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Lam v Kodak PH (2016)

G.R. No. 167615, January 11, 2016

SPOUSES ALEXANDER AND JULIE LAM, DOING BUSINESS UNDER THE NAME AND STYLE
"COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO SUPPLY", Petitioners, v. KODAK
PHILIPPINES, LTD., Respondent.

DECISION

LEONEN, J.:

This is a Petition for Review on Certiorari filed on April 20, 2005 assailing the March 30, 2005
Decision1and September 9, 2005 Amended Decision2 of the Court of Appeals, which modified the
February 26, 1999 Decision3 of the Regional Trial Court by reducing the amount of damages awarded
to petitioners Spouses Alexander and Julie Lam (Lam Spouses).4

The Lam Spouses argue that respondent Kodak Philippines, Ltd.'s breach of their contract of sale
entitles them to damages more than the amount awarded by the Court of Appeals.5

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement (Letter
Agreement) for the sale of three (3) units of the Kodak Minilab System 22XL 6 (Minilab Equipment) in
the amount of P1,796,000.00 per unit,7 with the following terms:chanRoblesvirtualLawlibrary

This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc. with
three (3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal Avenue (Manila),
Tagum (Davao del Norte), and your existing Multicolor photo counter in Cotabato City under the
following terms and conditions:chanRoblesvirtualLawlibrary

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on
prevailing equipment price provided said equipment packages will be purchased not later than June
30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in advance
immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE


THOUSAND PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the balance
shall be re-amortized for the remaining 36 months and the prevailing interest shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION SEVEN
HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
* Secured with PDCs; 1st monthly amortization due 45 days after installation[.] 8cralawlawlibrary

On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in
Tagum, Davao Province.9 The delivered unit was installed by Noritsu representatives on March 9,
1992.10 The Lam Spouses issued postdated checks amounting to P35,000.00 each for 12 months as
payment for the first delivered unit, with the first check due on March 31, 1992. 11

The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated March 31,
1992 allegedly due to insufficiency of funds.12 The same request was made for the check due on April
30, 1992. However, both checks were negotiated by Kodak Philippines, Ltd. and were honored by the
depository bank.13 The 10 other checks were subsequently dishonored after the Lam Spouses
ordered the depository bank to stop payment.14

Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit it
delivered together with its accessories.15 The Lam Spouses ignored the demand but also rescinded
the contract through the letter dated November 18, 1992 on account of Kodak Philippines, Ltd.'s
failure to deliver the two (2) remaining Minilab Equipment units.16

On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of sum
of money. The case was raffled to Branch 61 of the Regional Trial Court, Makati City. 17 The
Summons and a copy of Kodak Philippines, Ltd.'s Complaint was personally served on the Lam
Spouses.18

The Lam Spouses failed to appear during the pre-trial conference and submit their pre-trial brief
despite being given extensions.19 Thus, on July 30, 1993, they were declared in default.20 Kodak
Philippines, Ltd. presented evidence ex-parte.21 The trial court issued the Decision in favor of Kodak
Philippines, Ltd. ordering the seizure of the Minilab Equipment, which included the lone delivered unit,
its standard accessories, and a separate generator set.22 Based on this Decision, Kodak Philippines,
Ltd. was able to obtain a writ of seizure on December 16, 1992 for the Minilab Equipment installed at
the Lam Spouses' outlet in Tagum, Davao Province.23 The writ was enforced on December 21, 1992,
and Kodak Philippines, Ltd. gained possession of the Minilab Equipment unit, accessories, and the
generator set.24

The Lam Spouses then filed before the Court of Appeals a Petition to Set Aside the Orders issued by
the trial court dated July 30, 1993 and August 13, 1993. These Orders were subsequently set aside
by the Court of Appeals Ninth Division, and the case was remanded to the trial court for pre-
trial.25cralawred

On September 12, 1995, an Urgent Motion for Inhibition was filed against Judge Fernando V.
Gorospe, Jr.,26 who had issued the writ of seizure.27 The ground for the motion for inhibition was not
provided. Nevertheless, Judge Fernando V. Gorospe Jr. inhibited himself, and the case was
reassigned to Branch 65 of the Regional Trial Court, Makati City on October 3, 1995.28

