G.R. No.
167195 May 8, 2009
ASSET PRIVATIZATION TRUST, Petitioner
- versus
T.J. ENTERPRISES, Respondent
x----------------------------------------------------------------------------------x
DECISION
TINGA, J.::
This is a Rule 45 petition[1] which seeks the reversal of the Court of Appeals
decision and resolution[3] affirming the RTCs decision[4] holding petitioner liable for actual
[2]
damages for breach of contract.
Petitioner Asset Privatization Trust[5] (petitioner) was a government entity created
for the purpose to conserve, to provisionally manage and to dispose assets of government
institutions.[6] Petitioner had acquired from the Development Bank of the Philippines (DBP)
assets consisting of machinery and refrigeration equipment which were then stored
at Golden City compound, Pasay City. The compound was then leased to and in the physical
possession of Creative Lines, Inc., (Creative Lines). These assets were being sold on an as-is-
where-is basis.
On 7 November 1990, petitioner and respondent entered into an absolute deed of
sale over certain machinery and refrigeration equipment identified as Lots Nos. 2, 3 and 5.
Respondent paid the full amount of P84,000.00 as evidenced by petitioners Receipt No.
12844. After two (2) days, respondent demanded the delivery of the machinery it had
purchased. Sometime in March 1991, petitioner issued Gate Pass No. 4955. Respondent was
able to pull out from the compound the properties designated as Lots Nos. 3 and 5. However,
during the hauling of Lot No. 2 consisting of sixteen (16) items, only nine (9) items were
pulled out by respondent. The seven (7) items that were left behind consisted of the
following: (1) one (1) Reefer Unit 1; (2) one (1) Reefer Unit 2; (3) one (1) Reefer Unit 3; (4)
one (1) unit blast freezer with all accessories; (5) one (1) unit chest freezer; (6) one (1) unit
room air-conditioner; and (7) one (1) unit air compressor. Creative Lines employees
prevented respondent from hauling the remaining machinery and equipment.
Respondent filed a complaint for specific performance and damages against
petitioner and Creative Lines.[7] During the pendency of the case, respondent was able to pull
out the remaining machinery and equipment. However, upon inspection it was discovered
that the machinery and equipment were damaged and had missing parts.
Petitioner argued that upon the execution of the deed of sale it had complied with
its obligation to deliver the object of the sale since there was no stipulation to the contrary. It
further argued that being a sale on an as-is-where-is basis, it was the duty of respondent to
take possession of the property. Petitioner claimed that there was already a constructive
delivery of the machinery and equipment.
The RTC ruled that the execution of the deed of absolute sale did not result in
constructive delivery of the machinery and equipment. It found that at the time of the sale,
petitioner did not have control over the machinery and equipment and, thus, could not have
transferred ownership by constructive delivery. The RTC ruled that petitioner is liable for
breach of contract and should pay for the actual damages suffered by respondent.
On petitioners appeal, the Court of Appeals affirmed in toto the decision of the
RTC.
Hence this petition.
Before this Court, petitioner raises issues by attributing the following errors to the
Court of Appeals, to wit:
I.
The Court of Appeals erred in not finding that petitioner had
complied with its obligation to make delivery of the properties
subject of the contract of sale.
II.
The Court of Appeals erred in not considering that the sale was
on an as-is-where-is basis wherein the properties were sold in
the condition and in the place where they were located.
III.
The Court of Appeals erred in not considering that respondents
acceptance of petitioners disclaimer of warranty forecloses
respondents legal basis to enforce any right arising from the
contract.
IV.
The reason for the failure to make actual delivery of the
properties was not attributable to the fault and was beyond the
control of petitioner. The claim for damages against petitioner
is therefore bereft of legal basis.[8]
The first issue hinges on the determination of whether there was a constructive
delivery of the machinery and equipment upon the execution of the deed of absolute sale
between petitioner and respondent.
 The ownership of a thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof.[9] The thing sold shall be understood as delivered when it is
placed in the control and possession of the vendee.[10]
As a general rule, when the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the contract, if
from the deed the contrary does not appear or cannot clearly be inferred. And with regard to
movable property, its delivery may also be made by the delivery of the keys of the place or
depository where it is stored or kept.[11] In order for the execution of a public instrument to
effect tradition, the purchaser must be placed in control of the thing sold.[12]
However, the execution of a public instrument only gives rise to a prima
facie presumption of delivery. Such presumption is destroyed when the delivery is not
effected because of a legal impediment.[13] It is necessary that the vendor shall have control
over the thing sold that, at the moment of sale, its material delivery could have been
made.[14]Thus, a person who does not have actual possession of the thing sold cannot
transfer constructive possession by the execution and delivery of a public instrument.[15]
In this case, there was no constructive delivery of the machinery and equipment upon the
execution of the deed of absolute sale or upon the issuance of the gate pass since it was not
petitioner but Creative Lines which had actual possession of the property. The presumption
of constructive delivery is not applicable as it has to yield to the reality that the purchaser
was not placed in possession and control of the property.
On the second issue, petitioner posits that the sale being in an as-is-where-is basis,
respondent agreed to take possession of the things sold in the condition where they are
found and from the place where they are located. The phrase as-is where-is basis pertains
solely to the physical condition of the thing sold, not to its legal situation. [16] It is merely
descriptive of the state of the thing sold. Thus, the as-is where-is basis merely describes the
actual state and location of the machinery and equipment sold by petitioner to respondent.
The depiction does not alter petitioners responsibility to deliver the property to respondent.
Anent the third issue, petitioner maintains that the presence of the disclaimer of
warranty in the deed of absolute sale absolves it from all warranties, implied or otherwise.
The position is untenable.
The vendor is bound to transfer the ownership of and deliver, as well as warrant
the thing which is the object of the sale.[17] Ownership of the thing sold is acquired by the
vendee from the moment it its delivered to him in any of the ways specified in articles 1497
to 1501, or in any other manner signifying an agreement that the possession is transferred
from the vendor to the vendee.[18] A perusal of the deed of absolute sale shows that both the
vendor and the vendee represented and warranted to each other that each had all the
requisite power and authority to enter into the deed of absolute sale and that they shall
perform each of their respective obligations under the deed of absolute in accordance with
the terms thereof.[19] As previously shown, there was no actual or constructive delivery of the
things sold. Thus, petitioner has not performed its obligation to transfer ownership and
possession of the things sold to respondent.
As to the last issue, petitioner claims that its failure to make actual delivery was
beyond its control. It posits that the refusal of Creative Lines to allow the hauling of the
machinery and equipment was unforeseen and constituted a fortuitous event.
The matter of fortuitous events is governed by Art. 1174 of the Civil Code which
provides that except in cases expressly specified by the law, or when it is otherwise declared
by stipulation, or when the nature of the obligation requires assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which though foreseen,
were inevitable. The elements of a fortuitous event are: (a) the cause of the unforeseen and
unexpected occurrence, must have been independent of human will; (b) the event that
constituted the caso fortuito must have been impossible to foresee or, if foreseeable,
impossible to avoid; (c) the occurrence must have been such as to render it impossible for
the debtors to fulfill their obligation in a normal manner, and; (d) the obligor must have been
free from any participation in the aggravation of the resulting injury to the creditor.[20]
A fortuitous event may either be an act of God, or natural occurrences such as
floods or typhoons, or an act of man such as riots, strikes or wars. [21] However, when the loss
is found to be partly the result of a persons participationwhether by active intervention,
neglect or failure to actthe whole occurrence is humanized and removed from the rules
applicable to a fortuitous event.[22]
We quote with approval the following findings of the Court of Appeals, to wit:
We find that Creative Lines refusal to surrender the property to
the vendee does not constitute force majeure which exculpates APT from
the payment of damages. This event cannot be considered unavoidable
or unforeseen. APT knew for a fact that the properties to be sold were
housed in the premises leased by Creative Lines. It should have made
arrangements with Creative Lines beforehand for the smooth and orderly
removal of the equipment. The principle embodied in the act of God
doctrine strictly requires that the act must be one occasioned exclusively
by the violence of nature and all human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or neglect, or
failure to act, the whole occurrence is thereby humanized, as it were, and
removed from the rules applicable to the acts of God.[23]
Moreover, Art. 1504 of the Civil Code provides that where actual delivery has been
delayed through the fault of either the buyer or seller the goods are at the risk of the party in
fault. The risk of loss or deterioration of the goods sold does not pass to the buyer until there
is actual or constructive delivery thereof. As previously discussed, there was no actual or
constructive delivery of the machinery and equipment. Thus, the risk of loss or deterioration
of property is borne by petitioner. Thus, it should be liable for the damages that may arise
from the delay.
Assuming arguendo that Creative Lines refusal to allow the hauling of the
machinery and equipment is a fortuitous event, petitioner will still be liable for damages. This
Court agrees with the appellate courts findings on the matter of damages, thus:
 Article 1170 of the Civil Code states: Those who in the
performance of their obligations are guilty of fraud, negligence, or delay
and those who in any manner contravene the tenor thereof are liable for
damages. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the natural
and probable consequences of the breach of the obligation, and which
the parties have foreseen or could have reasonably foreseen at the time
the obligation was constituted.[24] The trial court correctly awarded actual
damages as pleaded and proven during trial.[25]

WHEREFORE, the Court AFFIRMS in toto the Decision of the Court of Appeals
dated 31 August 2004. Cost against petitioner.

SO ORDERED.
 [G.R. No. 124242. January 21, 2005]
SAN LORENZO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, PABLO S.
BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents Miguel Lu
and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in
Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808
square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to
respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00)
per square meter. Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as
evidenced by a memorandum receipt issued by Pacita Lu of the same date. Several other
payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution
of a final deed of sale in his favor so that he could effect full payment of the purchase price.
In the same letter, Babasanta notified the spouses about having received information that
the spouses sold the same property to another without his knowledge and consent. He
demanded that the second sale be cancelled and that a final deed of sale be issued in his
favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having
agreed to sell the property to him at fifteen pesos (P15.00) per square meter. She, however,
reminded Babasanta that when the balance of the purchase price became due, he requested
for a reduction of the price and when she refused, Babasanta backed out of the sale. Pacita
added that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through
Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial
Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and
Damages[1] against his co-respondents herein, the Spouses Lu. Babasanta alleged that the
lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the spouses at
fifteen pesos (P15.00) per square meter. Despite his repeated demands for the execution of a
final deed of sale in his favor, respondents allegedly refused.
In their Answer,[2] the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta
and when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter
and Babasanta, without the knowledge and consent of Miguel Lu, had verbally agreed to
transform the transaction into a contract to sell the two parcels of land to Babasanta with
the fifty thousand pesos (P50,000.00) to be considered as the downpayment for the property
and the balance to be paid on or before 31 December 1987. Respondents Lu added that as of
November 1987, total payments made by Babasanta amounted to only two hundred
thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two
hundred sixty thousand pesos (P260,000.00) despite repeated demands. Babasanta had
purportedly asked Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve
pesos (P12.00) per square meter and when the Spouses Lu refused to grant Babasantas
request, the latter rescinded the contract to sell and declared that the original loan
transaction just be carried out in that the spouses would be indebted to him in the amount of
two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased
Interbank Managers Check No. 05020269 in the amount of two hundred thousand pesos
(P200,000.00) in the name of Babasanta to show that she was able and willing to pay the
balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January 1990[3] wherein he
prayed for the issuance of a writ of preliminary injunction with temporary restraining order
and the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He
contended that the issuance of a preliminary injunction was necessary to restrain the
transfer or conveyance by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition[4] to the amended complaint contending that it
raised new matters which seriously affect their substantive rights under the original
complaint. However, the trial court in its Order dated 17 January 1990[5] admitted the
amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC)
filed a Motion for Intervention[6] before the trial court. SLDC alleged that it had legal interest
in the subject matter under litigation because on 3 May 1989, the two parcels of land
involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with
Mortgage.[7] It alleged that it was a buyer in good faith and for value and therefore it had a
better right over the property in litigation.
In his Opposition to SLDCs motion for intervention,[8] respondent Babasanta demurred
and argued that the latter had no legal interest in the case because the two parcels of land
involved herein had already been conveyed to him by the Spouses Lu and hence, the vendors
were without legal capacity to transfer or dispose of the two parcels of land to the
intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene.
SLDC filed its Complaint-in-Intervention on 19 April 1990.[9] Respondent Babasantas motion
for the issuance of a preliminary injunction was likewise granted by the trial court in
its Order dated 11 January 1991[10] conditioned upon his filing of a bond in the amount of
fifty thousand pesos (P50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu
executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid
an option money in the amount of three hundred sixteen thousand one hundred sixty pesos
(P316,160.00) out of the total consideration for the purchase of the two lots of one million
two hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses
Lu received a total amount of six hundred thirty-two thousand three hundred twenty pesos
(P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its
favor. SLDC added that the certificates of title over the property were delivered to it by the
spouses clean and free from any adverse claims and/or notice of lis pendens. SLDC further
alleged that it only learned of the filing of the complaint sometime in the early part of
January 1990 which prompted it to file the motion to intervene without delay. Claiming that
it was a buyer in good faith, SLDC argued that it had no obligation to look beyond the titles
submitted to it by the Spouses Lu particularly because Babasantas claims were not annotated
on the certificates of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the
sale of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two
hundred thousand pesos (P200,000.00) with legal interest plus the further sum of fifty
thousand pesos (P50,000.00) as and for attorneys fees. On the complaint-in-intervention, the
trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel the notice
of lis pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-
7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta
and SLDC did not register the respective sales in their favor, ownership of the property
should pertain to the buyer who first acquired possession of the property. The trial court
equated the execution of a public instrument in favor of SLDC as sufficient delivery of the
property to the latter. It concluded that symbolic possession could be considered to have
been first transferred to SLDC and consequently ownership of the property pertained to SLDC
who purchased the property in good faith.
Respondent Babasanta appealed the trial courts decision to the Court of Appeals
alleging in the main that the trial court erred in concluding that SLDC is a purchaser in good
faith and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They contended
that the trial court erred in failing to consider that the contract to sell between them and
Babasanta had been novated when the latter abandoned the verbal contract of sale and
declared that the original loan transaction just be carried out. The Spouses Lu argued that
since the properties involved were conjugal, the trial court should have declared the verbal
contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of
knowledge and consent of Miguel Lu. They further averred that the trial court erred in not
dismissing the complaint filed by Babasanta; in awarding damages in his favor and in refusing
to grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision[11] which set aside the
judgment of the trial court. It declared that the sale between Babasanta and the Spouses Lu
was valid and subsisting and ordered the spouses to execute the necessary deed of
conveyance in favor of Babasanta, and the latter to pay the balance of the purchase price in
the amount of two hundred sixty thousand pesos (P260,000.00). The appellate court ruled
that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the
ground that SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to
return all payments made by SLDC with legal interest and to pay attorneys fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate
court.[12] However, in a Manifestation dated 20 December 1995,[13] the Spouses Lu informed
the appellate court that they are no longer contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,[14] the appellate court considered as withdrawn
the motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20
December 1995. The appellate court denied SLDCs motion for reconsideration on the ground
that no new or substantial arguments were raised therein which would warrant modification
or reversal of the courts decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN
GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH
ADVANCE OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION
ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE
ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE
DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE
PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS
ANNOTATED ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT
BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF
HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL
CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET
ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A
BUYER AND FIRST POSSESSOR IN GOOD FAITH. [15]
SLDC contended that the appellate court erred in concluding that it had prior notice of
Babasantas claim over the property merely on the basis of its having advanced the amount of
two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latters representation that
she needed the money to pay her obligation to Babasanta. It argued that it had no reason to
suspect that Pacita was not telling the truth that the money would be used to pay her
indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred
thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the
balance of the purchase price still due from it and should not be construed as notice of the
prior sale of the land to Babasanta. It added that at no instance did Pacita Lu inform it that
the lands had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately
took possession of the property and asserted its rights as new owner as opposed to
Babasanta who has never exercised acts of ownership. Since the titles bore no adverse claim,
encumbrance, or lien at the time it was sold to it, SLDC argued that it had every reason to
rely on the correctness of the certificate of title and it was not obliged to go beyond the
certificate to determine the condition of the property. Invoking the presumption of good
faith, it added that the burden rests on Babasanta to prove that it was aware of the prior sale
to him but the latter failed to do so. SLDC pointed out that the notice of lis pendens was
annotated only on 2 June 1989 long after the sale of the property to it was consummated on
3 May 1989.
 Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu
informed the Court that due to financial constraints they have no more interest to pursue
their rights in the instant case and submit themselves to the decision of the Court of
Appeals.[16]
On the other hand, respondent Babasanta argued that SLDC could not have acquired
ownership of the property because it failed to comply with the requirement of registration of
the sale in good faith. He emphasized that at the time SLDC registered the sale in its favor on
30 June 1990, there was already a notice of lis pendens annotated on the titles of the
property made as early as 2 June 1989. Hence, petitioners registration of the sale did not
confer upon it any right. Babasanta further asserted that petitioners bad faith in the
acquisition of the property is evident from the fact that it failed to make necessary inquiry
regarding the purpose of the issuance of the two hundred thousand pesos (P200,000.00)
managers check in his favor.
The core issue presented for resolution in the instant petition is who between SLDC
and Babasanta has a better right over the two parcels of land subject of the instant case in
view of the successive transactions executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a
document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos
(P50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta.
Cruz, Sta. Rosa, Laguna.[17] While the receipt signed by Pacita did not mention the price for
which the property was being sold, this deficiency was supplied by Pacita Lus letter dated 29
May 1989[18] wherein she admitted that she agreed to sell the 3.6 hectares of land to
Babasanta for fifteen pesos (P15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the
parties, irresistibly leads to the conclusion that the agreement between Babasanta and the
Spouses Lu is a contract to sell and not a contract of sale.
Contracts, in general, are perfected by mere consent,[19] which is manifested by the
meeting of the offer and the acceptance upon the thing which are to constitute the contract.
The offer must be certain and the acceptance absolute.[20] Moreover, contracts shall be
obligatory in whatever form they may have been entered into, provided all the essential
requisites for their validity are present.[21]
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty
thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot
situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the
ownership of the property until full payment of the price which is a distinguishing feature of
a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never
intended to transfer ownership to Babasanta except upon full payment of the purchase price.
Babasantas letter dated 22 May 1989 was quite telling. He stated therein that despite
his repeated requests for the execution of the final deed of sale in his favor so that he could
effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta
himself recognized that ownership of the property would not be transferred to him until such
time as he shall have effected full payment of the price. Moreover, had the sellers intended
to transfer title, they could have easily executed the document of sale in its required form
simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly,
the receipt signed by Pacita Lu should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a
contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until
the full payment of the price.[22] In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas in a contract to
sell, title is retained by the vendor until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from becoming effective.[23]
The perfected contract to sell imposed upon Babasanta the obligation to pay the
balance of the purchase price. There being an obligation to pay the price, Babasanta should
have made the proper tender of payment and consignation of the price in court as required
by law. Mere sending of a letter by the vendee expressing the intention to pay without the
accompanying payment is not considered a valid tender of payment.[24] Consignation of the
amounts due in court is essential in order to extinguish Babasantas obligation to pay the
balance of the purchase price. Glaringly absent from the records is any indication that
Babasanta even attempted to make the proper consignation of the amounts due, thus, the
obligation on the part of the sellers to convey title never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of sale and
not a contract to sell, Babasantas claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent[25] and from that
moment, the parties may reciprocally demand performance.[26] The essential elements of a
contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in
exchange for the price; (2) object certain which is the subject matter of the contract; (3)
cause of the obligation which is established.[27]
The perfection of a contract of sale should not, however, be confused with its
consummation. In relation to the acquisition and transfer of ownership, it should be noted
that sale is not a mode, but merely a title. A mode is the legal means by which dominion or
ownership is created, transferred or destroyed, but title is only the legal basis by which to
affect dominion or ownership.[28] Under Article 712 of the Civil Code, ownership and other
real rights over property are acquired and transmitted by law, by donation, by testate and
intestate succession, and in consequence of certain contracts, by tradition. Contracts only
constitute titles or rights to the transfer or acquisition of ownership, while delivery or
tradition is the mode of accomplishing the same.[29] Therefore, sale by itself does not transfer
or affect ownership; the most that sale does is to create the obligation to transfer ownership.
It is tradition or delivery, as a consequence of sale, that actually transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by the
vendee from the moment it is delivered to him in any of the ways specified in Article 1497 to
1501.[30]The word delivered should not be taken restrictively to mean transfer of actual
physical possession of the property. The law recognizes two principal modes of delivery, to
wit: (1) actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession of the
vendee.[31] Legal or constructive delivery, on the other hand, may be had through any of the
following ways: the execution of a public instrument evidencing the sale;[32] symbolical
tradition such as the delivery of the keys of the place where the movable sold is being
kept;[33] traditio longa manu or by mere consent or agreement if the movable sold cannot yet
be transferred to the possession of the buyer at the time of the sale;[34] traditio brevi manu if
the buyer already had possession of the object even before the sale; [35] and traditio
constitutum possessorium, where the seller remains in possession of the property in a
different capacity.[36]
Following the above disquisition, respondent Babasanta did not acquire ownership by
the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for
the property. For one, the agreement between Babasanta and the Spouses Lu, though valid,
was not embodied in a public instrument. Hence, no constructive delivery of the lands could
have been effected. For another, Babasanta had not taken possession of the property at any
time after the perfection of the sale in his favor or exercised acts of dominion over it despite
his assertions that he was the rightful owner of the lands. Simply stated, there was no
delivery to Babasanta, whether actual or constructive, which is essential to transfer
ownership of the property. Thus, even on the assumption that the perfected contract
between the parties was a sale, ownership could not have passed to Babasanta in the
absence of delivery, since in a contract of sale ownership is transferred to the vendee only
upon the delivery of the thing sold.[37]
However, it must be stressed that the juridical relationship between the parties in a
double sale is primarily governed by Article 1544 which lays down the rules of preference
between the two purchasers of the same property. It provides:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who
in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith
was first in the possession; and, in the absence thereof, to the person who presents the
oldest title, provided there is good faith.
The principle of primus tempore, potior jure (first in time, stronger in right) gains
greater significance in case of double sale of immovable property. When the thing sold twice
is an immovable, the one who acquires it and first records it in the Registry of Property, both
made in good faith, shall be deemed the owner.[38] Verily, the act of registration must be
coupled with good faith that is, the registrant must have no knowledge of the defect or lack
of title of his vendor or must not have been aware of facts which should have put him upon
such inquiry and investigation as might be necessary to acquaint him with the defects in the
title of his vendor.[39]
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired
knowledge of Babasantas claim. Babasanta, however, strongly argues that the registration of
the sale by SLDC was not sufficient to confer upon the latter any title to the property since
the registration was attended by bad faith. Specifically, he points out that at the time SLDC
registered the sale on 30 June 1990, there was already a notice of lis pendens on the file with
the Register of Deeds, the same having been filed one year before on 2 June 1989.
Did the registration of the sale after the annotation of the notice of lis
pendens obliterate the effects of delivery and possession in good faith which admittedly had
occurred prior to SLDCs knowledge of the transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed
the Option to Buy in favor of SLDC upon receiving P316,160.00 as option money from SLDC.
After SLDC had paid more than one half of the agreed purchase price of P1,264,640.00, the
Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC.
At the time both deeds were executed, SLDC had no knowledge of the prior transaction of
the Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed up
to the moment of transfer and delivery of possession of the lands to SLDC, it had acted in
good faith and the subsequent annotation of lis pendens has no effect at all on the
consummated sale between SLDC and the Spouses Lu.
A purchaser in good faith is one who buys property of another without notice that
some other person has a right to, or interest in, such property and pays a full and fair price
for the same at the time of such purchase, or before he has notice of the claim or interest of
some other person in the property.[40] Following the foregoing definition, we rule that SLDC
qualifies as a buyer in good faith since there is no evidence extant in the records that it had
knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the
property to SLDC, the vendors were still the registered owners of the property and were in
fact in possession of the lands. Time and again, this Court has ruled that a person dealing
with the owner of registered land is not bound to go beyond the certificate of title as he is
charged with notice of burdens on the property which are noted on the face of the register
or on the certificate of title.[41] In assailing knowledge of the transaction between him and
the Spouses Lu, Babasanta apparently relies on the principle of constructive notice
incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads,
thus:
Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if
registered, filed, or entered in the office of the Register of Deeds for the province or city
where the land to which it relates lies, be constructive notice to all persons from the time of
such registering, filing, or entering.
However, the constructive notice operates as suchby the express wording of Section 52from
the time of the registration of the notice of lis pendens which in this case was effected only
on 2 June 1989, at which time the sale in favor of SLDC had long been consummated insofar
as the obligation of the Spouses Lu to transfer ownership over the property to SLDC is
concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of
Babasanta the annotation of the notice of lis pendens cannot help Babasantas position a bit
and it is irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice
of lis pendens, as the Court held in Natao v. Esteban,[42] serves as a warning to a prospective
purchaser or incumbrancer that the particular property is in litigation; and that he should
keep his hands off the same, unless he intends to gamble on the results of the litigation.
Precisely, in this case SLDC has intervened in the pending litigation to protect its rights.
Obviously, SLDCs faith in the merit of its cause has been vindicated with the Courts present
decision which is the ultimate denouement on the controversy.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of
Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial
Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs.
SO ORDERED.

