favor of Castillo as
reasonable compensation for Olivarez Realty
Corporations use of the property.
III
Olivarez Realty Corporation is liable for
moral and exemplary damages and
attorneys fees
We note that the trial court erred in rendering
summary judgment on the amount of damages.
Under Section 3, Rule 35 of the 1997 Rules of Civil
Procedure, summary judgment may be rendered,
except as to the amount of damages.
In this case, the trial court erred in forfeiting
the P2,500,000.00 in favor of Castillo as damages
under Article 1191 of the Civil Code of the
Philippines. As discussed, there is nobreach of
contract under Article 1191 in this case.
The trial court likewise erred inrendering summary
judgment on the amount of moral and exemplary
damages and attorneys fees.
Nonetheless, we hold that Castillois entitled to
moral damages, exemplary damages, and
attorneys fees.
Moral damages may be awarded in case the
claimant experienced physical suffering, mental
anguish, fright, serious anxiety, besmirched
Sales Cases (2017-2018) ni Treeng
reputation, wounded feelings, moral shock, social
humiliation, and similar injury.128
As for exemplary damages, they are awarded in
addition to moral damages by way of example or
correction for the public good.129 Specifically in
contracts, exemplary damages may be awarded if
the defendant acted in a wanton,
fraudulent,reckless, oppressive, or malevolent
manner.130
Under the deed of conditional sale, Olivarez Realty
Corporation may only suspend the monthly down
payment in case Castillo fails to clear the land of
the tenants six months from the signing of the
instrument. Yet, even before the sixth month
arrived, Olivarez Realty Corporation withheld
payments for Castillos property. It evenused as a
defense the fact that no case was filed against the
PhilippineTourism Authority when, under the deed
of conditional sale, Olivarez Realty Corporation was
clearly responsible for initiating action against the
Philippine Tourism Authority. These are oppressive
and malevolent acts, and we find Castillo entitled
to P500,000.00 moral damages and P50,000.00
exemplary damages:
Plaintiff Castillo is entitled to moral damages
because of the evident bad faith exhibited by
defendants in dealing with him regarding the sale of
his lot to defendant [Olivarez Realty Corporation].
He suffered much prejudice due to the failure of
defendants to pay him the balance of purchase
price which he expected touse for his needs which
caused him wounded feelings, sorrow, mental
anxiety and sleepless nights for which defendants
should pay P500,000.00 as moral damages more
than six (6) years had elapsed and defendants
illegally and unfairly failed and refused to pay their
legal obligations to plaintiff, unjustly taking
advantage of a poor uneducated man like plaintiff
causing much sorrow and financial difficulties.
Moral damages in favor of plaintiff is clearly justified
. . . [Castillo] is also entitled to P50,000.00 as
exemplary damages to serve as a deterrent to
other parties to a contract to religiously comply with
their prestations under the contract.131
We likewise agree that Castillo is entitled to
attorneys fees in addition to the exemplary
damages.132 Considering that Olivarez Realty
Corporation refused to satisfy Castillosplainly valid,
just, and demandable claim,133 the award
of P50,000.00 as attorneys fees is in order.
However, we find that Dr. Pablo R.Olivarez is not
solidarily liable with Olivarez Realty Corporation for
the amount of damages.
Under Article 1207 of the Civil Code of the
Philippines, there is solidary liability only when the
obligation states it or when the law or the nature of
the obligation requires solidarity.134 In case of
corporations, they are solely liable for their
obligations.135 The directors or trustees and officers
are not liable with the corporation even if it is
through their acts that the corporation incurred the
obligation. This is because a corporation is
separate and distinct from the persons comprising
it.136
As an exception to the rule, directors or trustees
and corporate officers may be solidarily liable with