In the Decision dated February 26, 1999, the Regional Trial Court found that Kodak Philippines, Ltd.
defaulted in the performance of its obligation under its Letter Agreement with the Lam Spouses. 29 It
held that Kodak Philippines, Ltd.'s failure to deliver two (2) out of the three (3) units of the Minilab
Equipment caused the Lam Spouses to stop paying for the rest of the installments. 30 The trial court
noted that while the Letter Agreement did not specify a period within which the delivery of all units
was to be made, the Civil Code provides "reasonable time" as the standard period for
compliance:chanRoblesvirtualLawlibrary

The second paragraph of Article 1521 of the Civil Code provides:chanRoblesvirtualLawlibrary

Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for
sending them is fixed, the seller is bound to send them within a reasonable time.
cralawlawlibrary

What constitutes reasonable time is dependent on the circumstances availing both on the part of the
seller and the buyer. In this case, delivery of the first unit was made five (5) days after the date of the
agreement. Delivery of the other two (2) units, however, was never made despite the lapse of at least
three (3) months.31cralawlawlibrary

Kodak Philippines, Ltd. failed to give a sufficient explanation for its failure to deliver all three (3)
purchased units within a reasonable time.32

The trial court found:chanRoblesvirtualLawlibrary

Kodak would have the court believe that it did not deliver the other two (2) units due to the failure of
defendants to make good the installments subsequent to the second. The court is not convinced. First
of all, there should have been simultaneous delivery on account of the circumstances surrounding the
transaction. . . . Even after the first delivery ... no delivery was made despite repeated demands from
the defendants and despite the fact no installments were due. Then in March and in April (three and
four months respectively from the date of the agreement and the first delivery) when the installments
due were both honored, still no delivery was made.

Second, although it might be said that Kodak was testing the waters with just one delivery -
determining first defendants' capacity to pay - it was not at liberty to do so. It is implicit in the letter
agreement that delivery within a reasonable time was of the essence and failure to so deliver within a
reasonable time and despite demand would render the vendor in default.
....

Third, at least two (2) checks were honored. If indeed Kodak refused delivery on account of
defendants' inability to pay, non-delivery during the two (2) months that payments were honored is
unjustified.33cralawlawlibrary

Nevertheless, the trial court also ruled that when the Lam Spouses accepted delivery of the first unit,
they became liable for the fair value of the goods received:chanRoblesvirtualLawlibrary

On the other hand, defendants accepted delivery of one (1) unit. Under Article 1522 of the Civil Code,
in the event the buyer accepts incomplete delivery and uses the goods so delivered, not then knowing
that there would not be any further delivery by the seller, the buyer shall be liable only for the fair
value to him of the goods received. In other words, the buyer is still liable for the value of the property
received. Defendants were under obligation to pay the amount of the unit. Failure of delivery of the
other units did not thereby give unto them the right to suspend payment on the unit delivered. Indeed,
in incomplete deliveries, the buyer has the remedy of refusing payment unless delivery is first made.
In this case though, payment for the two undelivered units have not even commenced; the
installments made were for only one (1) unit.
Hence, Kodak is right to retrieve the unit delivered.34cralawlawlibrary

The Lam Spouses were under obligation to pay for the amount of one unit, and the failure to deliver
the remaining units did not give them the right to suspend payment for the unit already
delivered.35 However, the trial court held that since Kodak Philippines, Ltd. had elected to cancel the
sale and retrieve the delivered unit, it could no longer seek payment for any deterioration that the unit
may have suffered while under the custody of the Lam Spouses. 36

As to the generator set, the trial court ruled that Kodak Philippines, Ltd. attempted to mislead the
court by claiming that it had delivered the generator set with its accessories to the Lam Spouses,
when the evidence showed that the Lam Spouses had purchased it from Davao Ken Trading, not
from Kodak Philippines, Ltd.37 Thus, the generator set that Kodak Philippines, Ltd. wrongfully took
from the Lam Spouses should be replaced.38

The dispositive portion of the Regional Trial Court Decision reads:chanRoblesvirtualLawlibrary

PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is ordered to pay the
following:chanRoblesvirtualLawlibrary

1) PHP 130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and

2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum, Davao and Rizal Ave.,
Manila outlets.