The Court of Appeals has made capital[43] of SLDCs averment in its Complaint-in-
Intervention[44] that at the instance of Pacita Lu it issued a check for P200,000.00 payable to
Babasanta and the confirmatory testimony of Pacita Lu herself on cross-
examination.[45] However, there is nothing in the said pleading and the testimony which
explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for
what they attest to is that the amount was supposed to pay off the advances made by
Babasanta to Pacita Lu. In any event, the incident took place after the Spouses Lu had already
executed the Deed of Absolute Sale with Mortgage in favor of SLDC and therefore, as
previously explained, it has no effect on the legal position of SLDC.

Assuming ex gratia argumenti that SLDCs registration of the sale had been tainted by
the prior notice of lis pendens and assuming further for the same nonce that this is a case of
double sale, still Babasantas claim could not prevail over that of SLDCs. In Abarquez v. Court
of Appeals,[46] this Court had the occasion to rule that if a vendee in a double sale registers
the sale after he has acquired knowledge of a previous sale, the registration constitutes a
registration in bad faith and does not confer upon him any right. If the registration is done in
bad faith, it is as if there is no registration at all, and the buyer who has taken possession first
of the property in good faith shall be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only after
the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but
the Israels were first in possession. This Court awarded the property to the Israels because
registration of the property by Abarquez lacked the element of good faith. While the facts in
the instant case substantially differ from that in Abarquez, we would not hesitate to rule in
favor of SLDC on the basis of its prior possession of the property in good faith. Be it noted
that delivery of the property to SLDC was immediately effected after the execution of the
deed in its favor, at which time SLDC had no knowledge at all of the prior transaction by the
Spouses Lu in favor of Babasanta.

The law speaks not only of one criterion. The first criterion is priority of entry in the
registry of property; there being no priority of such entry, the second is priority of
possession; and, in the absence of the two priorities, the third priority is of the date of title,
with good faith as the common critical element. Since SLDC acquired possession of the
property in good faith in contrast to Babasanta, who neither registered nor possessed the
property at any time, SLDCs right is definitely superior to that of Babasantas.

At any rate, the above discussion on the rules on double sale would be purely academic
for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu is
not a contract of sale but merely a contract to sell. In Dichoso v. Roxas,[47] we had the
occasion to rule that Article 1544 does not apply to a case where there was a sale to one
party of the land itself while the other contract was a mere promise to sell the land or at
most an actual assignment of the right to repurchase the same land. Accordingly, there was
no double sale of the same land in that case.
G.R. No. 145483 November 19, 2004
Nozzle Tip 6 pcs. P 5,520.00 33,120.00

LORENZO SHIPPING CORP., petitioner, Plunger & 6 pcs. 27,630.00 165,780.00

vs. Barrel
BJ MARTHEL INTERNATIONAL, INC., respondent.
Cylinder 2 pcs. 1,035,000.00 2,070,000.00
DECISION Head

CHICO-NAZARIO, J.: Cylinder 1 set 477,000.00

Liner

This is a petition for review seeking to set aside the Decision1 of the Court of Appeals in CA- TOTAL PRICE FOB P2,745,900.00
G.R. CV No. 54334 and its Resolution denying petitioner's motion for reconsideration.
MANILA ___________
The factual antecedents of this case are as follows:

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise DELIVERY: Within 2 months after receipt of firm order.
shipping. It used to own the cargo vessel M/V Dadiangas Express.
TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal
Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged
in trading, marketing, and selling of various industrial commodities. It is also an importer and Installment[s] not to exceed 90 days.
distributor of different brands of engines and spare parts.
We trust you find our above offer acceptable and look forward to your most valued
From 1987 up to the institution of this case, respondent supplied petitioner with spare parts order.
for the latter's marine engines. Sometime in 1989, petitioner asked respondent for a
quotation for various machine parts. Acceding to this request, respondent furnished
petitioner with a formal quotation,2 thus: Very truly yours,

(SGD) HENRY PAJARILLO

May 31, 1989
Sales Manager
MINQ-6093
LORENZO SHIPPING LINES Petitioner thereafter issued to respondent Purchase Order No. 13839,3 dated 02 November
Pier 8, North Harbor 1989, for the procurement of one set of cylinder liner, valued at P477,000, to be used for
Manila M/V Dadiangas Express. The purchase order was co-signed by Jose Go, Jr., petitioner's vice-
president, and Henry Pajarillo. Quoted hereunder is the pertinent portion of the purchase
SUBJECT: PARTS FOR ENGINE MODEL order:
MITSUBISHI 6UET 52/60

Name of Description Qty. Amount

Dear Mr. Go:
CYL. LINER M/E 1 SET P477,000.00
We are pleased to submit our offer for your above subject requirements.
NOTHING FOLLOW
Description Qty. Unit Price Total Price INV. #

TERM OF PAYMENT: 25% DOWN PAYMENT
5 BI-MONTHLY INSTALLMENT[S]
Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor
of respondent ten postdated checks4 to be drawn against the former's account with Allied
Banking Corporation. The checks were supposed to represent the full payment of the
aforementioned cylinder liner.
Subsequently, petitioner issued Purchase Order No. 14011,5 dated 15 January 1990, for yet
another unit of cylinder liner. This purchase order stated the term of payment to be "25%
upon delivery, balance payable in 5 bi-monthly equal installment[s]."6 Like the purchase
order of 02 November 1989, the second purchase order did not state the date of the cylinder
liner's delivery.
On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January
1990, however, the same was dishonored by the drawee bank due to insufficiency of funds.
The remaining nine postdated checks were eventually returned by respondent to petitioner.
The parties presented disparate accounts of what happened to the check which was
previously dishonored. Petitioner claimed that it replaced said check with a good one, the
proceeds of which were applied to its other obligation to respondent. For its part,
respondent insisted that it returned said postdated check to petitioner.
Respondent thereafter placed the order for the two cylinder liners with its principal in Japan,
Daiei Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name
with the First Interstate Bank of Tokyo.
On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in
North Harbor, Manila. The sales invoices7 evidencing the delivery of the cylinder liners both
contain the notation "subject to verification" under which the signature of Eric Go,
petitioner's warehouseman, appeared.
Respondent thereafter sent a Statement of Account dated 15 November 19908 to petitioner.
While the other items listed in said statement of account were fully paid by petitioner, the
two cylinder liners delivered to petitioner on 20 April 1990 remained unsettled.
Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter
dated 02 January 19919 to petitioner requiring the latter to pay the value of the cylinder
liners subjects of this case. Instead of heeding the demand of respondent for the full
payment of the value of the cylinder liners, petitioner sent the former a letter dated 12
March 199110 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner
claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V
Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay
the balance from the proceeds of said sale.
Shortly thereafter, another demand letter dated 27 March 199111 was furnished petitioner by
respondent's counsel requiring the former to settle its obligation to respondent together
with accrued interest and attorney's fees.
Due to the failure of the parties to settle the matter, respondent filed an action for sum of
money and damages before the Regional Trial Court (RTC) of Makati City. In its
complaint,12 respondent (plaintiff below) alleged that despite its repeated oral and written
demands, petitioner obstinately refused to settle its obligations. Respondent prayed that
petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of
P111,300 as of May 1991 and additional interest of 14% per annum to be reckoned from
June 1991 until the full payment of the principal; attorney's fees; costs of suits; exemplary
damages; actual damages; and compensatory damages.
On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an
amended complaint with preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the
then Rules of Court.13 Aside from the prayer for the issuance of writ of preliminary
attachment, the amendments also pertained to the issuance by petitioner of the postdated
checks and the amounts of damages claimed.
In an Order dated 25 July 1991,14 the court a quo granted respondent's prayer for the
issuance of a preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte
Motion to Discharge Writ of Attachment15attaching thereto a counter-bond as required by
the Rules of Court. On even date, the trial court issued an Order16lifting the levy on
petitioner's properties and the garnishment of its bank accounts.
Petitioner afterwards filed its Answer17 alleging therein that time was of the essence in the
delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as
respondent committed to deliver said items "within two (2) months after receipt of firm
order"18 from petitioner. Petitioner likewise sought counterclaims for moral damages,
exemplary damages, attorney's fees plus appearance fees, and expenses of litigation.
Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment
dated 25 October 1991.19 The amendment introduced dealt solely with the number of
postdated checks issued by petitioner as full payment for the first cylinder liner it ordered
from respondent. Whereas in the first amended complaint, only nine postdated checks were
involved, in its second amended complaint, respondent claimed that petitioner actually
issued ten postdated checks. Despite the opposition by petitioner, the trial court admitted
respondent's Second Amended Complaint with Preliminary Attachment.20
Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder
Liners)21 alleging therein that "[w]ith the passage of time and with no definite end in sight to
the present litigation, the cylinder liners run the risk of obsolescence and deterioration" 22 to
the prejudice of the parties to this case. Thus, petitioner prayed that it be allowed to sell the
cylinder liners at the best possible price and to place the proceeds of said sale in escrow. This
motion, unopposed by respondent, was granted by the trial court through the Order of 17
March 1991.23
After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:
WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is
ordered to pay P50,000.00 to the defendant as and by way of attorney's fees.24
The trial court held respondent bound to the quotation it submitted to petitioner particularly
with respect to the terms of payment and delivery of the cylinder liners. It also declared that
respondent had agreed to the cancellation of the contract of sale when it returned the
postdated checks issued by petitioner. Respondent's counterclaims for moral, exemplary,
and compensatory damages were dismissed for insufficiency of evidence.
Respondent moved for the reconsideration of the trial court's Decision but the motion was
denied for lack of merit.25
Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of
Appeals26 which reversed and set aside the Decision of the court a quo. The appellate court
brushed aside petitioner's claim that time was of the essence in the contract of sale between
the parties herein considering the fact that a significant period of time had lapsed between
respondent's offer and the issuance by petitioner of its purchase orders. The dispositive
portion of the Decision of the appellate court states:
WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The
appellee is hereby ORDERED to pay the appellant the amount of P954,000.00, and
accrued interest computed at 14% per annum reckoned from May, 1991.27
The Court of Appeals also held that respondent could not have incurred delay in the delivery
of cylinder liners as no demand, judicial or extrajudicial, was made by respondent upon
petitioner in contravention of the express provision of Article 1169 of the Civil Code which
provides:
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
Likewise, the appellate court concluded that there was no evidence of the alleged
cancellation of orders by petitioner and that the delivery of the cylinder liners on 20 April
1990 was reasonable under the circumstances.
On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of
Appeals but this was denied through the resolution of 06 October 2000.28 Hence, this petition
for review which basically raises the issues of whether or not respondent incurred delay in
performing its obligation under the contract of sale and whether or not said contract was
validly rescinded by petitioner.
That a contract of sale was entered into by the parties is not disputed. Petitioner, however,
maintains that its obligation to pay fully the purchase price was extinguished because the
adverted contract was validly terminated due to respondent's failure to deliver the cylinder
liners within the two-month period stated in the formal quotation dated 31 May 1989.
The threshold question, then, is: Was there late delivery of the subjects of the contract of
sale to justify petitioner to disregard the terms of the contract considering that time was of
the essence thereof?
In determining whether time is of the essence in a contract, the ultimate criterion is the
actual or apparent intention of the parties and before time may be so regarded by a court,
there must be a sufficient manifestation, either in the contract itself or the surrounding
circumstances of that intention.29 Petitioner insists that although its purchase orders did not
specify the dates when the cylinder liners were supposed to be delivered, nevertheless,
respondent should abide by the term of delivery appearing on the quotation it submitted to
petitioner.30 Petitioner theorizes that the quotation embodied the offer from respondent
while the purchase order represented its (petitioner's) acceptance of the proposed terms of
the contract of sale.31 Thus, petitioner is of the view that these two documents "cannot be
taken separately as if there were two distinct contracts."32 We do not agree.
It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave
no doubt as to the intention of the contracting parties, the literal meaning shall
control.33 However, in order to ascertain the intention of the parties, their contemporaneous
and subsequent acts should be considered.34 While this Court recognizes the principle that
contracts are respected as the law between the contracting parties, this principle is
tempered by the rule that the intention of the parties is primordial35 and "once the intention
of the parties has been ascertained, that element is deemed as an integral part of the
contract as though it has been originally expressed in unequivocal terms."36
In the present case, we cannot subscribe to the position of petitioner that the documents, by
themselves, embody the terms of the sale of the cylinder liners. One can easily glean the
significant differences in the terms as stated in the formal quotation and Purchase Order No.
13839 with regard to the due date of the down payment for the first cylinder liner and the
date of its delivery as well as Purchase Order No. 14011 with respect to the date of delivery
of the second cylinder liner. While the quotation provided by respondent evidently stated
that the cylinder liners were supposed to be delivered within two months from receipt of the
firm order of petitioner and that the 25% down payment was due upon the cylinder liners'
delivery, the purchase orders prepared by petitioner clearly omitted these significant items.
The petitioner's Purchase Order No. 13839 made no mention at all of the due dates of
delivery of the first cylinder liner and of the payment of 25% down payment. Its Purchase
Order No. 14011 likewise did not indicate the due date of delivery of the second cylinder
liner.
In the case of Bugatti v. Court of Appeals,37 we reiterated the principle that "[a] contract
undergoes three distinct stages preparation or negotiation, its perfection, and finally, its
consummation. Negotiation begins from the time the prospective contracting parties
manifest their interest in the contract and ends at the moment of agreement of the parties.
The perfection or birth of the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is the consummation of the contract wherein the
parties fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof."
In the instant case, the formal quotation provided by respondent represented the
negotiation phase of the subject contract of sale between the parties. As of that time, the
parties had not yet reached an agreement as regards the terms and conditions of the
contract of sale of the cylinder liners. Petitioner could very well have ignored the offer or
tendered a counter-offer to respondent while the latter could have, under the pertinent
provision of the Civil Code,38withdrawn or modified the same. The parties were at liberty to
discuss the provisions of the contract of sale prior to its perfection. In this connection, we
turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed,
renegotiated prior to the issuance of Purchase Order No. 13839.
During the hearing of the case on 28 January 1993, Pajarillo testified as follows:
Q: You testified Mr. Witness, that you submitted a quotation with defendant
Lorenzo Shipping Corporation dated rather marked as Exhibit A stating the terms of
payment and delivery of the cylinder liner, did you not?
A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we
have inquired [with] our supplier in Japan to give us the price and delivery of that
item. When we received that quotation from our supplier it is stated there that
they can deliver within two months but we have to get our confirmed order within
June.
Q: But were you able to confirm the order from your Japanese supplier on June of
that year?
A: No sir.
Q: Why? Will you tell the court why you were not able to confirm your order with
your Japanese supplier?
A: Because Lorenzo Shipping Corporation did not give us the purchase order for
that cylinder liner.
Q: And it was only on November 2, 1989 when they gave you the purchase order?

A: Yes sir.
A: Yes sir.

Q: I am showing to you the quotation which is marked as Exhibit A there appears in

Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did
the quotation that the delivery of the cylinder liner will be made in two months'
you confirm the order with your Japanese supplier after receiving the purchase
time from the time you received the confirmation of the order. Is that correct?
order dated November 2, 1989?

A: Yes sir.
A: Only when Lorenzo Shipping Corporation will give us the down payment of
25%.39
Q: Now, after you made the formal quotation which is Exhibit A how long a time
did the defendant make a confirmation of the order?
For his part, during the cross-examination conducted by counsel for petitioner,
Kanaan, Jr., testified in the following manner:
A: After six months.
WITNESS: This term said 25% upon delivery. Subsequently, in the final contract,
Q: And this is contained in the purchase order given to you by Lorenzo Shipping what was agreed upon by both parties was 25% down payment.
Corporation?
Q: When?
A: Yes sir.
A: Upon confirmation of the order.
Q: Now, in the purchase order dated November 2, 1989 there appears only the
date the terms of payment which you required of them of 25% down payment,
...
now, it is stated in the purchase order the date of delivery, will you explain to the
court why the date of delivery of the cylinder liner was not mentioned in the
purchase order which is the contract between you and Lorenzo Shipping Q: And when was the down payment supposed to be paid?
Corporation?
A: It was not stated when we were supposed to receive that. Normally, we expect
to receive at the earliest possible time. Again, that would depend on the
 customers. Even after receipt of the purchase order which was what happened
here, they re-negotiated the terms and sometimes we do accept that.
Q: Was there a re-negotiation of this term?
A: This offer, yes. We offered a final requirement of 25% down payment upon
delivery.
Q: What was the re-negotiated term?
A: 25% down payment
Q: To be paid when?
A: Supposed to be paid upon order.40
The above declarations remain unassailed. Other than its bare assertion that the subject
contracts of sale did not undergo further renegotiation, petitioner failed to proffer sufficient
evidence to refute the above testimonies of Pajarillo and Kanaan, Jr.
Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839
and No. 14011 yet it utterly failed to adduce any justification as to why said documents
contained terms which are at variance with those stated in the quotation provided by
respondent. The only plausible reason for such failure on the part of petitioner is that the
parties had, in fact, renegotiated the proposed terms of the contract of sale. Moreover, as
the obscurity in the terms of the contract between respondent and petitioner was caused by
the latter when it omitted the date of delivery of the cylinder liners in the purchase orders
and varied the term with respect to the due date of the down payment, 41 said obscurity must
be resolved against it.42
Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v.
Matti,43 instructive. There, we held that
When the time of delivery is not fixed or is stated in general and indefinite terms,
time is not of the essence of the contract. . . .
In such cases, the delivery must be made within a reasonable time.
The law implies, however, that if no time is fixed, delivery shall be made within a reasonable
time, in the absence of anything to show that an immediate delivery intended. . . .
We also find significant the fact that while petitioner alleges that the cylinder liners were to
be used for dry dock repair and maintenance of its M/V Dadiangas Express between the later
part of December 1989 to early January 1990, the record is bereft of any indication that
respondent was aware of such fact. The failure of petitioner to notify respondent of said date
is fatal to its claim that time was of the essence in the subject contracts of sale.
In addition, we quote, with approval, the keen observation of the Court of Appeals:
. . . It must be noted that in the purchase orders issued by the appellee, dated
November 2, 1989 and January 15, 1990, no specific date of delivery was indicated
therein. If time was really of the essence as claimed by the appellee, they should
have stated the same in the said purchase orders, and not merely relied on the
quotation issued by the appellant considering the lapse of time between the
quotation issued by the appellant and the purchase orders of the appellee.
In the instant case, the appellee should have provided for an allowance of time and
made the purchase order earlier if indeed the said cylinder liner was necessary for
the repair of the vessel scheduled on the first week of January, 1990. In fact, the
appellee should have cancelled the first purchase order when the cylinder liner was
not delivered on the date it now says was necessary. Instead it issued another
purchase order for the second set of cylinder liner. This fact negates appellee's
claim that time was indeed of the essence in the consummation of the contract of
sale between the parties.44
Finally, the ten postdated checks issued in November 1989 by petitioner and received by the
respondent as full payment of the purchase price of the first cylinder liner supposed to be
delivered on 02 January 1990 fail to impress. It is not an indication of failure to honor a
commitment on the part of the respondent. The earliest maturity date of the checks was 18
January 1990. As delivery of said checks could produce the effect of payment only when they
have been cashed,45 respondent's obligation to deliver the first cylinder liner could not have
arisen as early as 02 January 1990 as claimed by petitioner since by that time, petitioner had
yet to fulfill its undertaking to fully pay for the value of the first cylinder liner. As explained by
respondent, it proceeded with the placement of the order for the cylinder liners with its
principal in Japan solely on the basis of its previously harmonious business relationship with
petitioner.
As an aside, let it be underscored that "[e]ven where time is of the essence, a breach of the
contract in that respect by one of the parties may be waived by the other party's
subsequently treating the contract as still in force."46Petitioner's receipt of the cylinder liners
when they were delivered to its warehouse on 20 April 1990 clearly indicates that it
considered the contract of sale to be still subsisting up to that time. Indeed, had the contract
of sale been cancelled already as claimed by petitioner, it no longer had any business
receiving the cylinder liners even if said receipt was "subject to verification." By accepting the
cylinder liners when these were delivered to its warehouse, petitioner indisputably waived
the claimed delay in the delivery of said items.
We, therefore, hold that in the subject contracts, time was not of the essence. The delivery
of the cylinder liners on 20 April 1990 was made within a reasonable period of time
considering that respondent had to place the order for the cylinder liners with its principal in
Japan and that the latter was, at that time, beset by heavy volume of work.47
There having been no failure on the part of the respondent to perform its obligation, the
power to rescind the contract is unavailing to the petitioner. Article 1191 of the New Civil
Code runs as follows:

The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The law explicitly gives either party the right to rescind the contract only upon the failure of
the other to perform the obligation assumed thereunder.48 The right, however, is not an
unbridled one. This Court in the case of University of the Philippines v. De los
Angeles,49 speaking through the eminent civilist Justice J.B.L. Reyes, exhorts:

Of course, it must be understood that the act of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the
other and is always provisional, being ever subject to scrutiny and review by the proper
court. If the other party denied that rescission is justified, it is free to resort to judicial action
in its own behalf, and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible party will be
sentenced to damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced. (Emphasis supplied)

In other words, the party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at its own risk.
For it is only the final judgment of the corresponding court that will conclusively and finally
settle whether the action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its interest. Otherwise, the party
injured by the other's breach will have to passively sit and watch its damages accumulate
during the pendency of the suit until the final judgment of rescission is rendered when the
law itself requires that he should exercise due diligence to minimize its own damages.50

Here, there is no showing that petitioner notified respondent of its intention to rescind the
contract of sale between them. Quite the contrary, respondent's act of proceeding with the
opening of an irrevocable letter of credit on 23 February 1990 belies petitioner's claim that it
notified respondent of the cancellation of the contract of sale. Truly, no prudent
businessman would pursue such action knowing that the contract of sale, for which the letter
of credit was opened, was already rescinded by the other party.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.
The Decision of the Court of Appeals, dated 28 April 2000, and its Resolution, dated 06
October 2000, are hereby AFFIRMED. No costs.