the corporation for corporate obligations if they
acted "in bad faith or with gross negligence in
directing the corporate affairs."137
In this case, we find that Castillo failed to prove with
preponderant evidence that it was through Dr.
Olivarezs bad faith or gross negligence that
Olivarez Realty Corporation failed to fully pay the
purchase price for the property. Dr. Olivarezs
alleged act of making Castillo sign the deed of
conditional sale without explaining to the latter the
deeds terms in Tagalog is not reason to hold Dr.
Olivarez solidarily liable with the corporation.
Castillo had a choice not to sign the deed of
conditional sale. He could have asked that the deed
of conditional sale be written in Tagalog. Thus,
Olivarez Realty Corporation issolely liable for the
moral and exemplary damages and attorneys fees
to Castillo.
IV
The trial court acquired jurisdiction over
Castillos action as he paid the correct
docket fees
Olivarez Realty Corporation and Dr. Olivarez
claimed that the trial court had no jurisdiction to
take cognizance of the case. In the reply/motion to
dismiss the complaint138 they filed with the Court of
Appeals, petitioners argued that Castillo failed to
pay the correct amount of docket fees. Stating that
this action is a real action, petitioners argued that
the docket fee Castillo paid should have been
based on the fair market value of the property. In
this case, Castillo only paid 4,297.00, which is
insufficient "if the real nature of the action was
admitted and the fair market value of the property
was disclosed and made the basis of the amount of
docket fees to be paid to the court."139 Thus,
according to petitioners, the case should be
dismissed for lack of jurisdiction.
Castillo countered that his action for rescission is
an action incapable of pecuniary estimation. Thus,
the Clerk of Court of the Regional Trial Court of
Tanauan City did not err in assessing the docket
fees based on his prayer.
We rule for Castillo. In De Leon v. Court of
Appeals,140 this court held that an action for
rescission of contract of sale of real property is an
action incapable of pecuniary estimation. In De
Leon, the action involved a real property.
Nevertheless, this court held that "it is the nature of
the action as one for rescission of contract which is
controlling."141 Consequently, the docket fees to be
paid shall be for actions incapableof pecuniary
estimation, regardless if the claimant may
eventually recover the real property. This court
said:
. . . the Court in Bautista v.Lim, held that an action
for rescission of contract is one which cannot be
estimated and therefore the docket fee for its filing
should be the flat amount of P200.00 as then fixed
in the former Rule 141, 141, 5(10). Said this
Court:
We hold that Judge Dalisay did not err in
considering Civil Case No. V-144 as basically one
for rescission or annulment of contract which is not
susceptible of pecuniary estimation (1 Moran's
Sales Cases (2017-2018) ni Treeng
Comments on the Rules of Court, 1970 Ed, p. 55;
Lapitan vs. Scandia, Inc., L-24668, July 31, 1968,
24 SCRA 479, 781-483).
Consequently, the fee for docketing it is P200, an
amount already paid by plaintiff, now respondent
Matilda Lim.1wphi1 (She should pay also the two
pesos legal research fund fee, if she has not paid it,
as required in Section 4 of Republic Act No. 3870,
the charter of the U.P. Law Center).
Thus, although eventually the result may be the
recovery of land, it is the nature of the action as
one for rescission of contract which is controlling.
The Court of Appeals correctly applied these cases
to the present one. As it said:
We would like to add the observations that since
the action of petitioners [private respondents]
against private respondents [petitioners] is solely
for annulment or rescission which is not susceptible
of pecuniary estimation, the action should not be
confused and equated with the "value of the
property" subject of the transaction; that by the very
nature of the case, the allegations, and specific
prayer in the complaint, sans any prayer for
recovery of money and/or value of the transaction,
or for actual or compensatory damages, the
assessment and collection of the legal fees should
not be intertwined with the merits of the case and/or
what may be its end result; and that to sustain
private respondents' [petitioners'] position on what
the respondent court may decide after all, then the
assessment should be deferred and finally
assessed only after the court had finally decided
the case, which cannot be done because the rules
require that filing fees should be based on what is
alleged and prayed for in the face of the complaint
and paid upon the filing of the complaint.142
Although we discussed that there isno rescission of
contract to speak of in contracts of conditional sale,
we hold that an action to cancel a contract to sell,
similar to an action for rescission of contract of
sale, is an action incapable of pecuniary estimation.
Like any action incapable of pecuniary estimation,
an action to cancel a contract to sell "demands an
inquiry into other factors"143 aside from the amount
of money to be awarded to the claimant.
Specifically in this case, the trial court principally
determined whether Olivarez Realty Corporation
failed to pay installments of the propertys purchase
price as the parties agreed upon in the deed of
conditional sale. The principal natureof Castillos
action, therefore, is incapable of pecuniary
estimation.
All told, there is no issue that the parties in this
case entered into a contract to sell a parcel of land
and that Olivarez Realty Corporation failed to fully
pay the installments agreed upon.Consequently,
Castillo is entitled to cancel the contract to sell.
WHEREFORE, the petition for review on certiorari
is DENIED. The Court of Appeals decision dated
July 20, 2010 and in CA-G.R. CV No. 91244 is
AFFIRMEDwith MODIFICATION.
The deed of conditional sale dated April 5, 2000 is
declared CANCELLED. Petitioner Olivarez Realty
Corporation shall RETURN to respondent Benjamin
Castillo the possession of the property covered by
 Sales Cases (2017-2018) ni Treeng
Transfer Certificate of Title No. T-19972 together
with all the improvements that petitioner corporation
introduced on the property. The amount
of P2,500,000.00 is FORFEITED in favor of
respondent Benjamin Castillo as reasonable
compensation for the use of petitioner Olivarez
Realty Corporation of the property.

Petitioner Olivarez Realty Corporation shall PAY

respondent Benjamin Castillo P500,000.00 as
moral damages, P50,000.00 as exemplary
damages, and P50,000.00 as attorney's fees with
interest at 6% per annum from the time this
decision becomes final and executory until
petitioner

corporation fully pays the amount of damages.144

SO ORDERED.

MARVIC MARIO VICTOR F. LEONEN