SO ORDERED.39ChanRoblesVirtualawlibrary
cralawlawlibrary

On March 31, 1999, the Lam Spouses filed their Notice of Partial Appeal, raising as an issue the
Regional Trial Court's failure to order Kodak Philippines, Ltd. to pay: (1) P2,040,000 in actual
damages; (2) P50,000,000 in moral damages; (3) P20,000,000 in exemplary damages; (4) P353,000
in attorney's fees; and (5) P3 00,000 as litigation expenses.40 The Lam Spouses did not appeal the
Regional Trial Court's award for the generator set and the renovation expenses. 41

Kodak Philippines, Ltd. also filed an appeal. However, the Court of Appeals42 dismissed it on
December 16, 2002 for Kodak Philippines, Ltd.'s failure to file its appellant's brief, without prejudice to
the continuation of the Lam Spouses' appeal.43 The Court of Appeals' December 16, 2002 Resolution
denying Kodak Philippines, Ltd.'s appeal became final and executory on January 4, 2003.44

In the Decision45 dated March 30, 2005, the Court of Appeals Special Fourteenth Division modified
the February 26, 1999 Decision of the Regional Trial Court:chanRoblesvirtualLawlibrary

WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the
Regional Trial Court, Branch 65 in Civil Case No. 92-3442 is hereby MODIFIED.Plaintiff-appellant is
ordered to pay the following:

1. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and
2. P440.000.00 as actual damages;

3. P25,000.00 as moral damages; and

4. P50,000.00 as exemplary damages.

SO ORDERED.46 (Emphasis supplied)


cralawlawlibrary

The Court of Appeals agreed with the trial court's Decision, but extensively discussed the basis for
the modification of the dispositive portion.

The Court of Appeals ruled that the Letter Agreement executed by the parties showed that their
obligations were susceptible of partial performance. Under Article 1225 of the New Civil Code, their
obligations are divisible:chanRoblesvirtualLawlibrary

In determining the divisibility of an obligation, the following factors may be considered, to wit: (1) the
will or intention of the parties, which may be expressed or presumed; (2) the objective or purpose of
the stipulated prestation; (3) the nature of the thing; and (4) provisions of law affecting the prestation.

Applying the foregoing factors to this case, We found that the intention of the parties is to be bound
separately for each Minilab Equipment to be delivered as shown by the separate purchase price for
each of the item, by the acceptance ofSps. Lam of separate deliveries for the first Minilab Equipment
and for those of the remaining two and the separate payment arrangements for each of the
equipment. Under this premise, Sps. Lam shall be liable for the entire amount of the purchase price of
the Minilab Equipment delivered considering that Kodak had already completely fulfilled its obligation
to deliver the same.. ..

Third, it is also evident that the contract is one that is severable in character as demonstrated by the
separate purchase price for each of the minilab equipment. "If the part to be performed by one party
consists in several distinct and separate items and the price is apportioned to each of them, the
contract will generally be held to be severable. In such case, each distinct stipulation relating to a
separate subject matter will be treated as a separate contract." Considering this, Kodak's breach of its
obligation to deliver the other two (2) equipment cannot bar its recovery for the full payment of the
equipment already delivered. As far as Kodak is concerned, it had already fully complied with its
separable obligation to deliver the first unit of Minilab Equipment.47 (Emphasis supplied)
cralawlawlibrary

The Court of Appeals held that the issuance of a writ of replevin is proper insofar as the delivered
Minilab Equipment unit and its standard accessories are concerned, since Kodak Philippines, Ltd.
had the right to possess it:48chanroblesvirtuallawlibrary

The purchase price of said equipment is P1,796,000.00 which, under the agreement is payable with
forty eight (48) monthly amortization. It is undisputed that Sps. Lam made payments which amounted
to Two Hundred Seventy Thousand Pesos (P270,000.00) through the following checks: Metrobank
Check Nos. 00892620 and 00892621 dated 31 March 1992 and 30 April 1992 respectively in the
amount of Thirty Five Thousand Pesos (P35,000.0O) each, and BPI Family Check dated 31 July
1992 amounting to Two Hundred Thousand Pesos (P200,000.00). This being the case, Sps. Lam are
still liable to Kodak in the amount of One Million Five Hundred Twenty Six Thousand Pesos
(P1,526,000.00), which is payable in several monthly amortization, pursuant to the Letter
Agreement. However, Sps. Lam admitted that sometime in May 1992, they had already ordered their
drawee bank to stop the payment on all the other checks they had issued to Kodak as payment for
the Minilab Equipment delivered to them. Clearly then, Kodak hafdj the right to repossess the said
equipment, through this replevin suit. Sps. Lam cannot excuse themselves from paying in full the
purchase price of the equipment delivered to them on account of Kodak's breach of the contract to
deliver the other two (2) Minilab Equipment, as contemplated in the Letter Agreement.49 (Emphasis
supplied)cralawlawlibrary