SO ORDERED.
G.R. No. 13203 September 18, 1918 one drums of caustic soda of similar grade from plaintiff's stock. The plaintiff thereupon sold,
for the account of the defendant, eighty drums of caustic soda from which there was realized
BEHN, MEYER & CO. (LTD.), plaintiff-appellant, the sum of P6,352.89. Deducting this sum from the selling price of P10,063.86, we have the
vs. amount claimed as damages for alleged breach of the contract.
TEODORO R. YANCO, defendant-appellee.
Law. It is sufficient to note that the specific merchandise was never tendered. The soda
MALCOLM, J.: which the plaintiff offered to defendant was not of the "Carabao" brand, and the offer of
drums of soda of another kind was not made within the time that a March shipment,
according to another provision the contract, would normally have been available.
The first inquiry to be determined is what was the contract between the parties.

The memorandum agreement executed by the duly authorized representatives of the parties
to this action reads:
Contract No. 37.
MANILA, 7 de marzo, de 1916.
Confirmanos haber vendido a Bazar Siglo XX, 80 drums Caustic Soda 76 per cent
"Carabao" brand al precio de Dollar Gold Nine and 75/100 per 100-lbs., c.i.f.
Manila, pagadero against delivery of documents. Embarque March, 1916.
Comprador Bazar Siglo XX
de Teodoro R. Yangco
J. Siquia
Vendores
BEHN, MEYER & CO. (Ltd.)
O. LOMBECK.
This contract of sale can be analyzed into three component parts.
1. SUBJECT MATTER AND CONSIDERATION.
Facts. The contract provided for "80 drums Caustic Soda 76 per cent "Carabao" brand al
precio de Dollar Gold Nine and 75/100 1-lbs."
Resorting to the circumstances surrounding the agreement are we are permitted to do, in
pursuance of this provision, the merchandise was shipped from New York on the
steamship Chinese Prince. The steamship was detained by the British authorities at Penang,
and part of the cargo, including seventy-one drums of caustic soda, was removed. Defendant
refused to accept delivery of the remaining nine drums of soda on the ground that the goods
were in bad order. Defendant also refused the optional offer of the plaintiff, of waiting for
the remainder of the shipment until its arrival, or of accepting the substitution of seventy-
2. PLACE OF DELIVERY.
Facts. The contract provided for "c.i.f. Manila, pagadero against delivery of documents."
Law. Determination of the place of delivery always resolves itself into a question of act. If
the contract be silent as to the person or mode by which the goods are to be sent, delivery
by the vendor to a common carrier, in the usual and ordinary course of business, transfers
the property to the vendee. A specification in a contact relative to the payment of freight can
be taken to indicate the intention of the parties in regard to the place of delivery. If the buyer
is to pay the freight, it is reasonable to suppose that he does so because the goods become
his at the point of shipment. On the other hand, if the seller is to pay the freight, the
inference is equally so strong that the duty of the seller is to have the goods transported to
their ultimate destination and that title to property does not pass until the goods have
reached their destination. (See Williston on Sales, PP. 406-408.)
The letters "c.i.f." found in British contracts stand for cost, insurance, and freight. They signify
that the price fixed covers not only the cost of the goods, but the expense of freight and
insurance to be paid by the seller. (Ireland vs.Livingston, L. R., 5 H. L., 395.) Our instant
contract, in addition to the letters "c.i.f.," has the word following, "Manila." Under such a
contract, an Australian case is authority for the proposition that no inference is permissible
that a seller was bound to deliver at the point of destination. (Bowden vs. Little, 4 Comm.
[Australia], 1364.)
In mercantile contracts of American origin the letters "F.O.B." standing for the words "Free
on Board," are frequently used. The meaning is that the seller shall bear all expenses until the
goods are delivered where they are to be "F.O.B." According as to whether the goods are to
be delivered "F.O.B." at the point of shipment or at the point of destination determines the
time when property passes.
Both the terms "c.i.f." and "F.O.B." merely make rules of presumption which yield to proof of
contrary intention. As Benjamin, in his work on Sales, well says: "The question, at last, is one
of intent, to be ascertained by a consideration of all the circumstances." For instance, in a
case of Philippine origin, appealed to the United States Supreme Court, it was held that the
sale was complete on shipment, though the contract was for goods, "F.O.B. Manila," the
place of destination the other terms of the contract showing the intention to transfer the
property. (United States vs. R. P. Andrews & Co. [1907], 207 U.S., 229.)
With all due deference to the decision of the High Court of Australia, we believe that the The judgment of the trial court ordering that the plaintiff take nothing by its action, without
word Manila in conjunction with the letters "c.i.f." must mean that the contract price, special finding as to costs, is affirmed, with the costs of this instance. Against the appellant.
covering costs, insurance, and freight, signifies that delivery was to made at Manila. If the So ordered.
plaintiff company has seriously thought that the place of delivery was New York and Not
Manila, it would not have gone to the trouble of making fruitless attempts to substitute
goods for the merchandise named in the contract, but would have permitted the entire loss
of the shipment to fall upon the defendant. Under plaintiffs hypothesis, the defendant would
have been the absolute owner of the specific soda confiscated at Penang and would have
been indebted for the contract price of the same.

This view is corroborated by the facts. The goods were not shipped nor consigned from New
York to plaintiff. The bill of lading was for goods received from Neuss Hesslein & Co. the
documents evidencing said shipment and symbolizing the property were sent by Neuss
Hesslein & Co. to the Bank of the Philippine Islands with a draft upon Behn, Meyer & Co. and
with instructions to deliver the same, and thus transfer the property to Behn, Meyer & Co.
when and if Behn, Meyer & Co. should pay the draft.

The place of delivery was Manila and plaintiff has not legally excused default in delivery of
the specified merchandise at that place.

3. TIME OF DELIVERY.

Facts. The contract provided for: "Embarque: March 1916," the merchandise was in fact
shipped from New York on the Steamship Chinese Prince on April 12, 1916.

Law. The previous discussion makes a resolution of this point unprofitable, although the
decision of the United States Supreme Court in Norrington vs. Wright (([1885], 115 U.S., 188)
can be read with profit. Appellant's second and third assignments of error could, if necessary,
be admitted, and still could not recover.

THE CONTRACT.

To answer the inquiry with which we begun this decision, the contract between the parties
was for 80 drums of caustic soda, 76 per cent "Carabao" brand, at the price of $9.75 per one
hundred pounds, cost, insurance, and freight included, to be shipped during March, 1916, to
be delivered to Manila and paid for on delivery of the documents.

PERFORMANCE.

In resume, we find that the plaintiff has not proved the performance on its part of the
conditions precedent in the contract. The warranty the material promise of the seller to
the buyer has not been complied with. The buyer may therefore rescind the contract of sale
because of a breach in substantial particulars going to the essence of the contract. As
contemplated by article 1451 of the Civil Code, the vendee can demand fulfillment of the
contract, and this being shown to be impossible, is relieved of his obligation. There thus
being sufficient ground for rescission, the defendant is not liable.
G.R. No. L-20601 February 28, 1966
BUTUAN SAWMILL, INC., petitioner,
vs.
HON. COURT OF TAX APPEALS, ET AL., respondents.
REYES, J.B.L., J.:
Appeal from a decision of the Court of Tax Appeals, in its CTA Case No. 965, ordering
petitioner herein, Butuan Sawmill, Inc., to pay respondent Commissioner of Internal Revenue
the sum of P36,107.74 as deficiency sales tax and surcharge due on its sales of logs to buyers
in Japan from January 31, 1951 to June 8, 1953.
The facts, as found and stated by the lower court in its decision, are in full accord with the
evidences presented therein; hence, we quote them hereunder:
. . . that during the period from January 31, 1951 to June 8, 1953, it sold logs to
Japanese firms at prices FOB Vessel Magallanes, Agusan (in some cases FOB Vessel,
Nasipit, also in Agusan); that the FOB prices included costs of loading, wharfage
stevedoring and other costs in the Philippines; that the quality, quantity and
measurement specifications of the logs were certified by the Bureau of Forestry;
that the freight was paid by the Japanese buyers; and the payments of the logs
were effected by means of irrevocable letters of credit in favor of petitioner and
payable through the Philippine National Bank or any other bank named by it.
Upon investigation by the Bureau of Internal Revenue, it was ascertained that no
sales tax return was filed by the petitioner and neither did it pay the corresponding
tax on the sales. On the basis of agent Antonio Mole's report dated September 17,
1957, respondent, on August 27, 1958, determined against petitioner the sum of
P40,004.01 representing sales tax, surcharge and compromise penalty on its sales
[tax, surcharge and compromise penalty on its sales] of logs from January 1951 to
June 1953 pursuant to Sections 183, 186 and 209 of the National Internal Revenue
Code (Exhibit "E", p. 14, CTA rec. & p. 14, BIR rec.). And in consequence of a
reinvestigation, respondent, on November 6, 1958, amended the amount of the
previous assessment to P38,917.74 (Exh. "F", p. 52, BIR rec.). Subsequent requests
for reconsideration of the amended assessment having been denied (Exh. "G", p.
55, BIR rec.; Exh. "H", pp. 75-76, BIR rec.: Exh. "I", pp. 79-80, BIR rec.; Exh. "J", p. 81,
BIR rec.), petitioner filed the instant petition for review on November 7, 1960.
On the bases of the above-quoted findings and circumstances, the lower court upheld the
legality and correctness of the amended assessment of the sales tax and surcharge, ruling
that the sales in question, in the light of our previous decisions1, were domestic or "local"
sales, and, therefore, subject to sales tax under the provision of section 186 of the Tax Code,
as amended by Republic Acts Nos. 558 and 594; and that the assessment thereof was made
well within the ten-year period prescribed by Section 332(a) of the same Code, since
petitioner herein omitted to file its sales tax returns for the years 1951, 1952 and 1953, and
this omission was discovered only on September 17, 1957. The imposition of the compromise
penalty was, however, eliminated therefrom for want of agreement between the taxpayer
and the Collector (now Commissioner) of Internal Revenue. A motion to reconsider said
decision having been denied, petitioner herein interposed the present appeal before this
Court.
The issues presented in this appeal are: whether or not petitioner herein is liable to pay the
5% sales tax as then prescribed by Section 186 of the Tax Code on its sales of logs to the
Japanese buyers; and whether or not the assessment thereof was made within the
prescriptive period provided by law therefor.1wph1.t
On the first issue, petitioner herein insists that the circumstances enumerated in the above
finding, which this Court had, in previous decisions (Cf. footnote [1]), considered as
determinative of the place of transfer of ownership of the logs sold, for purposes of taxation,
are not in themselves evidentiary indications to show that the parties intended the title of
the logs to pass to the Japanese buyers in Japan. Thus, it points out that the "FOB" feature of
the sales contract was made only to fix its price and not to fix the place of delivery; that the
requirement of certification of quality, quantity, and measurement specifications of the logs
by local authorities was done to comply with local laws, rules, and regulations, and was not a
part of the sales arrangement; that the payment of freight by the Japanese buyers is not an
uncommon feature of "FOB" shipments; and that the payment of prices by means of
irrevocable letters of credit is but a common established business practice to secure payment
of the price to the seller. It also insists that, even assuming that the "FOB" feature of the
disputed sales determines the situs of transfer of ownership, the same is merely a prima
facie presumption which yields to contrary proof such as that the logs were made deliverable
to the "order of the shipper" and the logs were shipped at the risk of the shipper, which
circumstances, if considered, would negate the above implications. Hence, petitioner herein
contends that the disputed sales were consummated in Japan, and, therefore, not subject to
the taxing jurisdiction of our Government.
The above contentions of petitioner are devoid of merit. In a decided case with practically
identical set of facts obtaining in the case at bar, this Court declared:
. . . it is admitted that the agreed price was "F.O.B. Agusan", thus indicating,
although prima facie, that the parties intended the title to pass to the buyer upon
delivery of the logs in Agusan; on board the vessels that took the goods to Japan.
Moreover, said prima facie proof was bolstered up by the following circumstances,
namely:
1. Irrevocable letters of credit were opened by the Japanese buyers in favor of the
petitioners.
2. Payment of freight charges of every shipment by the Japanese buyers.
 3. The Japanese buyers chartered the ships that carried the logs they purchased
from the Philippines to Japan.
4. The Japanese buyers insured the shipment of logs and collected the insurance
coverage in case of loss in transit.
5. The petitioner collected the purchase price of every shipment of logs by
surrendering the covering letter of credit, bill of lading, which was indorsed in
blank, tally sheet, invoice and export entry, to the corresponding bank in Manila of
the Japanese agent bank with whom the Japanese buyers opened letters of credit.
6. In case of natural defects in logs shipped to the buyers discovered in Japan,
instead of returning such defective logs, accepted them, but were granted a
corresponding credit based on the contract price.
7. The logs purchased by the Japanese buyers were measured by a representative
of the Director of Forestry and such measurement was final, thereby making the
Government of the Philippines a sort of agent of the Japanese buyers.
Upon the foregoing facts and authority of Bislig (Bay) Lumber Co., Inc. vs. Collector of Internal
Revenue, G.R. No. L-13186 (January 28, 1961), Misamis Lumber Co., Inc. vs. Collector of
Internal Revenue (56 Off. Gaz. 517) andWestern Mindanao Lumber Development Co., Inc. vs.
Court of Tax Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that said export sales
had been consummated in the Philippines and were, accordingly, subject to sales tax
therein." (Taligaman Lumber Co., Inc. vs. Collector of Internal Revenue, G.R. No. L-15716,
March 31, 1962).
With respect to petitioner's contention that there are proofs to rebut the prima facie finding
and circumstances that the disputed sales were consummated here in the Philippines, we
find that the allegation is not borne out by the law or the evidence.
That the specification in the bill of lading to the effect that the goods are deliverable to the
order of the seller or his agent does not necessarily negate the passing of title to the goods
upon delivery to the carrier is clear from the second part of paragraph 2 of Article 1503 of
the Civil Code of the Philippines (which appellant's counsel improperly omits from his
citation):
Where goods are shipped, and by the bill of lading the goods are deliverable to the
seller or his agent, or to the order of the seller or of his agent, the seller thereby
reserves the ownership in the goods. But, if except for the form of the bill of lading,
the ownership would have passed to the buyer on shipment of the goods, the
sellers's property in the goods shall be deemed to be only for the purpose of
securing performance by the buyer of his obligations under the contract.
Moreover, it has been "a settled rule that in petitions to review decisions of the Court of Tax
Appeals, only questions of law may be raised and may be passed upon by this Court"
(Gutierrez vs. Court of Tax Appeals & Collector of Internal Revenue vs. Gutierrez, G.R. Nos. L-
7938 & L-9771, May 21, 1957, cited in Sanchez vs. Commissioner of Customs, G.R. No. L-
8556, September 30, 1957); and it having been found that there is no proof to substantiate
the foregoing contention of petitioner, the same should also be ruled as devoid of merit.
On the second issue, petitioner avers that the filing of its income tax returns, wherein the
proceeds of the disputed sales were declared, is substantial compliance with the
requirement of filing a sales tax return, and, if there should be deemed a return filed, Section
331, and not Section 332(a), of the Tax Code providing for a five-year prescriptive period
within which to make an assessment and collection of the tax in question from the time the
return was deemed filed, should be applied to the case at bar. Since petitioner filed its
income tax returns for the years 1951, 1952 and 1953, and the assessment was made in 1957
only, it further contends that the assessment of the sales tax corresponding to the years
1951 and 1952 has already prescribed for having been made outside the five-year period
prescribed in Section 331 of the Tax Code and should, therefore, be deducted from the
assessment of the deficiency sales tax made by respondent.
The above contention has already been raised and rejected as not meritorious in a previous
case decided by this Court. Thus, we held that an income tax return cannot be considered as
a return for compensating tax for purposes of computing the period of prescription under
Section 331 of the Tax Code, and that the taxpayer must file a return for the particular tax
required by law in order to avail himself of the benefits of Section 331 of the Tax Code;
otherwise, if he does not file a return, an assessment may be made within the time stated in
Section 332(a) of the same Code (Bisaya Land Transportation Co., Inc. vs. Collector of Internal
Revenue & Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L-
12100 & L-11812, May 29, 1959). The principle enunciated in this last cited case is applicable
by analogy to the case at bar.
It being undisputed that petitioner failed to file a return for the disputed sales corresponding
to the years 1951, 1952 and 1953, and this omission was discovered only on September 17,
1957, and that under Section 332(a) of the Tax Code assessment thereof may be made within
ten (10) years from and after the discovery of the omission to file the return, it is evident that
the lower court correctly held that the assessment and collection of the sales tax in question
has not yet prescribed.
Wherefore, the decision appealed from should be, as it is hereby affirmed, with costs against
petitioner.
G.R. No. L-16570 March 9, 1922
SMITH, BELL & CO., LTD., plaintiff-appellant,
vs.
VICENTE SOTELO MATTI, defendant-appellant.
Ross and Lawrence and Ewald E. Selph for plaintiff-appellant.
Ramon Sotelo for defendant-appellant.
ROMUALDEZ, J.:
In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into
contracts whereby the former obligated itself to sell, and the latter to purchase from it, two
steel tanks, for the total price of twenty-one thousand pesos (P21,000), the same to be
shipped from New York and delivered at Manila "within three or four months;" two expellers
at the price of twenty five thousand pesos (P25,000) each, which were to be shipped from
San Francisco in the month of September, 1918, or as soon as possible; and two electric
motors at the price of two thousand pesos (P2,000) each, as to the delivery of which
stipulation was made, couched in these words: "Approximate delivery within ninety days.
This is not guaranteed."
The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October,
1918; and the motors on the 27th of February, 1919.
The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but
Mr. Sotelo refused to receive them and to pay the prices stipulated.
The plaintiff brought suit against the defendant, based on four separate causes of action,
alleging, among other facts, that it immediately notified the defendant of the arrival of the
goods, and asked instructions from him as to the delivery thereof, and that the defendant
refused to receive any of them and to pay their price. The plaintiff, further, alleged that the
expellers and the motors were in good condition. (Amended complaint, pages 16-30, Bill of
Exceptions.)
In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and
By-Products Co., Inc., denied the plaintiff's allegations as to the shipment of these goods and
their arrival at Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to
receive them and pay their price, and the good condition of the expellers and the motors,
alleging as special defense that Mr. Sotelo had made the contracts in question as manager of
the intervenor, the Manila Oil Refining and By-Products Co., Inc which fact was known to the
plaintiff, and that "it was only in May, 1919, that it notified the intervenor that said tanks had
arrived, the motors and the expellers having arrived incomplete and long after the date
stipulated." As a counterclaim or set-off, they also allege that, as a consequence of the
plaintiff's delay in making delivery of the goods, which the intervenor intended to use in the
manufacture of cocoanut oil, the intervenor suffered damages in the sums of one hundred
sixteen thousand seven hundred eighty-three pesos and ninety-one centavos (P116,783.91)
for the nondelivery of the tanks, and twenty-one thousand two hundred and fifty pesos
(P21,250) on account of the expellers and the motors not having arrived in due time.
The case having been tried, the court below absolved the defendants from the complaint
insofar as the tanks and the electric motors were concerned, but rendered judgment against
them, ordering them to "receive the aforesaid expellers and pay the plaintiff the sum of fifty
thousand pesos (P50,00), the price of the said goods, with legal interest thereon from July 26,
1919, and costs."
Both parties appeal from this judgment, each assigning several errors in the findings of the
lower court.
The principal point at issue in this case is whether or not, under the contracts entered into
and the circumstances established in the record, the plaintiff has fulfilled, in due time, its
obligation to bring the goods in question to Manila. If it has, then it is entitled to the relief
prayed for; otherwise, it must be held guilty of delay and liable for the consequences thereof.
To solve this question, it is necessary to determine what period was fixed for the delivery of
the goods.
As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar, and in
both of them we find this clause:
To be delivered within 3 or 4 months The promise or indication of shipment
carries with it absolutely no obligation on our part Government regulations,
railroad embargoes, lack of vessel space, the exigencies of the requirement of the
United States Government, or a number of causes may act to entirely vitiate the
indication of shipment as stated. In other words, the order is accepted on the basis
of shipment at Mill's convenience, time of shipment being merely an indication of
what we hope to accomplish.
In the contract Exhibit C (page 63 of the record), with reference to the expellers, the
following stipulation appears:
The following articles, hereinbelow more particularly described, to be shipped at
San Francisco within the month of September /18, or as soon as possible. Two
Anderson oil expellers . . . .
And in the contract relative to the motors (Exhibit D, page 64, rec.) the following appears:
Approximate delivery within ninety days. This is not guaranteed. This sale is
subject to our being able to obtain Priority Certificate, subject to the United States
Government requirements and also subject to confirmation of manufactures.
In all these contracts, there is a final clause as follows:
 The sellers are not responsible for delays caused by fires, riots on land or on the
sea, strikes or other causes known as "Force Majeure" entirely beyond the control
of the sellers or their representatives.
Under these stipulations, it cannot be said that any definite date was fixed for the delivery of
the goods. As to the tanks, the agreement was that the delivery was to be made "within 3 or
4 months," but that period was subject to the contingencies referred to in a subsequent
clause. With regard to the expellers, the contract says "within the month of September,
1918," but to this is added "or as soon as possible." And with reference to the motors, the
contract contains this expression, "Approximate delivery within ninety days," but right after
this, it is noted that "this is not guaranteed."
The oral evidence falls short of fixing such period.
From the record it appears that these contracts were executed at the time of the world war
when there existed rigid restrictions on the export from the United States of articles like the
machinery in question, and maritime, as well as railroad, transportation was difficult, which
fact was known to the parties; hence clauses were inserted in the contracts, regarding
"Government regulations, railroad embargoes, lack of vessel space, the exigencies of the
requirements of the United States Government," in connection with the tanks and "Priority
Certificate, subject to the United State Government requirements," with respect to the
motors. At the time of the execution of the contracts, the parties were not unmindful of the
contingency of the United States Government not allowing the export of the goods, nor of
the fact that the other foreseen circumstances therein stated might prevent it.
Considering these contracts in the light of the civil law, we cannot but conclude that the term
which the parties attempted to fix is so uncertain that one cannot tell just whether, as a
matter of fact, those articles could be brought to Manila or not. If that is the case, as we
think it is, the obligations must be regarded as conditional.
Obligations for the performance of which a day certain has been fixed shall be
demandable only when the day arrives.
A day certain is understood to be one which must necessarily arrive, even though
its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of the day, the
obligation is conditional and shall be governed by the rules of the next preceding
section. (referring to pure and conditional obligations). (Art. 1125, Civ. Code.)
And as the export of the machinery in question was, as stated in the contract, contingent
upon the sellers obtaining certificate of priority and permission of the United States
Government, subject to the rules and regulations, as well as to railroad embargoes, then the
delivery was subject to a condition the fulfillment of which depended not only upon the
effort of the herein plaintiff, but upon the will of third persons who could in no way be
compelled to fulfill the condition. In cases like this, which are not expressly provided for, but
impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently
performed his part of the obligation, if he has done all that was in his power, even if the
condition has not been fulfilled in reality.
In such cases, the decisions prior to the Civil Code have held that the obligee having
done all that was in his power, was entitled to enforce performance of the
obligation. This performance, which is fictitious not real is not expressly
authorized by the Code, which limits itself only to declare valid those conditions
and the obligation thereby affected; but it is neither disallowed, and the Code
being thus silent, the old view can be maintained as a doctrine. (Manresa's
commentaries on the Civil Code [1907], vol. 8, page 132.)
The decisions referred to by Mr. Manresa are those rendered by the supreme court of Spain
on November 19, 1896, and February 23, 1871.
In the former it is held:
First. That when the fulfillment of the conditions does not depend on the will of the
obligor, but on that of a third person who can in no way be compelled to carry it
out, and it is found by the lower court that the obligor has done all in his power to
comply with the obligation, the judgment of the said court, ordering the other
party to comply with his part of the contract, is not contrary to the law of
contracts, or to Law 1, Tit. I, Book 10, of the "Novsima Recopilacin," or Law 12,
Tit. 11, of Partida 5, when in the said finding of the lower court, no law or
precedent is alleged to have been violated. (Jurisprudencia Civil published by the
directors of the Revista General de Legislacion y Jurisprudencia [1866], vol. 14, page
656.)
In the second decision, the following doctrine is laid down:
Second. That when the fulfillment of the condition does not depend on the will of
the obligor, but on that of a third person, who can in no way be compelled to carry
it out, the obligor's part of the contract is complied withalf Belisario not having
exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in
paragraph (13) hereof, the affidavit of Basilio Borja for the consolidacion de
dominio was presented for record in the registry of deeds and recorded in the
registry on the same date.
(32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three
minor children, Vitaliana, Eugenio, and Aureno Belisario as his only heirs.
(33) That in the execution and sales thereunder, in which C. H. McClure appears as
the judgment creditor, he was represented by the opponent Peter W. Addison,
who prepared and had charge of publication of the notices of the various sales and
that in none of the sales was the notice published more than twice in a newspaper.
 The claims of the opponent-appellant Addison have been very fully and ably argued
by his counsel but may, we think, be disposed of in comparatively few words. As
will be seen from the foregoing statement of facts, he rest his title (1) on the sales
under the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the
justice of the peace of Dagupan with the priority of inscription of the last two sales
in the registry of deeds, and (2) on a purchase from the Director of Lands after the
land in question had been forfeited to the Government for non-payment of taxes
under Act No. 1791.
The sheriff's sales under the execution mentioned are fatally defective for what of
sufficient publication of the notice of sale. Section 454 of the Code of civil
Procedure reads in part as follows:
SEC. 454. Before the sale of property on execution, notice thereof must be given, as
follows:
1. In case of perishable property, by posing written notice of the time and place of
the sale in three public places of the municipality or city where the sale is to take
place, for such time as may be reasonable, considering the character and condition
of the property;
2. * * * * * * *
3. In cases of real property, by posting a similar notice particularly describing the
property, for twenty days in three public places of the municipality or city where
the property is situated, and also where the property is to be sold, and publishing a
copy thereof once a week, for the same period, in some newspaper published or
having general circulation in the province, if there be one. If there are newspaper
published in the province in both the Spanish and English languages, then a like
publication for a like period shall be made in one newspaper published in the
Spanish language, and in one published in the English language: Provided,
however, That such publication in a newspaper will not be required when the
assessed valuation of the property does not exceed four hundred pesos;
4. * * * * * * *
Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October
14, 1916; the notice first published gave the date of the sale as October 15th, but upon
discovering that October 15th was a Sunday, the date was changed to October 14th. The
correct notice was published twice in a local newspaper, the first publication was made on
October 7th and the second and last on October 14th, the date of the sale itself. The
newspaper is a weekly periodical published every Saturday afternoon.
In case No. 454 there were only two publications of the notice in a newspaper, the first
publication being made only fourteen days before the date of the sale. In case No. 499, there
were also only two publications, the first of which was made thirteen days before the sale. In
the last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in
the afternoon, in violation of section 457 of the Code of Civil Procedure. In cases Nos. 435
and 450 the hours advertised were from 9:00 in the morning until 4.30 in the afternoon. In all
of the cases the notices of the sale were prepared by the judgment creditor or his agent, who
also took charged of the publication of such notices.
In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held
that if a sheriff sells without the notice prescribe by the Code of Civil Procedure induced
thereto by the judgment creditor and the purchaser at the sale is the judgment creditor, the
sale is absolutely void and not title passes. This must now be regarded as the settled doctrine
in this jurisdiction whatever the rule may be elsewhere.
It appears affirmatively from the evidence in the present case that there is a newspaper
published in the province where the sale in question took place and that the assessed
valuation of the property disposed of at each sale exceeded P400. Comparing the
requirements of section 454, supra, with what was actually done, it is self-evident that
notices of the sales mentioned were not given as prescribed by the statute and taking into
consideration that in connection with these sales the appellant Addison was either the
judgment creditor or else occupied a position analogous to that of a judgment creditor, the
sales must be held invalid.
The conveyance or reconveyance of the land from the Director of Lands is equally invalid.
The provisions of Act No. 1791 pertinent to the purchase or repurchase of land confiscated
for non-payment of taxes are found in section 19 of the Act and read:
. . . In case such redemption be not made within the time above specified the
Government of the Philippine Islands shall have an absolute, indefeasible title to
said real property. Upon the expiration of the said ninety days, if redemption be
not made, the provincial treasurer shall immediately notify the Director of Lands of
the forfeiture and furnish him with a description of the property, and said Director
of Lands shall have full control and custody thereof to lease or sell the same or any
portion thereof in the same manner as other public lands are leased or
sold: Provided, That the original owner, or his legal representative, shall have the
right to repurchase the entire amount of his said real property, at any time before a
sale or contract of sale has been made by the director of Lands to a third party, by
paying therefore the whole sum due thereon at the time of ejectment together
with a penalty of ten per centum . . . .
The appellant Addison repurchased under the final proviso of the section quoted and was
allowed to do so as the successor in interest of the original owner under the execution sale
above discussed. As we have seen, he acquired no rights under these sales, was therefore
not the successor of the original owner and could only have obtained a valid conveyance of
such titles as the Government might have by following the procedure prescribed by the
Public Land Act for the sale of public lands. he is entitled to reimbursement for the money
paid for the redemption of the land, with interest, but has acquired no title through the
redemption.
The question of the priority of the record of the sheriff's sales over that of the sale from
Belisario to Borja is extensively argued in the briefs, but from our point of view is of no
importance; void sheriff's or execution sales cannot be validated through inscription in the
Mortgage Law registry.