Echoing the ruling of the trial court, the Court of Appeals held that the liability of the Lam Spouses to
pay the remaining balance for the first delivered unit is based on the second sentence of Article 1592
of the New Civil Code.50 The Lam Spouses' receipt and use of the Minilab Equipment before they
knew that Kodak Philippines, Ltd. would not deliver the two (2) remaining units has made them liable
for the unpaid portion of the purchase price.51

The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its contract with the
Lam Spouses in the letter dated October 14, 1992.52 The rescission was based on Article 1191 of the
New Civil Code, which provides: "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." 53 In its letter, Kodak
Philippines, Ltd. demanded that the Lam Spouses surrender the lone delivered unit of Minilab
Equipment along with its standard accessories.54

The Court of Appeals likewise noted that the Lam Spouses rescinded the contract through its letter
dated November 18, 1992 on account of Kodak Philippines, Inc.'s breach of the parties' agreement to
deliver the two (2) remaining units.55

As a result of this rescission under Article 1191, the Court of Appeals ruled that "both parties must be
restored to their original situation, as far as practicable, as if the contract was never entered
into."56 The Court of Appeals ratiocinated that Article 1191 had the effect of extinguishing the
obligatory relation as if one was never created:57chanroblesvirtuallawlibrary

To rescind is to declare a contract void in its inception and to put an end to it as though it never were.
It is not merely to terminate it and to release parties from further obligations to each other but
abrogate it from the beginning and restore parties to relative positions which they would have
occupied had no contract been made.58cralawlawlibrary

The Lam Spouses were ordered to relinquish possession of the Minilab Equipment unit and its
standard accessories, while Kodak Philippines, Ltd. was ordered to return the amount of
P270,000.00, tendered by the Lam Spouses as partial payment.59

As to the actual damages sought by the parties, the Court of Appeals found that the Lam Spouses
were able to substantiate the following:chanRoblesvirtualLawlibrary

Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the rider to the contract of lease which
made the Sps. Lam liable, by way of advance payment, in the amount of P40,000.00, the same being
intended for the repair of the flooring of the leased premises; and lastly, the payment of P300,000.00,
as compromise agreement for the pre-termination of the contract of lease with
Ruales.60cralawlawlibrary

The total amount is P440,000.00. The Court of Appeals found that all other claims made by the Lam
Spouses were not supported by evidence, either through official receipts or check payments.61
As regards the generator set improperly seized from Kodak Philippines, Ltd. on the basis of the writ of
replevin, the Court of Appeals found that there was no basis for the Lam Spouses' claim for
reasonable rental of P5,000.00. It held that the trial court's award of 12% interest, in addition to the
cost of the generator set in the amount of P130,000.00, is sufficient compensation for whatever
damage the Lam Spouses suffered on account of its improper seizure. 62

The Court of Appeals also ruled on the Lam Spouses' entitlement to moral and exemplary damages,
as well as attorney's fees and litigation expenses:chanRoblesvirtualLawlibrary

In seeking recovery of the Minilab Equipment, Kodak cannot be considered to have manifested bad
faith and malevolence because as earlier ruled upon, it was well within its right to do the same.
However, with respect to the seizure of the generator set, where Kodak misrepresented to the court a
quo its alleged right over the said item, Kodak's bad faith and abuse of judicial processes become
self-evident. Considering the off-setting circumstances attendant, the amount of P25,000.00 by way
of moral damages is considered sufficient.

In addition, so as to serve as an example to the public that an application for replevin should not be
accompanied by any false claims and misrepresentation, the amount of P50,000.00 by way of
exemplary damages should be pegged against Kodak.