The opposition of Adelina Ferrer must also be overruled. She maintained that the land in
question was community property of the marriage of Eulalio Belisario and Paula Ira: that
upon the death of Paula Ira inealed from is modified, and the defendant Mr. Vicente Sotelo
Matti, sentenced to accept and receive from the plaintiff the tanks, the expellers and the
motors in question, and to pay the plaintiff the sum of ninety-six thousand pesos (P96,000),
with legal interest thereon from July 17, 1919, the date of the filing of the complaint, until
fully paid, and the costs of both instances. So ordered.
G.R. No. 173215 May 21, 2009
CEBU WINLAND DEVELOPMENT CORPORATION, Petitioner
- versus
ONG SIAO HUA, Respondent
x------------------------------------------------x
DECISION
PUNO, C.J.:
Before us is a Petition for Review[1] filed under Rule 45 of the Rules of Court assailing the
Decision[2] dated February 14, 2006 of the Court of Appeals and its Resolution[3]dated June 2,
2006 denying petitioners motion for reconsideration of the said decision.
The facts are undisputed.
Petitioner, Cebu Winland Development Corporation, is the owner and developer of a
condominium project called the Cebu Winland Tower Condominium located in Juana Osmea
Extension, Cebu City.
Respondent, Ong Siao Hua, is a buyer of two condominium units and four parking slots from
petitioner.
Sometime before January 6, 1995 while the Cebu Winland Tower Condominium was under
construction, petitioner offered to sell to respondent condominium units at promotional
prices. As an added incentive, petitioner offered a 3% discount provided 30% of the purchase
price is paid as down payment and the balance paid in 24 equal monthly installments.
On January 6, 1995, respondent accepted the offer of petitioner and bought two
condominium units designated as Unit Nos. 2405 and 2406, as well as four parking slots
designated as slots 91, 99, 101 and 103 (subject properties).
The area per condominium unit as indicated in petitioners price list is 155 square meters and
the price per square meter is P22,378.95. The price for the parking slot is P240,000
each. Respondent, therefore, paid P2,298,655.08 as down payment and issued 24 postdated
checks in the amount of P223,430.70 per check for the balance of the purchase price in the
total amount of P5,362,385.19 computed as follows:[4]
155 sq.m./unit x 2 units x P22,378.95/sq.m. P6,937,474.50
4 parking slots at P240,000/slot 960,000.00
Sub-total P 7,897,474.50
Less: 3% discount ( 236,924.23)
Net purchase price P 7,660,550.27
30% down payment ( 2,298,165.08)
Balance at P223,430.70 per month for 24 months P 5,362,385.19
The parties did not execute any written document setting forth the said
transaction.
On October 10, 1996, possession of the subject properties was turned over to respondent.[5]
After the purchase price was fully paid with the last check dated January 31, 1997,
respondent requested petitioner for the condominium certificates of title evidencing
ownership of the units. Petitioner then sent to respondent, for the latters signature,
documents denominated as Deeds of Absolute Sale for the two condominium units.
Upon examination of the deed of absolute sale of Unit No. 2405 and the identical document
for Unit No. 2406, respondent was distressed to find that the stated floor area is only 127
square meters contrary to the area indicated in the price list which was 155 square
meters. Respondent caused a verification survey of the said condominium units and
discovered that the actual area is only 110 square meters per unit. Respondent demanded
from petitioner to refund the amount of P2,014,105.50 representing excess payments for the
difference in the area, computed as follows:[6]
155 sq.m.-110 = 45 x 2 units = 90 sq.m. x P22,378.95 = P2,014,105.50
Petitioner refused to refund the said amount to respondent. Consequently, respondent filed
a Complaint[7] on August 7, 1998 in the Regional Office of the Housing and Land Use
Regulatory Board (HLURB) in Cebu City, praying for the refund of P2,014,105.50 plus interest,
moral damages and attorneys fees, including the suspension of petitioners license to sell. The
case was docketed as HLURB Case No. REM-0220-080798.
On December 6, 1999, the Housing and Land Use Arbiter (the Arbiter) rendered a
Decision[8] dismissing the complaint. The Arbiter found petitioner not guilty of
misrepresentation. Considering further that the subject properties have been delivered on
October 10, 1996 and respondent filed his complaint only on August 7, 1998, the Arbiter
further ruled that respondents action had already prescribed pursuant to Article 1543, [9] in
relation to Articles 1539 and 1542,[10] of the Civil Code. The dispositive portion of the said
decision reads:
WHEREFORE, Premises Considered, judgment is hereby
rendered DISMISSING this Complaint, and ordering the parties to do the
following, to wit:
1. For the Complainant to SIGN the two (2) Deed[s] of Absolute Sale
which this Board finds to be in order within 30 days from finality of
this decision; and
2. For the Respondent to DELIVER the corresponding condominium
certificate of title for the two units namely units 2405 and 2406 free
from all liens and encumbrances.
 Consequently, the counterclaim is likewise dismissed for it finds no
evidence that Complainant acted in bad faith in filing this complaint.
Cost against the parties.
SO ORDERED.[11]
Aggrieved, respondent filed a Petition for Review of said decision with the Board of
Commissioners of the HLURB (the Board). In the course of its proceedings, the Board ordered
that an ocular inspection of Unit Nos. 2405 and 2406 be conducted by an independent
engineer. The Board further ordered that there should be two measurements of the areas in
controversy, one based on the master deed and another based on the internal surface of the
perimeter wall. After the ocular inspection, the independent geodetic engineer found the
following measurements:
Unit 2405- Based on internal face of perimeter wall = 109 sq. m. Based on
master deed = 115 sq. m.
Unit 2406- Based on internal face of perimeter wall = 110 sq. m.
Based on master deed = 116 sq. m.[12]
Thereafter, the Board rendered its Decision[13] dated June 8, 2004 affirming the Arbiters
finding that respondents action had already prescribed. However, the Board found that there
was a mistake regarding the object of the sale constituting a ground for rescission based on
Articles 1330 and 1331[14] of the Civil Code. Hence, the Board modified the decision
of the Arbiter as follows:
Wherefore[,] the decision of the [O]ffice below is hereby modified with
the following additional directive:
In the alternative, and at the option of the complainant, the contract is
rescinded and the respondent is directed to refund to (sic)
P7,660,550[.]27 while complainant is directed to turn over possession of
the units 2405, 2406 and the four parking lots to the respondent.
So ordered.[15]
Not satisfied with the decision of the Board, petitioner filed an appeal to the Office
of the President arguing that the Board erred in granting relief to respondent considering
that the latters action had already prescribed. On March 11, 2005, the Office of the President
rendered a Decision[16] finding that respondents action had already prescribed pursuant to
Article 1543 of the Civil Code. The dispositive portion of said decision reads as follows:
WHEREFORE, premises considered, the Decision dated June 8, 2004 of
the HLURB is hereby MODIFIED and the Decision dated December 6,
1999 of the Housing and Land Use Arbiter is hereby REINSTATED.
SO ORDERED.[17]
Respondent filed a Motion for Reconsideration but the same was denied by the
Office of the President in a Resolution[18] dated June 20, 2005. Hence, respondent filed a
Petition for Review before the Court of Appeals.
On February 14, 2006, the Court of Appeals rendered the assailed Decision finding
that respondents action has not prescribed. The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby
rendered by us GRANTING the petition filed in this case, REVERSING and
SETTING ASIDE the assailed Decision and Resolution of the Office of the
President dated March 11, 2005 and June 20, 2005, respectively, and
reinstating the Decision promulgated by the Board of Commissioners of
the HLURB on June 8, 2004.
SO ORDERED.[19]
Petitioners Motion for Reconsideration[20] of the assailed decision having been
denied in the Resolution dated June 2, 2006, petitioner is now before us, in this petition for
review raising the following grounds:
I.
The Court of Appeals Erred in Holding That in A Contract
of Sale Ownership Is Not Transferred by Delivery[.]
II.
The Court of Appeals Erred in Holding That Respondents Action Has Not
Prescribed.
III.
The Court of Appeals Erred And Exceeded Its Jurisdiction When It Found
Petitioner Guilty Of Misrepresentation As The Decision Of The HLURB
Board of Commissioners On The Same Matter Is Final With Respect To
Respondent Who Did Not Appeal Said Decision That Petitioner Did Not
Commit Misrepresentation.[21]
The issue before us is whether respondents action has prescribed pursuant to Article 1543, in
relation to Articles 1539 and 1542 of the Civil Code, to wit:
ARTICLE 1539. The obligation to deliver the thing sold includes that of
placing in the control of the vendee all that is mentioned in the contract,
in conformity with the following rules:
If the sale of real estate should be made with a statement of its
area, at the rate of a certain price for a unit of measure or number, the
 vendor shall be obliged to deliver to the vendee, if the latter should
demand it, all that may have been stated in the contract; but, should this
be not possible, the vendee may choose between a proportional
reduction of the price and the rescission of the contract, provided that, in
the latter case, the lack in the area be not less than one-tenth of that
stated.
The same shall be done, even when the area is the same, if any
part of the immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of
the vendee, when the inferior value of the thing sold exceeds one-tenth
of the price agreed upon.
Nevertheless, if the vendee would not have bought the
immovable had he known of its smaller area or inferior quality, he may
rescind the sale. (1469a) [Emphasis supplied]
ARTICLE 1542. In the sale of real estate, made for a lump
sum and not at the rate of a certain sum for a unit of measure or number,
there shall be no increase or decrease of the price, although there be a
greater or lesser area or number than that stated in the contract.
The same rule shall be applied when two or more immovables
are sold for a single price; but if, besides mentioning the boundaries,
which is indispensable in every conveyance of real estate, its area or
number should be designated in the contract, the vendor shall be bound
to deliver all that is included within said boundaries, even when it
exceeds the area or number specified in the contract; and, should he not
be able to do so, he shall suffer a reduction in the price, in proportion to
what is lacking in the area or number, unless the contract is rescinded
because the vendee does not accede to the failure to deliver what has
been stipulated. (1471) [Emphasis supplied]
ARTICLE 1543. The actions arising from Articles 1539 and 1542
shall prescribe in six months, counted from the day of delivery. (1472a)
[Emphasis supplied]
Petitioner argues that it delivered possession of the subject properties to respondent on
October 10, 1996, hence, respondents action filed on August 7, 1998 has already prescribed.
Respondent, on the one hand, contends that his action has not prescribed because the
prescriptive period has not begun to run as the same must be reckoned from the execution
of the deeds of sale which has not yet been done.
The resolution of the issue at bar necessitates a scrutiny of the concept of delivery in the
context of the Law on Sales or as used in Article 1543 of the Civil Code. Under the Civil Code,
the vendor is bound to transfer the ownership of and deliver the thing which is the object of
the sale. The pertinent provisions of the Civil Code on the obligation of the vendor to deliver
the object of the sale provide:
ARTICLE 1495. The vendor is bound to transfer the ownership
of and deliver, as well as warrant the thing which is the object of the sale.
(1461a)
ARTICLE 1496. The ownership of the thing sold is acquired by
the vendee from the moment it is delivered to him in any of the ways
specified in Articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor to the
vendee. (n)
ARTICLE 1497. The thing sold shall be understood as delivered,
when it is placed in the control and possession of the vendee. (1462a)
ARTICLE 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent to the delivery of
the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred.
xxxx
Under the Civil Code, ownership does not pass by mere stipulation but only by
delivery.[22] Manresa explains, the delivery of the thing . . . signifies that title has passed
from the seller to the buyer."[23] According to Tolentino, the purpose of delivery is not only
for the enjoyment of the thing but also a mode of acquiring dominion and determines the
transmission of ownership, the birth of the real right. The delivery under any of the forms
provided by Articles 1497 to 1505 of the Civil Code signifies that the transmission of
ownership from vendor to vendee has taken place.[24]
Article 1497 above contemplates what is known as real or actual delivery, when the thing
sold is placed in the control and possession of the vendee. Article 1498, on the one hand,
refers to symbolic delivery by the execution of a public instrument. It should be noted,
however, that Article 1498 does not say that the execution of the deed provides a conclusive
presumption of the delivery of possession. It confines itself to providing that the execution
thereof is equivalent to delivery, which means that the presumption therein can be rebutted
by means of clear and convincing evidence. Thus, the presumptive delivery by the execution
of a public instrument can be negated by the failure of the vendee to take actual possession
of the land sold.[25]
In Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,[26] the concept of delivery
was explained as follows:
Delivery has been described as a composite act, a thing in which both
parties must join and the minds of both parties concur. It is an act by
which one party parts with the title to and the possession of the
property, and the other acquires the right to and the possession of the
same. In its natural sense, delivery means something in addition to the
delivery of property or title; it means transfer of possession. In the Law
on Sales, delivery may be either actual or constructive, but both forms
 of delivery contemplate "the absolute giving up of the control and
custody of the property on the part of the vendor, and the assumption
of the same by the vendee." (Emphasis supplied)
In light of the foregoing, delivery as used in the Law on Sales refers to the
concurrent transfer of two things: (1) possession and (2) ownership. This is the rationale
behind the jurisprudential doctrine that presumptive delivery via execution of a public
instrument is negated by the reality that the vendee actually failed to obtain material
possession of the land subject of the sale.[27] In the same vein, if the vendee is placed in
actual possession of the property, but by agreement of the parties ownership of the same
is retained by the vendor until the vendee has fully paid the price, the mere transfer of the
possession of the property subject of the sale is not the delivery contemplated in the Law
on Sales or as used in Article 1543 of the Civil Code.
In the case at bar, it appears that respondent was already placed in possession of
the subject properties. However, it is crystal clear that the deeds of absolute sale were still to
be executed by the parties upon payment of the last installment. This fact shows that
ownership of the said properties was withheld by petitioner. Following case law, it is evident
that the parties did not intend to immediately transfer ownership of the subject properties
until full payment and the execution of the deeds of absolute sale. [28]Consequently, there is
no delivery to speak of in this case since what was transferred was possession only and not
ownership of the subject properties.
We, therefore, hold that the transfer of possession of the subject properties on
October 10, 1996 to respondent cannot be considered as delivery within the purview of
Article 1543 of the Civil Code. It follows that since there has been no transfer of ownership of
the subject properties since the deeds of absolute sale have not yet been executed by the
parties, the action filed by respondent has not prescribed.
The next issue is whether the sale in the case at bar is one made with a statement
of its area or at the rate of a certain price for a unit of measure and not for a lump
sum.Article 1539 provides that If the sale of real estate should be made with a statement of
its area, at the rate of a certain price for a unit of measure or number, the vendor shall be
obliged to deliver to the vendeeall that may have been stated in the contract; but, should
this be not possible, the vendee may choose between a proportional reduction of the price
and the rescission of the contract. Article 1542, on the one hand, provides that In the sale of
real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or
number, there shall be no increase or decrease of the price, although there be a greater or
lesser area or number than that stated in the contract."
The distinction between Article 1539 and Article 1542 was explained
by Manresa[29] as follows:
. . . If the sale was made for a price per unit of measure or
number, the consideration of the contract with respect to the vendee, is
the number of such units, or, if you wish, the thing purchased as
determined by the stipulated number of units. But if, on the other hand,
the sale was made for a lump sum, the consideration of the contract is
the object sold, independently of its number or measure, the thing as
determined by the stipulated boundaries, which has been called in law
a determinate object.
This difference in consideration between the two cases implies
a distinct regulation of the obligation to deliver the object, because, for
an acquittance delivery must be made in accordance with the agreement
of the parties, and the performance of the agreement must show the
confirmation, in fact, of the consideration which induces each of the
parties to enter into the contract.
In Rudolf Lietz, Inc. v. Court of Appeals,[30] we held:
Article 1539 governs a sale of immovable by the unit, that is, at
a stated rate per unit area. In a unit price contract, the statement of area
of immovable is not conclusive and the price may be reduced or
increased depending on the area actually delivered. If the vendor delivers
less than the area agreed upon, the vendee may oblige the vendor to
deliver all that may be stated in the contract or demand for the
proportionate reduction of the purchase price if delivery is not possible. If
the vendor delivers more than the area stated in the contract, the vendee
has the option to accept only the amount agreed upon or to accept the
whole area, provided he pays for the additional area at the contract rate.
In some instances, a sale of an immovable may be made for a
lump sum and not at a rate per unit. The parties agree on a stated
purchase price for an immovable the area of which may be declared
based on an estimate or where both the area and boundaries are stated.
In the case where the area of the immovable is stated in the
contract based on an estimate, the actual area delivered may not
measure up exactly with the area stated in the contract. According to
Article 1542 of the Civil Code, in the sale of real estate, made for a lump
sum and not at the rate of a certain sum for a unit of measure or number,
there shall be no increase or decrease of the price although there be a
greater or lesser area or number than that stated in the contract.
However, the discrepancy must not be substantial. A vendee of land,
when sold in gross or with the description "more or less" with reference
to its area, does not thereby ipso facto take all risk of quantity in the
land. The use of "more or less" or similar words in designating quantity
covers only a reasonable excess or deficiency.
Where both the area and the boundaries of the immovable are
declared, the area covered within the boundaries of the immovable
prevails over the stated area. In cases of conflict between areas and
boundaries, it is the latter which should prevail. What really defines a
piece of ground is not the area, calculated with more or less certainty,
mentioned in its description, but the boundaries therein laid down, as
enclosing the land and indicating its limits. In a contract of sale of land in
 a mass, it is well established that the specific boundaries stated in the
contract must control over any statement with respect to the area
contained within its boundaries. It is not of vital consequence that a deed
or contract of sale of land should disclose the area with mathematical
accuracy. It is sufficient if its extent is objectively indicated with sufficient
precision to enable one to identify it. An error as to the superficial area is
immaterial. Thus, the obligation of the vendor is to deliver everything
within the boundaries, inasmuch as it is the entirety thereof that
distinguishes the determinate object.
IN VIEW WHEREOF, the petition is DENIED. The decision of the Court of Appeals is
AFFIRMED but with the MODIFICATION that the decision of the HLURB is not reinstated.
Petitioner is ordered to refund the amount of Two Million Fourteen Thousand One Hundred
Five Pesos and Fifty Centavos (P2,014,105.50) to respondent with legal interest of six percent
(6%) per annum from August 7, 1998, the date of judicial demand. A twelve percent (12%)
interest per annum, in lieu of six percent (6%), shall be imposed on such amount from the
date of promulgation of this decision until the payment thereof. Costs against petitioner.
SO ORDERED.

In the case at bar, it is undisputed by the parties that the purchase price of the
subject properties was computed based on the price list prepared by petitioner,
or P22,378.95 per square meter. Clearly, the parties agreed on a sale at a rate of a certain
price per unit of measure and not one for a lump sum. Hence, it is Article 1539 and not
Article 1542 which is the applicable law. Accordingly, respondent is entitled to the relief
afforded to him under Article 1539, that is, either a proportional reduction of the price or the
rescission of the contract, at his option. Respondent chose the former remedy since he
prayed in his Complaint for the refund of the amount of P2,014,105.50 representing the
proportional reduction of the price paid to petitioner.

In its decision, the Court of Appeals held that the action filed by respondent has not
prescribed and reinstated the decision of the Board. It is an error to reinstate the decision of
the Board. The Board, in its decision, held that there was a mistake regarding the object of
the sale constituting a ground for rescission based on Articles 1330 and 1331 of the Civil
Code. It then granted the relief of rescission at the option of respondent. Articles 1330 and
1331 of the Civil Code provide:

ARTICLE 1330. A contract where consent is given through

mistake, violence, intimidation, undue influence, or fraud is voidable.
(1265a)

ARTICLE 1331. In order that mistake may invalidate consent, it

should refer to the substance of the thing which is the object of the
contract, or to those conditions which have principally moved one or
both parties to enter into the contract.

We find that these articles are inapplicable to the case at bar. In order that mistake may
invalidate consent and constitute a ground for annulment of contract based on Article 1331,
the mistake must be material as to go to the essence of the contract; that without such
mistake, the agreement would not have been made.[31] The effect of error must be
determined largely by its influence upon the party. If the party would have entered into the
contract even if he had knowledge of the true fact, then the error does not vitiate consent. [32]

In the case at bar, the relief sought by respondent was for a refund and he continued to
occupy the subject properties after he found out that the same were smaller in area. All
these show that respondent did not consider the error in size significant enough to vitiate the
contract. Hence, the Court of Appeals erred in affirming the Boards decision to grant
rescission based on Articles 1330 and 1331 of the Civil Code.
 [G.R. No. 142403. March 26, 2003]
ALEJANDRO GABRIEL and ALFREDO GABRIEL, petitioners, vs. SPOUSES PABLO
MABANTA AND ESCOLASTICA COLOBONG, DEVELOPMENT BANK OF THE
PHILIPPINES (Isabela Branch) and ZENAIDA TAN-REYES, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Born of the need to protect our land registration system from being converted into an
instrument of fraud, this Court has consistently adhered to the principle that a mere
registration of title in case of double sale is not enough, good faith must concur with the
registration.
In this petition for review on certiorari, Alejandro Gabriel and Alfredo Gabriel assailed
the Decision[1] dated March 30, 1999 of the Court of Appeals in CA-G.R. CV No. 33941
modifying the Decision[2] dated April 12, 1991 of the Regional Trial Court, Branch 21,
Santiago, Isabela in Civil Case No. 0399 for specific performance, reconveyance and damages
with application for preliminary injunction.
The facts are as follows:
Spouses Pablo and Escolastica Mabanta were the registered owners of two lots located
in Patul and Capaltitan, Santiago, Isabela, with an area of 512 and 15,000 square meters,
covered by Transfer Certificates of Title (TCT) Nos. 72705 and 72707, respectively. On
October 25, 1975, they mortgaged both lots with the Development Bank of the Philippines
(DBP) as collateral for a loan of P14,000.00.[3]
Five years thereafter or on September 1, 1980, spouses Mabanta sold the lots to
Susana Soriano by way of a Deed of Sale of Parcels of Land With Assumption of
Mortgage.[4] Included in the Deed is an agreement that they could repurchase the lots within
a period of two (2) years.
Spouses Mabanta failed to repurchase the lots. But sometime in 1984, they were able
to convince Alejandro Gabriel to purchase the lots from Susana Soriano. As consideration,
Alejandro delivered to Susana a 500-square meter residential lot with an actual value
of P40,000.00 and paid spouses Mabanta the sum of P5,000.00. On May 15, 1984, spouses
Mabanta executed a Deed of Sale with Assumption of Mortgage[5] in favor of Alejandro. For
her part, Susana executed a document entitled Cancellation of Contract [6] whereby she
transferred to Alejandro all her rights over the two lots.
Alejandro and his son Alfredo cultivated the lots. They also caused the restructuring of
spouses Mabantas loan with the DBP.[7] However, when they were ready to pay the entire
loan, they found that spouses Benito and Pura Tan had paid it and that the mortgage was
already cancelled.[8]
On August 18, 1985, Benito Tan and Alejandro Tridanio, a barangay official, approached
Alejandro to refund to him the P5,000.00 he paid to spouses Mabanta. Alejandro refused
because Tan was unwilling to return the formers 500-square meter lot delivered to Susana as
purchase price for the lots. Thereafter, spouses Tan tried to eject Alejandro from the lot
covered by TCT No. 72707.
On September 17, 1985, Alejandro and Alfredo filed with the Regional Trial Court,
Branch 21, Santiago, Isabela a complaint (involving the lot covered by TCT No. 72707) for
specific performance, reconveyance and damages with an application for a preliminary
injunction against spouses Mabanta, spouses Tan, the DBP and barangay officials Dominador
Maylem and Alejandro Tridanio. In due time, these defendants filed their respective answers.
During the proceedings, it turned out that it was spouses Tans daughter, Zenaida Tan-
Reyes who bought one of the lots (covered by TCT No. 72707) from spouses Mabanta on
August 21, 1985. Not having been impleaded as a party-defendant, she filed an answer-in-
intervention alleging that she is the registered owner of the lot covered by TCT No.
72707;that she purchased it from spouses Mabanta in good faith and for value; that she paid
their loan with the DBP in the amounts of P17,580.88 and P16,845.17 per Official Receipts
Nos. 1749539 and 1749540, respectively; that the mortgage with the DBP was cancelled and
spouses Mabanta executed a Deed of Absolute Sale[9] in her favor; and that TCT No. T-72707
was cancelled and in lieu thereof, TCT No. T-160391 was issued in her name.
On April 12, 1991, the trial court rendered its Decision sustaining the right of Alejandro
and Alfredo Gabriel over the lot covered by TCT No. 72707 (now TCT No. T-160391), thus:
WHEREFORE, in the light of the foregoing considerations judgment is hereby rendered:
1. DECLARING Exhibit A, the deed of sale with assumption of mortgage executed
by the spouses Pablo Mabanta and Escolastica Colobong (in favor of
Alejandro and Alfredo Gabriel) valid and subsisting.
2. ORDERING the plaintiff Alejandro Gabriel to pay to the spouses Pablo Mabanta
and Escolastica Colobong the sums of P5,000.00 plus P34,426.05
(representing the loan with the DBP which plaintiff assumed) within 30 days
from receipt hereof.
3. DECLARING the deed of sale executed by the spouses Pablo Mabanta and
Escolastica Colobong in favor of Zenaida Tan Reyes as null and void.
4. ORDERING the intervenor Zenaida Tan-Reyes to reconvey the land covered by
T.C.T. No. T-160391 in favor of Alejandro Gabriel.
SO ORDERED.
In declaring null and void the Deed of Absolute Sale (or second sale) of the lot covered
by TCT No. 72707 between spouses Mabanta and Zenaida Tan-Reyes, the trial court
ratiocinated as follows:
But Zenaida (Tan) Reyes professes that she is a buyer in good faith and for value. In her
testimony she said that the spouses Mabanta offered to sell the land to her on August 19,
1985. She was informed that the land was mortgaged in the DBP. She readily agreed to buy
the land on that same day. She did not inquire further into the status of the land. She did not
go and see the land first. What she did was to immediately go to the DBP the following day
and paid the mortgage obligation in the amount of P16,845.17 and P17,580.88 (Exhibits 1
and 2). The following day August 21, a deed of sale in her favor was prepared and on October
17, 1985 she secured a certificate of title (Exhibit 5). Under the above circumstances, it
cannot be said that she is a purchaser in good faith. She should have first made a thorough
investigation of the status of the land. Had she inquired, she should have been informed that
the land was previously sold to at least two persons Susana Soriano and Alejandro
Gabriel. She should also have first visited the land she was buying. Had she done so she
should have discovered that the land was being cultivated by the Gabriels who would have
informed her that they already bought the land from the Mabantas. The reason why she did
not do this is because she already was appraised of the status of the land by her father
Benito Tan. For reasons known only to her, she decided to buy the land just the same.
xxxxxx
Zenaida Tan therefore is not a purchaser in good faith and she cannot seek refuge behind
her certificate of title. True, Article 1544 of the Civil Code provides that should immovable
property be sold to different vendees, the ownership shall belong to the person who in
good faith first recorded it in the registry of property. Unfortunately, the registration made
by Zenaida (Tan) Reyes of her deed of sale was not in good faith. For this reason in
accordance with the same Article 1544, the land shall pertain to the person who in good
faith was first in possession. There is no question that it is the Gabriels who are in
possession of the land.
Unsatisfied, spouses Mabanta and Zenaida Tan-Reyes interposed an appeal to the
Court of Appeals.
On March 30, 1999, the Court of Appeals rendered a Decision modifying the trial courts
Decision, declaring as valid the second sale of the lot covered by TCT No. 72707 between
spouses Mabanta and Zenaida Tan-Reyes on the ground that a person dealing with registered
land may simply rely on the correctness of the certificate of title and, in the absence of
anything to engender suspicion, he is under no obligation to look beyond it. The dispositive
portion of the Appellate Courts Decision reads:
Wherefore the appealed judgment is AFFIRMED with the following modification:
1. DECLARING Exhibit A, the deed of sale with assumption of mortgage executed by the
defendants-appellants spouses Pablo Mabanta and Escolastica Colobong over lots covered by
TCT Nos. T-72705 and T-72707 valid and subsisting;
2. ORDERING spouses Pablo Mabanta and Escolastica Colobong to surrender TCT No. 72705
to plaintiff-appellee Alejandro Gabriel;
3. DECLARING the deed of sale executed over lot with TCT No. 72707 (now T-160391) by
spouses Pablo Mabanta and Escolastica Colobong in favor of intervenor-appellant Zenaida
Tan Reyes as valid;
4. ORDERING plaintiffs-appellees and any all persons claiming rights under them to vacate
Lot 3651-A now covered by TCT No. T-160391 and to deliver to intervenor-appellant Zenaida
Tan-Reyes the possession thereof;
5. Dismissing the case against defendants-appellants Benito Tan and Purita Masa;
6. No pronouncement as to costs.
SO ORDERED.
In the instant petition for review on certiorari, petitioners Alejandro and Alfredo
Gabriel raise this lone issue:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THE SECOND SALE OF
THE DISPUTED LOT EXECUTED BY SPOUSES MABANTA IN FAVOR OF ZENAIDA TAN-REYES
VALID UNDER ARTICLE 1544 OF THE CIVIL CODE.
Petitioners contend that respondent Reyes is not a purchaser in good faith since she
bought the disputed lot with the knowledge that petitioner Alejandro is claiming it in a
previous sale.
In her comment on the petition, respondent Reyes maintains that the Court of Appeals
factual finding that she is a purchaser in good faith and for value is final and
conclusive. Meeting the issue head on, she claims that there is no evidence that prior to
August 21, 1985, when she purchased the lot from respondent spouses Mabanta, she had
knowledge of any previous lien or encumbrance on the property.
For its part, respondent DBP avers that it acted in utmost good faith in releasing the
mortgaged lots to respondent spouses Mabanta who had the loan restructured and paid the
same.Also, it did not transact business with spouses Tan.
With respect to respondent spouses Mabanta, this Courts Resolution dated June 14,
2000 requiring them to file comment on the present petition was returned unserved. Thus, in
its Resolution dated January 22, 2001, this Court resolved to consider the Resolution of June
14, 2000 deemed served upon them.[10]
The petition is impressed with merit.
The issue for our resolution is whether or not respondent Zenaida Tan-Reyes acted in
good faith when she purchased the subject lot and had the sale registered.
Settled is the principle that this Court is not a trier of facts. In the exercise of its power
of review, the findings of fact of the Court of Appeals are conclusive and binding and
consequently, it is not our function to analyze or weigh evidence all over again. [11] This rule,
however, is not an iron-clad rule.[12] In Floro vs. Llenado,[13] we enumerated the various
exceptions and one which finds application to the present case is when the findings of the
Court of Appeals are contrary to those of the trial court.
We start first with the applicable law.
 Article 1544 of the Civil Code provides:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first possession thereof in good faith, if it should
be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith
was first in possession; and, in the absence thereof; to the person who presents the oldest
title, provided there is good faith.
Otherwise stated, where it is an immovable property that is the subject of a double
sale, ownership shall be transferred (1) to the person acquiring it who in good faith first
recorded it in the Registry of Property; (2) in default thereof, to the person who in good
faith was first in possession; and (3) in default thereof, to the person who presents the oldest
title, provided there is good faith.[14] The requirement of the law then is two-fold:
acquisition in good faith and registration in good faith.[15] The rationale behind this is well-
expounded in Uraca vs. Court of Appeals,[16] where this Court held:
Under the foregoing, the prior registration of the disputed property by the second buyer
does not by itself confer ownership or a better right over the property. Article 1544 requires
that such registration must be coupled with good faith. Jurisprudence teaches us that (t)he
governing principle is primus tempore, potior jure (first in time, stronger in right). Knowledge
gained by the first buyer of the second sale cannot defeat the first buyers right except where
the second buyer registers in good faith the second sale ahead of the first, as provided by the
Civil Code. Such knowledge of the first buyer does not bar her from availing of her rights
under the law, among them, to register first her purchase as against the second buyer. But in
converso, knowledge gained by the second buyer of the first sale defeats his right even if he
is first to register the second sale, since such knowledge taints his prior registration with bad
faith. This is the price exacted by Article 1544 of the Civil Code for the second buyer being
able to displace the first buyer, that before the second buyer can obtain priority over the
first, he must show that he acted in good faith throughout (i.e. in ignorance of the first sale
and of the first buyers right) from the time of acquisition until the title is transferred to him
by registration or failing registration, by delivery of possession. (Emphasis supplied)
In the case at bar, certain pieces of evidence, put together, would prove that
respondent Reyes is not a buyer in good faith. The records show that on August 18, 1985,
spouses Mabanta offered to her for sale the disputed lot. They told her it was mortgaged
with respondent DBP and that she had to pay the loan if she wanted to buy it.[17] She readily
agreed to such a condition. The following day, her father Benito Tan, accompanied by
barangay official Tridanio, went to petitioner Alejandros house offering to return to him
the P5,000.00 he had paid to spouses Mabanta. Tan did not suggest to return the 500-square
meter lot petitioner delivered to Susana Soriano.[18] For this reason, petitioner refused Tans
offer and even prohibited him from going to respondent DBP. We quote the following
testimony of petitioner who, despite his blindness as shown by the records, testified to assert
his right, thus:
ATTY. CHANGALE:
Q What can you say to that statement?
A That is their mistake, sir.
Q Why do you say that is their mistake?
A Because her husband and Tridanio went at home offering to return the money
but I did not accept, sir.
Q Who is this Benito Tan you are referring to?
A The husband of Pura Masa, sir.
Q What is the relationship with the intervenor Zenaida Tan?
A The daughter, sir.
Q When did Benito Tan together with Councilman Tridanio came?
A Before they went to the Development Bank of the Philippines they came at
home and I prohibit them, sir.
Q How did you prohibit them?
A No, I said please I am just waiting for the Bank to inspect then I will pay my
obligation.
xxxxxx
Q You stated earlier that you will just pay the payments. What are those
payments you are referring to?
A The payment I have given to Colobong and to the Bank, sir. They do not want to
return the payment I have given to Susana Soriano and that is the
beginning of our quarrel.[19]
We are thus convinced that respondent Reyes had knowledge that petitioner
previously bought the disputed lot from respondent spouses Mabanta. Why should her
father approach petitioner and offer to return to him the money he paid spouses
Mabanta? Obviously, aware of the previous sale to petitioner, respondent Reyes informed
her father about it. At this juncture, it is reasonable to conclude that what prompted him to
go to petitioners house was his desire to facilitate his daughters acquisition of the lot, i.e., to
prevent petitioner Alejandro from contesting it. He did not foresee then that petitioner
would insist he has a prior right over the lot.
Now respondent Reyes claims that she is a purchaser in good faith. This is
preposterous. Good faith is something internal. Actually, it is a question of intention. In
ascertaining ones intention, this Court must rely on the evidence of
ones conduct and outward acts. From her actuations as specified above, respondent Reyes
cannot be considered to be in good faith when she bought the lot.
 Moreover, it bears noting that on September 16, 1985, both petitioners filed with the
trial court their complaint involving the lot in question against respondents. After a month, or
on October 17, 1985, respondent Reyes had the Deed of Absolute Sale registered with the
Registry of Property. Evidently, she wanted to be the first one to effect its registration to the
prejudice of petitioners who, although in possession, have not registered the same. This is
another indicum of bad faith.

We have consistently held that in cases of double sale of immovables, what finds
relevance and materiality is not whether or not the second buyer was a buyer in good faith
but whether or not said second buyer registers such second sale in good faith, that is,
without knowledge of any defect in the title of the property sold.[20] In Salvoro vs.
Tanega,[21] we had the occasion to rule that:

If a vendee in a double sale registers the sale after he has acquired knowledge that there was
a previous sale of the same property to a third party or that another person claims said
property in a previous sale, the registration will constitute a registration in bad faith and will
not confer upon him any right.

Mere registration of title is not enough, good faith must concur with the
registration. To be entitled to priority, the second purchaser must not only establish prior
recording of his deed, but must have acted in good faith, without knowledge of the existence
of another alienation by the vendor to the other. [22] In the old case of Leung Yee vs. F. L.
Strong Machinery, Co. and Williamson, this Court ruled:

One who purchases a real estate with knowledge of a defect of title in his vendor cannot
claim that he has acquired title thereto in good faith as against the true owner of the land
or of an interest therein; and the same rule must be applied to one who has knowledge of
facts which should have put him upon such inquiry and investigation as might be necessary
to acquaint him with the defects in the title of his vendor. A purchaser cannot close his eyes
to facts which should put a reasonable man upon his guard, and then claim that he acted in
good faith under the belief that there was no defect in the title of the vendor. His mere
refusal to believe that such a defect exists, or his willful closing of his eyes to the possibility
of the existence of a defect in his vendors title will not make him an innocent purchaser for
value, if it afterwards develops that the title was in fact defective, and it appears that he
had such notice of the defect as would have led to its discovery had he acted with that
measure of precaution which may reasonably be required of a prudent man in a like
situation. x x x [23]

In fine, we hold that respondent Zenaida Tan-Reyes did not act in good faith when she
bought the lot and had the sale registered.

WHEREFORE, the assailed Decision of the Court of Appeals is REVERSED and SET
ASIDE. The Decision of the trial court is hereby REINSTATED.

SO ORDERED.
G.R. No. 122463 December 19, 2005
RUDOLF LIETZ, INC., Petitioner
- versus-
THE COURT OF APPEALS, Respondents
x --------------------------------------------------------------------x
DECISION
TINGA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, praying
for the annulment of the Decision[1] dated April 17, 1995 and the Resolution[2] dated October
25, 1995 of the Court of Appeals in CA-G.R. CV No. 38854. The Court of Appeals affirmed
the Decision[3] in Civil Case No. 2164 of the Regional Trial Court (RTC), Branch 48, of Palawan
and Puerto Princesa City with the modification that herein respondents Tiziana Turatello and
Paola Sani are entitled to damages, attorneys fees, and litigation expenses.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing and as prayed for by the
defendants, the instant complaint is hereby DISMISSED. Defendants
counterclaim is likewise DISMISSED. Plaintiff, however, is ordered to pay
defendant Turatello and Sanis counsel the sum of P3,010.38 from August
9, 1990 until fully paid representing the expenses incurred by said
counsel when the trial was cancelled due to the non-appearance of
plaintiffs witnesses. With costs against the plaintiff.
SO ORDERED.[4]
As culled from the records, the following antecedents appear:
Respondent Agapito Buriol previously owned a parcel of unregistered land situated at
Capsalay Island, Port Barton, San Vicente, Palawan. On August 15, 1986, respondent Buriol
entered into a lease agreement with Flavia Turatello and respondents Turatello and Sani, all
Italian citizens, involving one (1) hectare of respondent Buriols property. The lease
agreement was for a period of 25 years, renewable for another 25 years. The lessees took
possession of the land after paying respondent Buriol a down payment of P10,000.00.[5] The
lease agreement, however, was reduced into writing only in January 1987.
On November 17, 1986, respondent Buriol sold to petitioner Rudolf Lietz, Inc. the same
parcel of land for the amount of P30,000.00. The Deed of Absolute Sale embodying the
agreement described the land as follows:
A parcel of land, consisting of FIVE (5) hectares, more or less, a portion of
that parcel of land declared in the name of Agapito Buriol, under Tax
Declaration No. 0021, revised in the year 1985, together with all
improvements thereon, situated at the Island of Capsalay, Barangay Port
Barton, municipality of San Vicente, province of Palawan which
segregated from the whole parcel described in said tax declaration, has
the following superficial boundaries: NORTH, Sec. 01-017; and remaining
property of the vendor; EAST, by Seashore; SOUTH, 01-020; and WEST, by
01-018 (now Elizabeth Lietz).[6]
Petitioner later discovered that respondent Buriol owned only four (4) hectares, and with
one more hectare covered by lease, only three (3) hectares were actually delivered to
petitioner. Thus, petitioner instituted on April 3, 1989 a complaint for Annulment of Lease
with Recovery of Possession with Injunction and Damages against respondents and Flavia
Turatello before the RTC. The complaint alleged that with evident bad faith and malice,
respondent Buriol sold to petitioner five (5) hectares of land when respondent Buriol knew
for a fact that he owned only four (4) hectares and managed to lease one more hectare to
Flavia Turatello and respondents Tiziana Turatello and Paola Sani. The complaint sought the
issuance of a restraining order and a writ of preliminary injunction to prevent Flavia Turatello
and respondents Turatello and Sani from introducing improvements on the property, the
annulment of the lease agreement between respondents, and the restoration of the amount
paid by petitioner in excess of the value of the property sold to him. Except for Flavia
Turatello, respondents filed separate answers raising similar defenses of lack of cause of
action and lack of jurisdiction over the action for recovery of possession. Respondents
Turatello and Sani also prayed for the award of damages and attorneys fees.[7]
After trial on the merits, the trial court rendered judgment on May 27, 1992, dismissing both
petitioners complaint and respondents counterclaim for damages. Petitioner and
respondents Turatello and Sani separately appealed the RTC Decision to the Court of
Appeals, which affirmed the dismissal of petitioners complaint and awarded respondents
Turatello and Sani damages and attorneys fees. The dispositive portion of the Court of
Appeals Decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, with the
following modification:
Plaintiff-appellant Rudolf Lietz, Inc. is hereby (1) ordered to pay
defendants-appellants Turatello and Sani, the sum of P100,000.00 as
moral damages; (2) P100,000.00 as exemplary damages; (3) P135,728.73
as attorneys fees; and (4) P10,000.00 as litigation expenses.
SO ORDERED.[8]
Petitioner brought to this Court the instant petition after the denial of its motion for
reconsideration of the Court of Appeal Decision. The instant petition imputes the following
errors to the Court of Appeals.
I. IN DEFENDING AGAPITO BURIOLS GOOD FAITH AND IN
STATING THAT ASSUMING THAT HE (BURIOL) WAS IN BAD
FAITH PETITIONER WAS SOLELY RESPONSIBLE FOR ITS
INEXCUSABLE CREDULOUSNESS.
II. IN ASSERTING THAT ARTICLES 1542 AND 1539 OF THE NEW
CIVIL CODE ARE, RESPECTIVELY, APPLICABLE AND INAPPLICABLE
IN THE CASE AT BAR.
III. IN NOT GRANTING PETITIONERS CLAIM FOR ACTUAL AND
EXEMPLARY DAMAGES.
IV. IN GRANTING RESPONDENTS TIZIANA TURATELLO AND PAOLA
SANI EXHORBITANT [sic] AMOUNTS AS DAMAGES WHICH ARE
EVEN BEREFT OF EVIDENTIARY BASIS.[9]
Essentially, only two main issues confront this Court, namely: (i) whether or not
petitioner is entitled to the delivery of the entire five hectares or its equivalent, and (ii)
whether or not damages may be awarded to either party.
Petitioner contends that it is entitled to the corresponding reduction of the
purchase price because the agreement was for the sale of five (5) hectares although
respondent Buriol owned only four (4) hectares. As in its appeal to the Court of Appeals,
petitioner anchors its argument on the second paragraph of Article 1539 of the Civil
Code, which provides:
Art. 1539. The obligation to deliver the thing sold includes that
of placing in the control of the vendee all that is mentioned in the
contract, in conformity with the following rules:
If the sale of real estate should be made with a statement of its
area, at the rate of a certain price for a unit of measure or number, the
vendor shall be obliged to deliver to the vendee, if the latter should
demand it, all that may have been stated in the contract; but, should this
be not possible, the vendee may choose between a proportional
reduction of the price and the rescission of the contract, provided that, in
the latter case, the lack in the area be not less than one-tenth of that
stated.
....
The Court of Appeals Decision, however, declared as inapplicable the abovequoted
provision and instead ruled that petitioner is no longer entitled to a reduction in price based
on the provisions of Article 1542 of the Civil Code, which read:
Art. 1542. In the sale of real estate, made for a lump sum and
not at the rate of a certain sum for a unit of measure or number, there
shall be no increase or decrease of the price, although there be a greater
or lesser area or number than that stated in the contract.
The same rule shall be applied when two or more immovables
are sold for a single price; but if, besides mentioning the boundaries,
which is indispensable in every conveyance of real estate, its area or
number should be designated in the contract, the vendor shall be bound
to deliver all that is included within said boundaries, even when it
exceeds the area or number specified in the contract; and, should he not
be able to do so, he shall suffer a reduction in the price, in proportion to
what is lacking in the area or number, unless the contract is rescinded
because the vendee does not accede to the failure to deliver what has
been stipulated.
Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per
unit area. In a unit price contract, the statement of area of immovable is not conclusive and
the price may be reduced or increased depending on the area actually delivered. If the
vendor delivers less than the area agreed upon, the vendee may oblige the vendor to deliver
all that may be stated in the contract or demand for the proportionate reduction of the
purchase price if delivery is not possible. If the vendor delivers more than the area stated in
the contract, the vendee has the option to accept only the amount agreed upon or to accept
the whole area, provided he pays for the additional area at the contract rate.[10]
In some instances, a sale of an immovable may be made for a lump sum and not at
a rate per unit. The parties agree on a stated purchase price for an immovable the area of
which may be declared based on an estimate or where both the area and boundaries are
stated.
In the case where the area of the immovable is stated in the contract based on an
estimate, the actual area delivered may not measure up exactly with the area stated in the
contract. According to Article 1542[11] of the Civil Code, in the sale of real estate, made for a
lump sum and not at the rate of a certain sum for a unit of measure or number, there shall
be no increase or decrease of the price although there be a greater or lesser area or number
than that stated in the contract. However, the discrepancy must not be substantial. A vendee
of land, when sold in gross or with the description more or less with reference to its area,
does not thereby ipso facto take all risk of quantity in the land. The use of more or less or
similar words in designating quantity covers only a reasonable excess or deficiency.[12]
 Where both the area and the boundaries of the immovable are declared, the area
covered within the boundaries of the immovable prevails over the stated area. In cases of
conflict between areas and boundaries, it is the latter which should prevail. What really
defines a piece of ground is not the area, calculated with more or less certainty, mentioned
in its description, but the boundaries therein laid down, as enclosing the land and indicating
its limits. In a contract of sale of land in a mass, it is well established that the specific
boundaries stated in the contract must control over any statement with respect to the area
contained within its boundaries. It is not of vital consequence that a deed or contract of sale
of land should disclose the area with mathematical accuracy. It is sufficient if its extent is
objectively indicated with sufficient precision to enable one to identify it. An error as to the
superficial area is immaterial.[13] Thus, the obligation of the vendor is to deliver everything
within the boundaries, inasmuch as it is the entirety thereof that distinguishes the
determinate object.[14]
Exemplary or corrective damages are imposed, by way of example or correction
for the public good, in addition to the moral, temperate, liquidated or compensatory
damages.[16] With the deletion of the award for moral damages, there is no basis for the
award of exemplary damages.
WHEREFORE, the instant petition for review on certiorari is GRANTED in PART. The
Court of Appeals Decision in CA-G.R. CV No. 38854 is AFFIRMED with the MODIFICATION that
the award of moral and exemplary damages is DELETED.
SO ORDERED.

As correctly noted by the trial court and the Court of Appeals, the sale between
petitioner and respondent Buriol involving the latters property is one made for a lump sum.
The Deed of Absolute Sale shows that the parties agreed on the purchase price on a
predetermined area of five hectares within the specified boundaries and not based on a
particular rate per area. In accordance with Article 1542, there shall be no reduction in the
purchase price even if the area delivered to petitioner is less than that stated in the contract.
In the instant case, the area within the boundaries as stated in the contract shall control over
the area agreed upon in the contract.

The Court rejects petitioners contention that the propertys boundaries as stated in
the Deed of Absolute Sale are superficial and unintelligible and, therefore, cannot prevail
over the area stated in the contract. First, as pointed out by the Court of Appeals, at an
ocular inspection prior to the perfection of the contract of sale, respondent Buriol pointed to
petitioner the boundaries of the property. Hence, petitioner gained a fair estimate of the
area of the property sold to him. Second, petitioner cannot now assail the contents of
the Deed of Absolute Sale, particularly the description of the boundaries of the property,
because petitioners subscription to the Deed of Absolute Sale indicates his assent to the
correct description of the boundaries of the property.

Petitioner also asserts that respondent Buriol is guilty of misleading petitioner into
believing that the latter was buying five hectares when he knew prior to the sale that he
owned only four hectares. The review of the circumstances of the alleged misrepresentation
is factual and, therefore, beyond the province of the Court. Besides, this issue had already
been raised before and passed upon by the trial court and the Court of Appeals. The factual
finding of the courts below that no sufficient evidence supports petitioners allegation of
misrepresentation is binding on the Court.

The Court of Appeals reversed the trial courts dismissal of respondents Turatello
and Sanis counterclaim for moral and exemplary damages, attorneys fees and litigation
expenses. In awarding moral damages in the amount of P100,000 in favor of Turatello and
Sani, the Court of Appeals justified the award to alleviate the suffering caused by petitioners
unfounded civil action. The filing alone of a civil action should not be a ground for an award
of moral damages in the same way that a clearly unfounded civil action is not among the
grounds for moral damages.[15]
 [G.R. No. 130707. July 31, 2001]
VERONICA ROBLE, LILIBETH R. PORTUGALIZA, and BOBBY PORTUGALIZA, petitioners, vs.
DOMINADOR ARBASA and ADELAIDA ARBASA, respondents.
DECISION
PARDO, J.:
Petitioners appeal via certiorari from the decision[1] of the Court of Appeals which set
aside the decision of the trial court and declared respondents lawful owners and possessors
of the entire parcel of land with a total area of eight hundred eighty four (884) square
meters, situated at Poblacion, Isabel, Leyte, covered by Tax Declaration No. 67 in the name of
respondent Adelaida Arbasa.[2]
On January 2, 1976, spouses Dominador Arbasa and Adelaida Roble (hereinafter
referred to as respondents) purchased from Fidela Roble an unregistered parcel of land
located at Poblacion, Isabel, Leyte.[3] As reflected on the deed of sale, the property had a
total land area of two hundred forty (240) square meters. Due to their diligent efforts in
reclaiming a portion of the sea, using stones, sand and gravel, the original size of two
hundred forty (240) square meters increased to eight hundred eighty four (884) square
meters,[4] described as follows:
A parcel of residential land with all the improvements thereon; bounded on the North, by Lot
Nos. 036 and 037; East, by Roxas Street; South, Seashore and CAD Lot No. 952; and West, by
Lot Nos. 024 and 025. It has an area of 884 sq. meters, more or less, and declared in the
name of plaintiff Adelaida Arbasa under Tax Declaration no. 7068-A and later superseded by
Tax Declaration No. 67. It has an assessed value of P31,870.00.[5]
Since 1976 and until the present, respondents have been in actual, open, peaceful and
continuous possession of the entire parcel of land in the concept of owners and had it
declared for taxation purposes in the name of respondent Adelaida Arbasa. Included in the
sale were the improvements found on the land, consisting mainly of the house of Fidela.[6]
Adelaida tolerated her sister Fidelas continued stay at the house. Living with Fidela in
the same house were their nieces, petitioners Veronica Roble and Lilibeth Roble as well as
the latters spouse Bobby Portugaliza. Veronica and Lilibeth Roble are the daughters of
Gualberto Roble, deceased brother of Fidela and Adelaida.
Shortly after Fidelas death on June 15, 1989, petitioners Veronica and Lilibeth Roble
claimed ownership of the house and the southern portion of the land with an area of 644
square meters. Fidela died intestate and without issue. Meanwhile, Gualberto Roble,
petitioners father, died sometime in December 1986.
In January 1990, petitioners had this parcel of land declared for taxation purposes in
the names of Fidela Roble under Tax Declaration No. 8141 and of Gualberto Roble under Tax
Declaration No. 8142.
As efforts to have them vacate the house and desist from claiming the parcel of land
failed, respondent spouses Dominador and Adelaida Roble-Arbasa, referred the dispute to
the barangay authorities for conciliation. Nothing happened at the barangay level.[7] Hence,
on February 27, 1990, spouses
Arbasa filed with the Regional Trial Court, Branch 12, Ormoc City an action for quieting
of title with damages.[8]
On April 4, 1990, petitioner Veronica Roble, Lilibeth Roble and Bobby Portugaliza filed
an answer to the complaint denying its material allegations.[9] They said that the total area of
the lot which respondents bought from Fidela consisted only of two hundred forty (240)
square meters, located at the northern portion of the property. This property was originally
classified as foreshore land, but in 1957, due to the effort of Ireneo Roble, father of Fidela,
Adelaida and Gualberto, a portion of the sea was reclaimed and filled up. This was the piece
of property where respondents exercised open, public and continuous possession in the
concept of owner, and which had been declared for taxation purposes in the name of
Adelaida Roble in Tax Declaration No. 7068.[10] With the issuance of a new tax declaration in
the name of Adelaida, Tax Declaration No. 5108-R-5 originally registered in the name of
Fidela Roble, was cancelled.[11]
Petitioners attached as an integral part of their answer a copy of the deed of sale dated
January 2, 1976, executed by Fidela Roble in favor of Adelaida Arbasa. The property subject
of the sale was aptly described as follows:
This is a whole parcel of residential land, located at Poblacion, Isabel, Leyte, per Tax
Declaration No. 5108-R-5, under the name of Fidela Roble, being bounded on the North, by
Matilde Evangelista; East, by Harrison now Roxas Street; South, by Seashore; and West, by
Crestito Manipes, having an area of 240 square meters more or less, with improvements
thereon.[12]
In the late 1960s, Ireneo, with the help of his son Gualberto reclaimed additional
portion of the seashore at the southern portion adjacent to the 240 square meters land
earlier reclaimed and declared in the name of Fidela Roble. Because of this, the original area
of two hundred forty (240) square meters increased by six hundred forty four (644) square
meters and became eight hundred eighty four (884), including the portion sold to
Adelaida. The 644 square meters was then divided into two (2) lots of equal proportion,
evidenced by Tax Declaration Nos. 8141[13] and 8142[14] in the names of Fidela and Gualberto,
respectively. Payment of taxes on both tax declarations commenced in the year 1980. [15]
Constructed over the eight hundred eighty four (884) square meters lot were three (3)
concrete houses. One of the houses was located over the two hundred forty (240) square-
meter parcel of land that spouses Arbasa bought from Fidela. The other houses belonged to
Fidela, located at the central portion, and Gualberto, which was constructed over the
southernmost portion of the eight hundred eighty (884) square meters land.
The house at the central portion was first declared in the name of Fidela under Tax
Declaration No. 3548, commencing with the year 1974.[16] This was later cancelled by Tax
Declaration No. 5057, covering the year 1979, and later was cancelled by Tax Declaration No.
3638, beginning with the year 1985.[17] Meanwhile, the house at the southernmost portion of
the land was declared in Gualbertos name under Tax Declaration No. 3549,[18] commencing
with the year 1974, later cancelled by Tax Declaration No. 5060,[19] then by Tax Declaration
No. 5662.[20] The latest tax declaration on the residential house, Tax Declaration No.
226[21] cancelled the previous ones and commenced in the year 1989.
The two lots located at the southern portion, according to petitioners, were owned by
their predecessors-in-interest Fidela (322 square meters) and Gualberto Roble (322 square
meters) who had open, public and continuous possession in the concept of owner. Like
Fidelas house, the two (2) parcels of land had been possessed in the concept of owners by
their predecessors-in-interest, and were not included in the deed of sale.
At the pre-trial conference held on July 4, 1990, the parties defined the issue to be:
whether the deed of sale executed on January 2, 1975 by Fidela Roble in favor of
respondents conveyed the entire eight hundred eighty four (884) square meters parcel of
land, including the house of Fidela, or it covered only two hundred forty (240) square meters
located at the northern portion of the property.[22]
On July 16, 1991, the trial court rendered a decision finding that the January 2, 1976
deed of absolute sale executed by Fidela Roble covered only a total area of two hundred
forty (240) square meters in favor of respondents and not the entire eight hundred eighty
four (884) square meters claimed by respondents. Moreover, the house of Fidela was not
found on the 240 square meters parcel subject of the deed of sale, and such improvement
was not included in the sale.
The trial court held that pursuant to Rule 130, Section 9 of the Revised Rules on
Evidence, the deed of sale was the best evidence of the contents of the agreement. Based on
the documentary evidence consisting of the deed of absolute sale and tax declarations issued
over the property, the house of Fidela Roble was not situated on the part of the property
that was sold to respondents. Hence, respondents claim has no basis. The dispositive portion
of the afore-said decision reads:
WHEREFORE, judgement is hereby rendered finding the plaintiffs the owners in fee simple of
only TWO HUNDRED FORTY Square Meters (240), more or less, of the parcel of land subject
of the complaint and described in T. D. No. 7068; dismissing the counter-claim and ordering
the plaintiffs to pay the costs.[23]
On August 8, 1991, respondents appealed the decision to the Court of Appeals.[24]
On August 15, 1991, petitioners appealed the decision insofar as it denied their claim
for damages and attorneys fees.[25] Petitioners claimed that they were compelled to hire the
services of a lawyer because respondents filed suit against them, which the latter knew was
malicious and without basis in law or in fact.
After due proceedings, on January 15, 1997, the Court of Appeals promulgated its
decision affirming the finding of the trial court that the deed of sale conveyed only 240
square meters of the parcel of land existing at the time of the sale.
The Court of Appeals observed that from the wording of the deed of
sale, Fidela Roble sold to respondents the whole parcel of residential land bounded on the
south by the seashore. The Court of Appeals opined that this technical description, as
contained in the deed of sale, lent credence to the claim of respondents that they were
responsible for reclaiming the 644 square meters claimed by petitioners. For if at the time of
sale the 644 square meters were already in existence, the deed of sale would have described
the metes and bounds of the property that was sold in a different way. It would have
referred to the boundary at the south as the remaining portion of the vendors property or
would have mentioned the names of Fidela or Gualberto Roble as the owners of the
adjoining properties, and not described the seashore as the boundary in the south. The
dispositive portion of the decision reads, thus:
WHEREFORE, foregoing premises considered, we rule in favor of plaintiffs-appellants and SET
ASIDE the judgment of the lower court. Another one is hereby entered declaring them as
lawful owners and entitled to the possession of the entire parcel of land containing an area
of 884 square meters, which is covered by Tax Declaration No. 67 in the name of plaintiff-
appellant Adelaida Roble Arbasa.
No pronouncement as to costs.
SO ORDERED.[26]
On August 13, 1997, the Court of Appeals denied the petitioners motion for
reconsideration for lack of merit. In so ruling, the court said:
We have repeatedly ruled that where land is sold for lump sum and not so much per unit of
measure or number, the boundaries of the land stated in the contract determine the effects
and scope of the sale, not the area thereof. Hence, the vendors are obligated to deliver all
the land included within the boundaries regardless of whether the real area should be
greater or smaller than that recited in the deed. This is particularly true when the area is
described as humigit kumulang, that is, more or less.[27]
Hence, this appeal.[28]
We find the appeal meritorious.
Jurisprudence teaches us that as a rule, jurisdiction of this Court in cases brought to it
from the Court of Appeals is limited to the review and revision of errors of law committed by
the appellate court.[29]As the findings of fact of the appellate court are deemed
conclusive,[30] this Court is not duty-bound to analyze and weigh all over again the evidence
considered in the proceedings below.
However, this rule is not absolute.[31] There are exceptional circumstances that would
compel the Court to review the findings of fact of the Court of Appeals.[32]
Here, the Court of Appeals findings and conclusions are contrary to those of the trial
court.
After an assiduous scrutiny of the evidence, we find reason to reverse the factual
findings of the Court of Appeals and affirm that of the trial court.
The sale that transpired on January 2, 1976 between vendor Fidela and vendee
Adelaida was one of cuerpo cierto or a sale for lump sum. Pursuant to Article 1542, Civil Code
of the Philippines, in the sale of real estate, made for a lump sum and not at the rate of a
certain sum for a unit of measure or number, there shall be no increase or decrease of the
price although there be a greater or lesser area or number than that stated in
the contract. Thus, the obligation of the vendor is to deliver everything within the
boundaries, inasmuch as it is the entirety thereof that distinguishes the determinate
object.[33]
However, this rule admits of an exception. A vendee of land, when sold in gross or with
the description more or less with reference to its area, does not thereby ipso facto take all
risk of quantity in the land. The use of more or less or similar words in designating quantity
covers only a reasonable excess or deficiency.[34] In the case at bar, the parties to the
agreement described the land subject of the sale in this wise:
This is a whole parcel of residential land, located at Poblacion, Isabel, Leyte, per Tax
Declaration No. 5108-R-5, under the name of Fidela Roble, being bounded in the North, by
Matilde Evangelista; East, by Harrison now Roxas Street; South, by Seashore; and West, by
Cristito Manipes, having an approximate area of 240 square meters more or less, with all
improvements thereon:[emphasis supplied]
An area of 644 square meters more is not reasonable excess or deficiency, to be
deemed included in the deed of sale of January 2, 1976.
Moreover, at the time of the sale, the only piece of land existing was 240 square
meters, the subject of the deed of sale. This 240 square meters parcel of land was originally
foreshore land, hence, not alienable and disposable. It was only in 1952, that Fidela applied
for and was granted a foreshore lease.[35] In 1965, the provincial assessor issued a tax
declaration in her name.[36] Respondent Adelaida admitted this fact, thus:
ATTY ESCALON
Q Is it not a fact that this land of 280 [sic] square meters was applied by Fidela Roble for
foreshore lease way back in 1952? Are you aware of that?
A I know, sir.
Q And at that time in 1952, only these 280 square meters was yet existing. Do you agree
with me on that?
A Yes, sir.
Q And these 280 [sic] square meters exist because of the diligence of Fidela Roble in
filling this up with boulders, rocks, sand and gravel?
A That is not correct, because that was sold to me under a Deed of sale.
Q Is it not a fact that prior to the sale and prior to the existence of the 280 [sic] square
meters, this was yet part of the littoral zone or part of the sea?
A Yes, sir.
Q And you caused the reclamation of the original area?
A It was she who did it because it was not yet sold to me.[37]
Adela confirmed that when the sale took place in 1976, the houses of Fidela and
Gualberto, constructed earlier in 1971, were situated on foreshore lands adjacent to the
property that Fidela sold to her.The houses, made of concrete materials and are two-stories
high, could be reached by seawater.[38] This lent credence to the claim of petitioners that
what was sold to respondents was indeed only 240 square meters parcel of land. This also
explained why in the technical description of the property as embodied in the deed of sale,
the property was described as bounded on the south by the seashore.
As held by the trial court, when the terms of an agreement had been reduced to
writing, it is considered as containing all the terms agreed upon and there can be, between
the parties and their successor-in-interest, no evidence of such terms other than the
contents of the written agreement.[39]
We find no ambiguity in the terms and stipulations of the deed of sale. Contracts are
the laws between the contracting parties. It shall be fulfilled according to the literal sense of
their stipulations. If their terms are clear and leave no room for doubt as to the intention of
the contracting parties, the contracts are obligatory no matter what their forms may be,
whenever the essential requisites for their validity are present.[40] 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.[41] All these elements are present in the instant case.
Moreover, parol evidence rule forbids any addition to or contradiction of the terms of a
written instrument by testimony or other evidence purporting to show that, at or before the
execution of the parties written agreement, other or different terms were agreed upon by
the parties, varying the purport of the written contract. When an agreement has been
reduced to writing, the parties can not be permitted to adduce evidence to prove alleged
practices, which to all purposes would alter the terms of the written agreement. Whatever is
not found in the writing is understood to have been waived and abandoned. [42]
The rule is in fact founded on long experience that written evidence is so much more
certain and accurate than that which rests in fleeting memory only, that it would be unsafe,
when parties have expressed the terms of their contract in writing, to admit weaker evidence
to control and vary the stronger and to show that the parties intended a different contract
from that expressed in the writing signed by them.[43]
The rule is not without exceptions, however, as it is likewise provided that a party to an
action may present evidence to modify, explain, or add to the terms of the written
agreement if he puts in issue in his pleadings: (a) an intrinsic ambiguity, mistake or
imperfection in the written agreement; (b) the failure of the written agreement to express
the true intent and agreement of the parties thereto; (c) the validity of the written
agreement; or (d) the existence of other terms agreed to by the parties or their successors in
interest after the execution of the written agreement.[44]
None of the aforecited exceptions finds application to the instant case. Nor did
respondents raise this issue at the proceedings before the trial court.
With regard to the ownership over the 644 square meters of land located at the
southern portion of the original 240 square meters conveyed to Adela, there is a question
regarding the true nature of the land, which has the features of a foreshore land.
 Even though respondents claim that they were responsible for reclaiming the portion
of the foreshore land adjacent to the property they bought from petitioners predecessor in
interest, there is no evidence that respondents subsequently filed an application for lease
with regard to the 644 square meters of reclaimed land.

Foreshore land is a part of the alienable land of the public domain and may be disposed
of only by lease and not otherwise.[45] It is the strip of land that lies between the high and low
water marks and is alternatively wet and dry according to the flow of tide.[46] It is that part of
the land adjacent to the sea, which is alternately covered and left dry by the ordinary flow of
tides.[47]

There is a need, therefore, to determine whether the lands subject of the action for
quieting of title are foreshore lands. The classification of public lands is a function of the
executive branch of government, specifically the director of lands (now the director of the
Lands Management Bureau). Due to the dearth of evidence on this particular issue, we
cannot arrive at a conclusive classification of the land involved. The instant case has to be
remanded to the trial court for that determination.

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals in
CA-G. R. CV No. 38738 is hereby SET ASIDE. The case is remanded to the Regional Trial Court,
Branch 12, Leyte for further proceedings.

No costs.

SO ORDERED.
G.R. No. L-13442 December 20, 1919
NARCISA SANCHEZ, plaintiff-appellant,
vs.
ROQUE RAMOS, defendant-appellee.
AVANCEA, J.:
This is an action for the recovery of a piece of land described in the second paragraph of the
complaint. This land is in the defendant's possession and formerly belonged to Ciriaco
Fernandez. On July 1, 1910, Ciriaco Fernandez sold it to the spouses Marcelino Gomez and
Narcisa Sanchez under pacto de retro for the period of one year. This also was executed in a
public instrument. Marcelino Gomez and Narcisa Sanchez never took material possession of
the land. The period for repurchase elapsed without the vendor making use of it. On July 3,
1912, Ciriaco Fernandez again sold the same land, by means of a private document, to Roque
Ramos who immediately took material possession thereof. By applying article 1473 of the
Civil Code, the trial court declared preferable the sale executed to the defendant and
absolved him from the complaint.
By the same article applied by the lower court, we are of the opinion that the sale executed
to the plaintiff must be declared preferable. This article provides:
ART. 1473. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the purchaser who first recorded it in
the registry of deeds.
Should it not be recorded, the property shall belong to the person who first took
possession of it in good faith, or, in default of possession, to the person who
presents the oldest title, provided there is good faith.
Not one of the documents of sale in this case having been recorded, preference must be
decided in favor of the vendee who first took possession.lawphi1.net
To what kind of possession does this article refer? Possession is acquired by the material
occupancy of the thing or right possessed, or by the fact that the latter is subjected to the
action of our will, or by the appropriate acts and legal formalities established for acquiring
possession (art. 438, Civil Code.). By a simple reasoning, it appears that, because the law
does not mention to which of these kinds of possession the article refers, it must be
understood that it refers to all of these kinds. The proposition that this article, according to
its letter, refers to the material possession and excludes the symbolic does not seem to be
founded upon a solid ground. It is said that the law, in the gradation of the causes of
preference between several sales, fixes, first, possession and then the date of the title and,
as a public instrument is a title, it is claimed that the inference is that the law has deliberately
intended to place the symbolic possession, which the execution of the public document
implies after the material possession. This argument, however, would only be forceful if the
title, mentioned by this article, includes public instruments, and this would only be true if
public instruments are not included in the idea of possession spoken of in said article. In
other words, the strength of the argument rests in that this possession is precisely the
material and does not include the symbolic. Consequently, the argument is deficient for it is
begging the same question, because if this possession includes the symbolic, which is
acquired by the execution of a public instrument, it should be understood that the title,
mentioned by the law as the next cause of preference, does not include public instruments.
Furthermore, our interpretation of this article 1473 is more in consonance with the principles
of justice. The execution of a public instrument is equivalent to the delivery of the realty sold
(art. 1462, Civil Code) and its possession by the vendee (art. 438). Under these conditions the
sale is considered consummated and completely transfers to the vendee all of the vendor's
rights of ownership including his real right over the thing. The vendee by virtue of this sale
has acquired everything and nothing, absolutely nothing, is left to the vendor. From this
moment the vendor is a stranger to the thing sold like any other who has never been its
owner. As the thing is considered delivered, the vendor has no longer the obligation of even
delivering it. If he continues taking material possession of it, it is simply on account of
vendee's tolerance and, in this sense, his possession is vendor's possession. And if the latter
should have to ask him for the delivery of this material possession; it would not be by virtue
of the sale, because this has been already consummated and has produced all its effects, but
by virtue of the vendee's ownership, in the same way as said vendee could require of
another person although same were not the vendor. This means that after the sale of a realty
by means of a public instrument, the vendor, who resells it to another, does not transmit
anything to the second vendee and if the latter, by virtue of this second sale, takes material
possession of the thing, he does it as mere detainer, and it would be unjust to protect this
detention against the rights to the thing lawfully acquired by the first vendee.
We are of the opinion that the possession mentioned in article 1473 (for determining who
has better right when the same piece of land has been sold several times by the same
vendor) includes not only the material but also the symbolic possession, which is acquired by
the execution of a public instrument.
From the foregoing it follows that the plaintiff was the first to take possession of the land,
and consequently the sale executed to him is preferable.
Wherefore, the judgment appealed from is hereby reversed; the plaintiff is declared owner
of the land in question; and the defendant is ordered to deliver the possession of the land to
the plaintiff. No special findings as to costs. So ordered.
G.R. No. L-28417 February 25, 1928 On August 18 and 19, 1926, the applicants Anatolio Henson and his brothers sold the land
covered by the said certificate of title No. 14507 to Isidro Aragon for P25,000, with the right
MARIANO CUI, as administrator of the estate of Rosario Cruz Herrera, and to repurchase the same within five years (Exhibit 3-X Aragon). On August 19, 1926, the
PEDRO JOVEN, as administrator of the estate of Arsenio Cruz Herrera, petitioners- mortgage lien on the land was cancelled and proper notation was entered on the back of the
appellees, certificate of title.
vs.
ANATOLIO HENSON, in his own behalf and in behalf of the minor Ramon Henson, On October 21, 1926, that is, two months and twenty-one days after the issuance of the
JOSE HENSON, DOMINGO HENSON, VICENTE HENSON and ISIDRO ARAGON, respondents- decree of registration, and two months and one day after the land had been sold to Isidoro
appellants. Aragon, the above-named petitioners filed a motion for the annulment of the decree and a
reopening of the case on the ground of fraud. In their motion, the petitioners alleged that
the applicants had willfully and fraudulently misrepresented to the court that there were no
other claimants to the land covered by their application. The applicants, as respondents, filed
their opposition to the motion, praying that the same be denied.
JOHNSON, J.:

The motion was heard, and after a consideration of the evidence adduced by petitioners and
This is an appeal from an order of the Court of First Instance of the Province of Pampanga,
respondents, the Honorable A. M. Recto, auxiliary judge, arrived at the conclusion that the
dated June 13 1927, setting aside its decision in a land registration case (expediente No. 716),
respondents, as applicants, had secured the registration of the land through fraudulent
and the decree issued pursuant thereto. By said order the court directed by the reopening of
misrepresentations and that the purchaser Isidoro Aragon had bought the same, knowing
the case under section 38 of Land Registration Act (No. 496). In said decision and decree a big
that it was under litigation, and set aside the decision and decree therefore issued, and
tract of land situated in the municipality of Arayat, Province of Pampanga, was ordered
ordered the reopening of the case in order to give the petitioners an opportunity to file their
registered in the name of the respondents Henson. The decision and decree were set aside
opposition to the registration of said land. From that order the respondents appealed, as
upon motion of the above-named petitioners.
stated in the opening paragraph of this decision.

The record shows that on January 8, 1926, the respondents Henson filed an application in the
It is now contended by the appellants that the lower court erred:
Court of First Instance of the Province of Pampanga for the registration of a tract of land
composed of nine lots, known as lots 1, 2, 3, 4, 5, 6, 7, 7-A and 8, with an aggregate area of
186 hectares, 48 ares and 65 centares, more particularly described in the plan and technical (1) In holding that the respondents made fraudulent misrepresentations in their application
description attached to said application (Exhibits A and B). Various oppositions were for registration;
presented, all of which were withdrawn except the opposition as to lot 7-A. After hearing the
application as to lots 1 to 8, and after a consideration of the evidence adduced by the (2) In holding that said misrepresentations constituted sufficient ground for the annulment of
applicants, the Honorable M. Rosauro, judge, on June 17, 1926, rendered a judgment, the decision and decree, and for the reopening of the case; and
ordering the registration of said lots 1, 2, 3, 4, 5, 6, 7 and 8 in the name of the applicants
Anatolio Henson y en partes iguales, sujetos los lotes 1 y 7 a una hipoteca por la suma de (3) In holding that Isidoro Aragon, who bought the land for P25,000, was a purchaser in bad
P10,000 a favor de Raymunda Soriano pagadera tan pronto se expida el titulo faith.
correspondiente a dichos lotes."
With reference to the first assignment of error, the record shows that the application for
On July 19, 1926, the applicants filed a motion, praying that an order for the issuance of the registration filed by the appellants contained the following:
corresponding decree of registration be made, and that lots 6 and 7-A be excluded from the
registration ("entendiendose excluidos los lotes 6 y 7-A"). On July 29, 1926 the decree was
2. That the applicants, according to the best of their knowledge and belief, do not
issued, ordering the registration of lots 1, 2, 3, 4, 5, 7 and 8, with an aggregate area of 182
know of any mortgage or incumbrance affecting the said lands, nor of any other
hectares, 5 ares and 83 centares, in the name of the applicants, subject to the encumbrances
person who might have interest and participation thereto;
mentioned in section 39 of the Land Registration Act as may be subsisting, and to the
condition that "sujetos los lotes 1 y 7 a una hipoteca por la suma de P10,000 a favor de
Raymunda Soriano pagadera tan pronto se expida el titulo correspondiente a dichos lotes." The evidence adduced during the hearing of said motion shows that when the appellants
On the same date (July 299, 1926) original certificate of title No. 14507 (Exhibit 1-X Aragon) filed their petition for registration there was an action pending between Maria Abriol Santos
covering said lots was issued in the name of the applicants, subject to the mortgage lien as as defendant, and Mariano Cui, as plaintiff (civil case No. 3183 of the Court of First Instance
above indicated. of Pampanga). In said action Mariano Cui, as administrator of the estate of Rosario Cruz
Herrera, was trying to recover a portion of the land sought to be registered. The complaint
was filed in said action on May 7, 1925, while the petition for the registration of said land
was filed by the appellants on January 8, 1926. The action of Pedro Joven as administrator of
the estate of Arsenio Cruz Herrera vs. Maria Abriol Santos (civil case No. 3388 of the Court of
First Instance of Pampanga) was not commenced until the 4th day of May, 1926, or about
four months after filing of the application for the registration of the land in question.
The contention of the appellees is, that said allegation in the complaint is false, simply
because the petitioners and now appellants must have had knowledge of the existence of
said actions. The appellants may or may not have had knowledge of the existence of said
actions. The appellees contend that they had, and furnished some proof in support of their
contention. The record shows, however, that all of the prerequisites of the law as to notice,
etc., had been complied with by the petitioners, that a public hearing was had on said
petition and that the appellees did not even appear no present the slightest objection to
granting of the prayer of the petition. They cannot claim ignorance of the pendency of the
action for the registration of the land in question. They made no effort to disprove the said
allegations of the petition. No objection of any character whatever was presented by the
appellees to the granting of the prayer of the petition for registration until nearly three
months after the decree of registration had become final, and not even then, until nearly two
months after the land in question had been sold to Isidoro Aragon, an alleged innocent
purchaser. Even granting that said allegation in the complaint was false, the appellees were
given a free an full opportunity to appear and demonstrate that fact to the court an
opportunity which they did not take advantage of. He who will not speak when he ought to
speak, under the law will not be permitted to speak when he will. The law serves those who
are vigilant and diligent and not those who sleep when the law requires them to act. In
nearly every action commenced in the courts the defendants denies the allegations of the
complaint. His denial, however, is not sufficient to show that they are false or fraudulent. It is
a fact which he must establish.
Niblack, in his Analysis of the Torrens System (sec. 138, p. 219), speaking of fraud in original
registration, said:
A mere misdescription of the property or a mistake as to facts, contained in an
application to bring land under a foreign act is not sufficient to invalidate a
certificate of title issued on the application by the registrar, but if it is evident from
all the circumstances that the applicant had knowledge of the facts in the case and
willfully misstated them, the certificate may be set aside for fraud. If a certificate
was obtained by fraud and false representation, it may be set aside . . . ." That
doctrine, however, presupposes that the application to have the registration set
aside was made within a year or before the land has fallen into the hands of an
innocent purchaser. In the present case while the application to set aside the
registration was made within a year, yet it was not made until after the land had
been sold to an alleged innocent purchaser. If the said allegations in the complaint
were in fact false and fraudulent, as perhaps they were, it was the legal obligation
of the appellees to appear at the time and place fixed for the hearing of the cause
and demonstrate that fact to the court. Their failure to do was their own fault. That
defense should have been brought to the attention of the court at that time. After
the land had passed to the hands of an innocent purchaser it was too late.
What has just been said sufficiently answers the second assignment of error.
The appellants contend in their third assignment of error that the lower court erred in finding
that Isidoro Aragon was not purchaser in good faith. This finding is not supported by the
proof. There is no evidence in the record, showing that when Isidoro Aragon bought the land
on August 18 and 19, 1926, he knew or had the slightest notice that the same was under
litigation that third parties had claim to said land. He testified positively, without having been
contradicted, that he did not know anything about the claims of the estates of Rosario Cruz
Herrera and Arsenio Cruz Herrera, until after he had bought the land, and only then, when
the register of deeds demanded of him the certificate of title for notation thereon of "lis
pendens" or the litigation between his vendors and the estates, on August 21, 1926.
As above stated, the deed of sale of said land was executed on August 18 and 19, 1926
(Exhibit 3-X Aragon). The fact that the balance of the price of said land, amounting to
P10,000 was paid on August 21, 1926, after Isidoro Aragon had been advised by counsel for
the estates not to pay that amount because of the claim of the estates, does not prove that
he bought the land in bad faith. As a matter of fact, the sale was consummated on the dates
of the execution of the deed of sale, August 18 and 19, 1926, that is prior to his knowledge of
the claims of the estates. He paid P15,000 at the time of the execution of the deed and the
balance of P10,000 on August 21st. In other words, he had knowledge of the claim of the
estates after he had purchased the land, after he had taken possession of the same, and after
the ownership had been conveyed to him. He is therefore a purchaser in good faith.
A purchaser in good faith is one who buys property of another, without notice that some
other person has a right to, or interest in, such property and pays a full and fair price for the
same, at the time of such purchase, or before he has notice of the claim or interest of some
other person in the property. Good faith consists in an honest intention to abstain from
taking any unconscientious advantage of another. Good faith is an opposite of fraud and of
bad faith, and its non existence must be established by competent proof.
Article 1462 of the Civil Code provides:
The thing sold shall be deemed delivered when the vendee is placed in the control
and possession thereof.
If the sale should be made by means of a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the subject matter of the
contract unless the contrary appears or may be clearly inferred from such
instrument.
In accordance with all of the foregoing, we are of the opinion (1) that perhaps the appellants
secured the registration of the land through fraud; (2) that Isidoro Aragon bought the same
in good faith and was an innocent purchaser for value; and (3) that, under the provisions of
section 38 of the Land Registration Act, the lower court committed an error in setting aside
its decision and decree and in ordering the reopening of the case.
Therefore the order appealed from should be and is hereby reversed, and the decision and
decree heretofore rendered are hereby revived, reserving to the appellees the right to
pursue their remedy by appropriate action against the appellants. (Manotoc vs. Choco, 30
Phil., 628; Roman Catholic Bishop of Nueva Caceres vs.Municipality of Tabaco, 46 Phil., 271;
Estrellado and Alcantara vs. Martinez, 48 Phil., 256; Niblack on Torrens System, pp. 235, 236,
312.) and without any finding as to costs, it is so ordered.
[G.R. No. 132161. January 17, 2005]
CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC., petitioner, vs. THE HONORABLE
COURT OF APPEALS and HEIRS OF TEODORO DELA CRUZ, respondents.
DECISION
TINGA, J.:
Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the instant Petition for
Certiorari[1] under Rule 45 of the Revised Rules of Court, seeking the review of
the Decision[2] of the Court of Appeals Twelfth Division in CA-G.R. CV No. 33662, promulgated
on 27 May 1997, which reversed the judgment[3] of the lower court in favor of petitioner; and
the Resolution[4]of the Court of Appeals, promulgated on 5 January 1998, which reiterated its
Decision insofar as respondents Heirs of Teodoro dela Cruz (the Heirs) are concerned.
From the record, the following are the established facts:
Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (hereafter the
Madrid brothers), were the registered owners of Lot No. 7036-A of plan Psd-10188, Cadastral
Survey 211, situated in San Mateo, Isabela per Transfer Certificate of Title (TCT) No. T-8121
issued by the Register of Deeds of Isabela in September 1956.[5]
On 23 and 24 October 1956, Lot No. 7036-A was subdivided into several lots under
subdivision plan Psd- 50390. One of the resulting subdivision lots was Lot No. 7036-A-7 with
an area of Five Thousand Nine Hundred Fifty-Eight (5,958) square meters.[6]
On 15 August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-7,
to Aleja Gamiao (hereafter Gamiao) and Felisa Dayag (hereafter, Dayag) by virtue of a Deed
of Sale,[7] to which his brothers Anselmo, Gregorio, Filomeno and Domingo offered no
objection as evidenced by their Joint Affidavit dated 14 August 1957.[8] The deed of sale was
not registered with the Office of the Register of Deeds of Isabela. However, Gamiao and
Dayag declared the property for taxation purposes in their names on March 1964 under Tax
Declaration No. 7981.[9]
On 28 May 1964, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7,
denominated as Lot No. 7036-A-7-B, to Teodoro dela Cruz,[10] and the northern half,
identified as Lot No. 7036-A-7-A,[11] to Restituto Hernandez.[12] Thereupon, Teodoro dela Cruz
and Restituto Hernandez took possession of and cultivated the portions of the property
respectively sold to them.[13]
Later, on 28 December 1986, Restituto Hernandez donated the northern half to his
daughter, Evangeline Hernandez-del Rosario.[14] The children of Teodoro dela Cruz continued
possession of the southern half after their fathers death on 7 June 1970.
In a Deed of Sale[15] dated 15 June 1976, the Madrid brothers conveyed all their rights
and interests over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the
former confirmed[16] on 28 February 1983.[17] The deed of sale was registered with the Office
of the Register of Deeds of Isabela on 2 March 1982.[18]
Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot
Nos. 7036-A-7-A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued to him
on 29 March 1984.[19] On the same date, Marquez and his spouse, Mercedita Mariana,
mortgaged Lots Nos. 7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank, Inc. of
Cagayan Valley (hereafter, CRB) to secure a loan of One Hundred Thousand Pesos
(P100,000.00).[20] These deeds of real estate mortgage were registered with the Office of the
Register of Deeds on 2 April 1984.
On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank
of Cauayan (RBC) to secure a loan of Ten Thousand Pesos (P10,000.00).[21]
As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the
mortgages in its favor and the lots were sold to it as the highest bidder on 25 April 1986.[22]
On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto).[23]
Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the
foreclosure sale of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and the sale to
Calixto, the Heirs-now respondents herein-represented by Edronel dela Cruz, filed a
case[24] for reconveyance and damages the southern portion of Lot No. 7036-A (hereafter,
the subject property) against Marquez, Calixto, RBC and CRB in December 1986.
Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with
leave of court a Complaint in Intervention[25] wherein she claimed the northern portion of Lot
No. 7036-A-7.
In the Answer to the Amended Complaint,[26] Marquez, as defendant, alleged that apart
from being the first registrant, he was a buyer in good faith and for value. He also argued
that the sale executed by Rizal Madrid to Gamiao and Dayag was not binding upon him, it
being unregistered. For his part, Calixto manifested that he had no interest in the subject
property as he ceased to be the owner thereof, the same having been reacquired by
defendant Marquez.[27]
CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in good
faith and that they had the right to rely on the titles of Marquez which were free from any
lien or encumbrance.[28]
 After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC)
handed down a decision in favor of the defendants, disposing as follows:
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:
1. Dismissing the amended complaint and the complaint in intervention;
2. Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots 7036-A-7-A to
7036-A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382, inclusive;
3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in
favor of the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-A-7-E in
favor of defendant Rural Bank of Cauayan by Pacifico V. Marquez valid;
4. Dismissing the counterclaim of Pacifico V. Marquez; and
5. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots covered by TCT Nos.
T-33119, T-33220 and T-7583.
No pronouncement as to costs.
SO ORDERED.[29]
In support of its decision, the RTC made the following findings:
With respect to issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-A-7
made by Rizal Madrid to Aleja Gamiao and Felisa Dayag and the subsequent conveyances to
the plaintiffs and intervenors are all valid and the Madrid brothers are bound by said
contracts by virtue of the confirmation made by them on August 14, 1957 (Exh. B).
Are the defendants Pacifico V. Marquez and Romeo B. Calixto buyers in good faith and for
value of Lot 7036-A-7?
It must be borne in mind that good faith is always presumed and he who imputes bad faith
has the burden of proving the same (Art. 527, Civil Code). The Court has carefully scrutinized
the evidence presented but finds nothing to show that Marquez was aware of the plaintiffs
and intervenors claim of ownership over this lot. TCT No. T-8121 covering said property,
before the issuance of Marquez title, reveals nothing about the plaintiffs and intervenors
right thereto for it is an admitted fact that the conveyances in their favor are not registered.
The Court is therefore confronted with two sales over the same property. Article 1544 of the
Civil Code provides:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who
in good faith first recorded it in the Registry of Property. x x x (Underscoring supplied).
From the foregoing provisions and in the absence of proof that Marquez has actual or
constructive knowledge of plaintiffs and intervenors claim, the Court has to rule that as the
vendee who first registered his sale, Marquez ownership over Lot 7036-A-7 must be
upheld.[30]
The Heirs interposed an appeal with the Court of Appeals. In their Appellants
Brief,[31] they ascribed the following errors to the RTC: (1) it erred in finding that Marquez
was a buyer in good faith; (2) it erred in validating the mortgage of the properties to RBC and
CRB; and (3) it erred in not reconveying Lot No. 7036-A-7-B to them.[32]
Intervenor Evangeline del Rosario filed a separate appeal with the Court of Appeals. It
was, however, dismissed in a Resolution dated 20 September 1993 for her failure to pay
docket fees. Thus, she lost her standing as an appellant.[33]
On 27 May 1997, the Court of Appeals rendered its assailed Decision[34] reversing the
RTCs judgment. The dispositive portion reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accordingly,
judgment is hereby rendered as follows:
1. Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half portion
and Evangeline Hernandez-del Rosario the northern half portion of Lot No. 7036-A-7, now
covered by TCT Nos. T-149375 to T-149382, inclusive;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez
and the Madrid brothers covering said Lot 7036-A-7;
3. Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot Nos.
7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant Consolidated
Rural Bank and of Lot 7036-A-7-E in favor of defendant Rural Bank of Cauayan; and
4. Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela Cruz
and Evangeline Hernandez-del Rosario.
No pronouncement as to costs.
SO ORDERED.[35]
 In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed to
prove that he was a purchaser in good faith and for value. It noted that while Marquez was
the first registrant, there was no showing that the registration of the deed of sale in his favor
was coupled with good faith. Marquez admitted having knowledge that the subject property
was being taken by the Heirs at the time of the sale.[36] The Heirs were also in possession of
the land at the time. According to the Decision, these circumstances along with the subject
propertys attractive locationit was situated along the National Highway and was across a
gasoline stationshould have put Marquez on inquiry as to its status. Instead, Marquez closed
his eyes to these matters and failed to exercise the ordinary care expected of a buyer of real
estate.[37]
Anent the mortgagees RBC and CRB, the Court of Appeals found that they merely relied
on the certificates of title of the mortgaged properties. They did not ascertain the status and
condition thereof according to standard banking practice. For failure to observe the ordinary
banking procedure, the Court of Appeals considered them to have acted in bad faith and on
that basis declared null and void the mortgages made by Marquez in their favor.[38]
Dissatisfied, CRB filed a Motion for Reconsideration[39] pointing out, among others, that
the Decision promulgated on 27 May 1997 failed to establish good faith on the part of the
Heirs. Absent proof of possession in good faith, CRB avers, the Heirs cannot claim ownership
over the subject property.
In a Resolution[40] dated 5 January 1998, the Court of Appeals stressed its disbelief in
CRBs allegation that it did not merely rely on the certificates of title of the properties and
that it conducted credit investigation and standard ocular inspection. But recalling that
intervenor Evangeline del Rosario had lost her standing as an appellant, the Court of Appeals
accordingly modified its previous Decision, as follows:
WHEREFORE, the decision dated May 27, 1997, is hereby MODIFIED to read as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE insofar as
plaintiffs-appellants are concerned. Accordingly, judgment is hereby rendered as follows:
1. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half portion of
Lot No. 7036-A-7;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez
and the Madrid brothers insofar as the southern half portion of Lot NO. (sic) 7036-A-7 is
concerned;
3. Declaring the mortgage made by defendant Pacifico V. Marquez in favor of defendant
Consolidated Rural Bank (Cagayan Valley) and defendant Rural Bank of Cauayan as null and
void insofar as the southern half portion of Lot No. 7036-A-7 is concerned;
4. Ordering defendant Pacifico V. Marquez to reconvey the southern portion of Lot No. 7036-
A-7 to the Heirs of Teodoro dela Cruz.
No pronouncement as to costs.
SO ORDERED.[41]
Hence, the instant CRB petition. However, both Marquez and RBC elected not to
challenge the Decision of the appellate court.
Petitioner CRB, in essence, alleges that the Court of Appeals committed serious error of
law in upholding the Heirs ownership claim over the subject property considering that there
was no finding that they acted in good faith in taking possession thereof nor was there proof
that the first buyers, Gamiao and Dayag, ever took possession of the subject property. CRB
also makes issue of the fact that the sale to Gamiao and Dayag was confirmed a day ahead of
the actual sale, clearly evincing bad faith, it adds. Further, CRB asserts Marquezs right over
the property being its registered owner.
The petition is devoid of merit. However, the dismissal of the petition is justified by
reasons different from those employed by the Court of Appeals.
Like the lower court, the appellate court resolved the present controversy by applying
the rule on double sale provided in Article 1544 of the Civil Code. They, however, arrived at
different conclusions. The RTC made CRB and the other defendants win, while the Court of
Appeals decided the case in favor of the Heirs.
Article 1544 of the Civil Code reads, thus:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who
in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith
was first in possession; and, in the absence thereof, to the person who presents the oldest
title, provided there is good faith.
The provision is not applicable in the present case. It contemplates a case of double or
multiple sales by a single vendor. More specifically, it covers a situation where a single
vendor sold one and the same immovable property to two or more buyers. [42] According to a
noted civil law author, it is necessary that the conveyance must have been made by a party
who has an existing right in the thing and the power to dispose of it.[43] It cannot be invoked
where the two different contracts of sale are made by two different persons, one of them
not being the owner of the property sold. [44] And even if the sale was made by the same
person, if the second sale was made when such person was no longer the owner of the
property, because it had been acquired by the first purchaser in full dominion, the second
purchaser cannot acquire any right.[45]
In the case at bar, the subject property was not transferred to several purchasers by a
single vendor. In the first deed of sale, the vendors were Gamiao and Dayag whose right to
the subject property originated from their acquisition thereof from Rizal Madrid with the
conformity of all the other Madrid brothers in 1957, followed by their declaration of the
property in its entirety for taxation purposes in their names. On the other hand, the vendors
in the other or later deed were the Madrid brothers but at that time they were no longer the
owners since they had long before disposed of the property in favor of Gamiao and Dayag.
Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper
application of Article 1473 of the Old Civil Code (now Article 1544 of the New Civil Code) in
the case of Carpio v. Exevea,[46] thus:
In order that tradition may be considered performed, it is necessary that the requisites which
it implies must have been fulfilled, and one of the indispensable requisites, according to the
most exact Roman concept, is that the conveyor had the right and the will to convey the
thing. The intention to transfer is not sufficient; it only constitutes the will. It is, furthermore,
necessary that the conveyor could juridically perform that act; that he had the right to do so,
since a right which he did not possess could not be vested by him in the transferee.
This is what Article 1473 has failed to express: the necessity for the preexistence of the right
on the part of the conveyor. But even if the article does not express it, it would be
understood, in our opinion, that that circumstance constitutes one of the assumptions upon
which the article is based.
This construction is not repugnant to the text of Article 1473, and not only is it not contrary
to it, but it explains and justifies the same. (Vol. 10, 4th ed., p. 159)[47]
In that case, the property was transferred to the first purchaser in 1908 by its original
owner, Juan Millante. Thereafter, it was sold to plaintiff Carpio in June 1929. Both
conveyances were unregistered. On the same date that the property was sold to the plaintiff,
Juan Millante sold the same to defendant Exevea. This time, the sale was registered in the
Registry of Deeds. But despite the fact of registration in defendants favor, the Court of
Appeals found for the plaintiff and refused to apply the provisions of Art. 1473 of the Old
Civil Code, reasoning that on the date of the execution of the document, Exhibit 1, Juan
Millante did not and could not have any right whatsoever to the parcel of land in question.[48]
Citing a portion of a judgment dated 24 November 1894 of the Supreme Court of Spain,
the Court of Appeals elucidated further:
Article 1473 of the Civil Code presupposes the right of the vendor to dispose of the thing
sold, and does not limit or alter in this respect the provisions of the Mortgage Law in force,
which upholds the principle that registration does not validate acts or contracts which are
void, and that although acts and contracts executed by persons who, in the Registry, appear
to be entitled to do so are not invalidated once recorded, even if afterwards the right of such
vendor is annulled or resolved by virtue of a previous unrecorded title, nevertheless this
refers only to third parties.[49]
In a situation where not all the requisites are present which would warrant the
application of Art. 1544, the principle of prior tempore, potior jure or simply he who is first in
time is preferred in right,[50] should apply.[51] The only essential requisite of this rule is priority
in time; in other words, the only one who can invoke this is the first vendee. Undisputedly, he
is a purchaser in good faith because at the time he bought the real property, there was still
no sale to a second vendee.[52] In the instant case, the sale to the Heirs by Gamiao and Dayag,
who first bought it from Rizal Madrid, was anterior to the sale by the Madrid brothers to
Marquez. The Heirs also had possessed the subject property first in time. Thus, applying the
principle, the Heirs, without a scintilla of doubt, have a superior right to the subject property.
Moreover, it is an established principle that no one can give what one does not
havenemo dat quod non habet. Accordingly, one can sell only what one owns or is authorized
to sell, and the buyer can acquire no more than what the seller can transfer legally.[53] In this
case, since the Madrid brothers were no longer the owners of the subject property at the
time of the sale to Marquez, the latter did not acquire any right to it.
In any event, assuming arguendo that Article 1544 applies to the present case, the
claim of Marquez still cannot prevail over the right of the Heirs since according to the
evidence he was not a purchaser and registrant in good faith.
Following Article 1544, in the double sale of an immovable, the rules of preference are:
(a) the first registrant in good faith;
(b) should there be no entry, the first in possession in good faith; and
(c) in the absence thereof, the buyer who presents the oldest title in good faith. [54]
Prior registration of the subject property does not by itself confer ownership or a
better right over the property. Article 1544 requires that before the second buyer can obtain
priority over the first, he must show that he acted in good faith throughout (i.e., in ignorance
of the first sale and of the first buyers rights)from the time of acquisition until the title is
transferred to him by registration or failing registration, by delivery of possession.[55]
In the instant case, the actions of Marquez have not satisfied the requirement of good
faith from the time of the purchase of the subject property to the time of registration. Found
by the Court of Appeals, Marquez knew at the time of the sale that the subject property was
being claimed or taken by the Heirs. This was a detail which could indicate a defect in the
vendors title which he failed to inquire into. Marquez also admitted that he did not take
possession of the property and at the time he testified he did not even know who was in
possession. Thus, he testified on direct examination in the RTC as follows:
ATTY. CALIXTO
Q Can you tell us the circumstances to your buying the land in question?
A In 1976 the Madrid brothers confessed to me their problems about their lots in
San Mateo that they were being taken by Teodoro dela Cruz and Atty.
Teofilo A. Leonin; that they have to pay the lawyers fee of P10,000.00
otherwise Atty. Leonin will confiscate the land. So they begged me to buy
their properties, some of it. So that on June 3, 1976, they came to
Cabagan where I was and gave them P14,000.00, I think. We have talked
that they will execute the deed of sale.
 Q Why is it, doctor, that you have already this deed of sale, Exh. 14, why did you
find it necessary to have this Deed of Confirmation of a Prior Sale, Exh.
15?
A Because as I said a while ago that the first deed of sale was submitted to the
Register of Deeds by Romeo Badua so that I said that because when I
became a Municipal Health Officer in San Mateo, Isabela, I heard so many
rumors, so many things about the land and so I requested them to
execute a deed of confirmation.[56]
...
ATTY. CALIXTO-
Q At present, who is in possession on the Riceland portion of the lot in question?
A I can not say because the people working on that are changing from time to
time.
Q Why, have you not taken over the cultivation of the land in question?
A Well, the Dela Cruzes are prohibiting that we will occupy the place.
Q So, you do not have any possession?
A None, sir.[57]
One who purchases real property which is in actual possession of others should, at
least, make some inquiry concerning the rights of those in possession. The actual possession
by people other than the vendor should, at least, put the purchaser upon inquiry. He can
scarcely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such
possessions.[58] The rule of caveat emptor requires the purchaser to be aware of the
supposed title of the vendor and one who buys without checking the vendors title takes all
the risks and losses consequent to such failure.[59]
It is further perplexing that Marquez did not fight for the possession of the property if
it were true that he had a better right to it. In our opinion, there were circumstances at the
time of the sale, and even at the time of registration, which would reasonably require a
purchaser of real property to investigate to determine whether defects existed in his vendors
title. Instead, Marquez willfully closed his eyes to the possibility of the existence of these
flaws. For failure to exercise the measure of precaution which may be required of a prudent
man in a like situation, he cannot be called a purchaser in good faith.[60]
As this Court explained in the case of Spouses Mathay v. Court of Appeals:[61]
Although it is a recognized principle that a person dealing on a registered land need not go
beyond its certificate of title, it is also a firmly settled rule that where there are
circumstances which would put a party on guard and prompt him to investigate or inspect
the property being sold to him, such as the presence of occupants/tenants thereon, it is, of
course, expected from the purchaser of a valued piece of land to inquire first into the status
or nature of possession of the occupants, i.e., whether or not the occupants possess the land
en concepto de dueo, in concept of owner. As is the common practice in the real estate
industry, an ocular inspection of the premises involved is a safeguard a cautious and prudent
purchaser usually takes. Should he find out that the land he intends to buy is occupied by
anybody else other than the seller who, as in this case, is not in actual possession, it would
then be incumbent upon the purchaser to verify the extent of the occupants possessory
rights. The failure of a prospective buyer to take such precautionary steps would mean
negligence on his part and would thereby preclude him from claiming or invoking the rights
of a purchaser in good faith.[62]
This rule equally applies to mortgagees of real property. In the case of Crisostomo v.
Court of Appeals,[63] the Court held:
It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in good faith
under the belief that there was no defect in the title of the vendor or mortgagor. His mere
refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of
the existence of a defect in the vendors or mortgagors title, will not make him an innocent
purchaser or mortgagee for value, if it afterwards develops that the title was in fact
defective, and it appears that he had such notice of the defects as would have led to its
discovery had he acted with the measure of a prudent man in a like situation.[64]
Banks, their business being impressed with public interest, are expected to exercise
more care and prudence than private individuals in their dealings, even those involving
registered lands. Hence, for merely relying on the certificates of title and for its failure to
ascertain the status of the mortgaged properties as is the standard procedure in its
operations, we agree with the Court of Appeals that CRB is a mortgagee in bad faith.
In this connection, Marquezs obstention of title to the property and the subsequent
transfer thereof to CRB cannot help the latters cause. In a situation where a party has actual
knowledge of the claimants actual, open and notorious possession of the disputed property
at the time of registration, as in this case, the actual notice and knowledge are equivalent to
registration, because to hold otherwise would be to tolerate fraud and the Torrens system
cannot be used to shield fraud. [65]
While certificates of title are indefeasible, unassailable and binding against the whole
world, they merely confirm or record title already existing and vested. They cannot be used
to protect a usurper from the true owner, nor can they be used for the perpetration of fraud;
neither do they permit one to enrich himself at the expense of others.[66]
We also find that the Court of Appeals did not err in awarding the subject property to
the Heirs absent proof of good faith in their possession of the subject property and without
any showing of possession thereof by Gamiao and Dayag.
 As correctly argued by the Heirs in their Comment,[67] the requirement of good faith in
the possession of the property finds no application in cases where there is no second
sale.[68] In the case at bar, Teodoro dela Cruz took possession of the property in 1964 long
before the sale to Marquez transpired in 1976 and a considerable length of timeeighteen (18)
years in factbefore the Heirs had knowledge of the registration of said sale in 1982. As Article
526 of the Civil Code aptly provides, (H)e is deemed a possessor in good faith who is not
aware that there exists in his title or mode of acquisition any flaw which invalidates it. Thus,
there was no need for the appellate court to consider the issue of good faith or bad faith
with regard to Teodoro dela Cruzs possession of the subject property.

Likewise, we are of the opinion that it is not necessary that there should be any finding
of possession by Gamiao and Dayag of the subject property. It should be recalled that the
regularity of the sale to Gamiao and Dayag was never contested by Marquez.[69] In fact the
RTC upheld the validity of this sale, holding that the Madrid brothers are bound by the sale
by virtue of their confirmation thereof in the Joint Affidavit dated 14 August 1957. That this
was executed a day ahead of the actual sale on 15 August 1957 does not diminish its integrity
as it was made before there was even any shadow of controversy regarding the ownership of
the subject property.

Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v. Heirs of
Mariano E. Santiago,[70] tax declarations are good indicia of possession in the concept of an
owner, for no one in his right mind would be paying taxes for a property that is not in his
actual or constructive possession.[71]

WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of Appeals
Decision, as modified by its Resolution dated 5 January 1998, is AFFIRMED. Costs against
petitioner.

SO ORDERED.
G.R. No. L-11658 February 15, 1918
LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.
CARSON, J.:
The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and executed a chattel mortgage thereon
to secure payment of the purchase price. It included in the mortgage deed the building of
strong materials in which the machinery was installed, without any reference to the land on
which it stood. The indebtedness secured by this instrument not having been paid when it
fell due, the mortgaged property was sold by the sheriff, in pursuance of the terms of the
mortgage instrument, and was bought in by the machinery company. The mortgage was
registered in the chattel mortgage registry, and the sale of the property to the machinery
company in satisfaction of the mortgage was annotated in the same registry on December
29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola
Filipina" executed a deed of sale of the land upon which the building stood to the machinery
company, but this deed of sale, although executed in a public document, was not registered.
This deed makes no reference to the building erected on the land and would appear to have
been executed for the purpose of curing any defects which might be found to exist in the
machinery company's title to the building under the sheriff's certificate of sale. The
machinery company went into possession of the building at or about the time when this sale
took place, that is to say, the month of December, 1913, and it has continued in possession
ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery
company, the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to the
plaintiff upon the building, separate and apart from the land on which it stood, to secure
payment of the balance of its indebtedness to the plaintiff under a contract for the
construction of the building. Upon the failure of the mortgagor to pay the amount of the
indebtedness secured by the mortgage, the plaintiff secured judgment for that amount,
levied execution upon the building, bought it in at the sheriff's sale on or about the 18th of
December, 1914, and had the sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery
company, which was in possession, filed with the sheriff a sworn statement setting up its
claim of title and demanding the release of the property from the levy. Thereafter, upon
demand of the sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the
sum of P12,000, in reliance upon which the sheriff sold the property at public auction to the
plaintiff, who was the highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the
machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in
favor of the machinery company, on the ground that the company had its title to the building
registered prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall
be transfer to the person who may have the first taken possession thereof in good
faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who first
recorded it in the registry.
Should there be no entry, the property shall belong to the person who first took
possession of it in good faith, and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be apparent
that the annotation or inscription of a deed of sale of real property in a chattel mortgage
registry cannot be given the legal effect of an inscription in the registry of real property. By
its express terms, the Chattel Mortgage Law contemplates and makes provision for
mortgages of personal property; and the sole purpose and object of the chattel mortgage
registry is to provide for the registry of "Chattel mortgages," that is to say, mortgages of
personal property executed in the manner and form prescribed in the statute. The building of
strong materials in which the rice-cleaning machinery was installed by the "Compaia
Agricola Filipina" was real property, and the mere fact that the parties seem to have dealt
with it separate and apart from the land on which it stood in no wise changed its character as
real property. It follows that neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the annotation in that registry of the sale of
the mortgaged property, had any effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the
ground assigned by the trial judge. We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription of the sheriff's
certificate of sale in his favor was made in good faith, and that the machinery company must
be held to be the owner of the property under the third paragraph of the above cited article
of the code, it appearing that the company first took possession of the property; and further,
that the building and the land were sold to the machinery company long prior to the date of
the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require "good
faith," in express terms, in relation to "possession" and "title," but contain no express
requirement as to "good faith" in relation to the "inscription" of the property on the registry,
it must be presumed that good faith is not an essential requisite of registration in order that
it may have the effect contemplated in this article. We cannot agree with this contention. It
could not have been the intention of the legislator to base the preferential right secured
under this article of the code upon an inscription of title in bad faith. Such an interpretation
placed upon the language of this section would open wide the door to fraud and collusion.
The public records cannot be converted into instruments of fraud and oppression by one
who secures an inscription therein in bad faith. The force and effect given by law to an
inscription in a public record presupposes the good faith of him who enters such inscription;
and rights created by statute, which are predicated upon an inscription in a public registry,
do not and cannot accrue under an inscription "in bad faith," to the benefit of the person
who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of Spain held
in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the
first paragraph; therefore, it having been found that the second purchasers who
record their purchase had knowledge of the previous sale, the question is to be
decided in accordance with the following paragraph. (Note 2, art. 1473, Civ. Code,
Medina and Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of
conveyance of ownership of the real property that is first recorded in the registry
shall have preference, this provision must always be understood on the basis of the
good faith mentioned in the first paragraph; the legislator could not have wished to
strike it out and to sanction bad faith, just to comply with a mere formality which,
in given cases, does not obtain even in real disputes between third persons. (Note
2, art. 1473, Civ. Code, issued by the publishers of the La Revista de los Tribunales,
13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building
at the sheriff's sale and inscribed his title in the land registry, was duly notified that the
machinery company had bought the building from plaintiff's judgment debtor; that it had
gone into possession long prior to the sheriff's sale; and that it was in possession at the time
when the sheriff executed his levy. The execution of an indemnity bond by the plaintiff in
favor of the sheriff, after the machinery company had filed its sworn claim of ownership,
leaves no room for doubt in this regard. Having bought in the building at the sheriff's sale
with full knowledge that at the time of the levy and sale the building had already been sold
to the machinery company by the judgment debtor, the plaintiff cannot be said to have been
a purchaser in good faith; and of course, the subsequent inscription of the sheriff's certificate
of title must be held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate
of sale to the plaintiff was not made in good faith, we should not be understood as
questioning, in any way, the good faith and genuineness of the plaintiff's claim against the
"Compaia Agricola Filipina." The truth is that both the plaintiff and the defendant company
appear to have had just and righteous claims against their common debtor. No criticism can
properly be made of the exercise of the utmost diligence by the plaintiff in asserting and
exercising his right to recover the amount of his claim from the estate of the common
debtor. We are strongly inclined to believe that in procuring the levy of execution upon the
factory building and in buying it at the sheriff's sale, he considered that he was doing no
more than he had a right to do under all the circumstances, and it is highly possible and even
probable that he thought at that time that he would be able to maintain his position in a
contest with the machinery company. There was no collusion on his part with the common
debtor, and no thought of the perpetration of a fraud upon the rights of another, in the
ordinary sense of the word. He may have hoped, and doubtless he did hope, that the title of
the machinery company would not stand the test of an action in a court of law; and if later
developments had confirmed his unfounded hopes, no one could question the legality of the
propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership
when he executed the indemnity bond and bought in the property at the sheriff's sale, and it
appearing further that the machinery company's claim of ownership was well founded, he
cannot be said to have been an innocent purchaser for value. He took the risk and must
stand by the consequences; and it is in this sense that we find that he was not a purchaser in
good faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor
cannot claim that he has acquired title thereto in good faith as against the true owner of the
land or of an interest therein; and the same rule must be applied to one who has knowledge
of facts which should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot
close his eyes to facts which should put a reasonable man upon his guard, and then claim
that he acted in good faith under the belief that there was no defect in the title of the
vendor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to
the possibility of the existence of a defect in his vendor's title, will not make him an innocent
purchaser for value, if afterwards develops that the title was in fact defective, and it appears
that he had such notice of the defects as would have led to its discovery had he acted with
that measure of precaution which may reasonably be acquired of a prudent man in a like
situation. Good faith, or lack of it, is in its analysis a question of intention; but in ascertaining
the intention by which one is actuated on a given occasion, we are necessarily controlled by
the evidence as to the conduct and outward acts by which alone the inward motive may,
with safety, be determined. So it is that "the honesty of intention," "the honest lawful
intent," which constitutes good faith implies a "freedom from knowledge and circumstances
which ought to put a person on inquiry," and so it is that proof of such knowledge overcomes
the presumption of good faith in which the courts always indulge in the absence of proof to
the contrary. "Good faith, or the want of it, is not a visible, tangible fact that can be seen or
touched, but rather a state or condition of mind which can only be judged of by actual or
fancied tokens or signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber
Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the decision and
judgment entered in the court below should be affirmed with costs of this instance against
the appellant. So ordered.