With respect to the attorney's fees and litigation expenses, We find that there is no basis to award
Sps. Lam the amount sought for.63cralawlawlibrary

Kodak Philippines, Ltd. moved for reconsideration of the Court of Appeals Decision, but it was denied
for lack of merit.64 However, the Court of Appeals noted that the Lam Spouses' Opposition correctly
pointed out that the additional award of P270,000.00 made by the trial court was not mentioned in the
decretal portion of the March 30, 2005 Decision:chanRoblesvirtualLawlibrary

Going over the Decision, specifically page 12 thereof, the Court noted that, in addition to the amount
of Two Hundred Seventy Thousand (P270,000.00) which plaintiff-appellant should return to the
defendants-appellants, the Court also ruled that defendants-appellants should, in turn, relinquish
possession of the Minilab Equipment and the standard accessories to plaintiff-appellant.
Inadvertently, these material items were not mentioned in the decretal portion of the Decision. Hence,
the proper correction should herein be made.65cralawlawlibrary

The Lam Spouses filed this Petition for Review on April 14, 2005. On the other hand, Kodak
Philippines, Ltd. filed its Motion for Reconsideration66 before the Court of Appeals on April 22, 2005.

While the Petition for Review on Certiorari filed by the Lam Spouses was pending before this court,
the Court of Appeals Special Fourteenth Division, acting on Kodak Philippines, Ltd.'s Motion for
Reconsideration, issued the Amended Decision67 dated September 9, 2005. The dispositive portion of
the Decision reads:chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, this Court resolved that:chanRoblesvirtualLawlibrary

A. Plaintiff-appellant's Motion for Reconsideration is hereby DENIED for lack of merit.

B. The decretal portion of the 30 March 2005 Decision should now read as follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the
Regional Trial Court, Branch 65 in Civil Cases No. 92-3442 is hereby MODIFIED. Plaintiff-appellant is
ordered to pay the following:
a. P270,000.00 representing the partial payment made on the Minilab equipment.

b. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per annum
from December 1992 until fully paid;

c. P440,000.00 as actual damages;

d. P25,000.00 as moral damages; and

e. P50,000.00 as exemplary damages.


Upon the other hand, defendants-appellants are hereby ordered to return to plaintiff-appellant the
Minilab equipment and the standard accessories delivered by plaintiff-appellant.

SO ORDERED."
SO ORDERED.68 (Emphasis in the original)
cralawlawlibrary

Upon receiving the Amended Decision of the Court of Appeals, Kodak Philippines, Ltd. filed a Motion
for Extension of Time to File an Appeal by Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure before this court.69

This was docketed as G.R. No. 169639. In the Motion for Consolidation dated November 2, 2005, the
Lam Spouses moved that G.R. No. 167615 and G.R. No. 169639 be consolidated since both involved
the same parties, issues, transactions, and essential facts and circumstances.70

In the Resolution dated November 16, 2005, this court noted the Lam Spouses' September 23 and
September 30, 2005 Manifestations praying that the Court of Appeals' September 9, 2005 Amended
Decision be considered in the resolution of the Petition for Review on Certiorari.71 It also granted the
Lam Spouses' Motion for Consolidation.72

In the Resolution73 dated September 20, 2006, this court deconsolidated G.R No. 167615 from G.R.
No. 169639 and declared G.R. No. 169639 closed and terminated since Kodak Philippines, Ltd. failed
to file its Petition for Review.

II

We resolve the following issues:chanRoblesvirtualLawlibrary

First, whether the contract between petitioners Spouses Alexander and Julie Lam and respondent
Kodak Philippines, Ltd. pertained to obligations that are severable, divisible, and susceptible of partial
performance under Article 1225 of the New Civil Code; and

Second, upon rescission of the contract, what the parties are entitled to under Article 1190 and Article
1522 of the New Civil Code.

Petitioners argue that the Letter Agreement it executed with respondent for three (3) Minilab
Equipment units was not severable, divisible, and susceptible of partial performance. Respondent's
recovery of the delivered unit was unjustified.74

Petitioners assert that the obligations of the parties were not susceptible of partial performance since
the Letter Agreement was for a package deal consisting of three (3) units. 75 For the delivery of these
units, petitioners were obliged to pay 48 monthly payments, the total of which constituted one
debt.76 Having relied on respondent's assurance that the three units would be delivered at the same
time, petitioners simultaneously rented and renovated three stores in anticipation of simultaneous
operations.77 Petitioners argue that the divisibility of the object does not necessarily determine the
divisibility of the obligation since the latter is tested against its susceptibility to a partial
performance.78 They argue that even if the object is susceptible of separate deliveries, the transaction
is a indivisible if the parties intended the realization of all parts of the agreed obligation. 79

Petitioners support the claim that it was the parties' intention to have an indivisible agreement by
asserting that the payments they made to respondent were intended to be applied to the whole
package of three units.80 The postdated checks were also intended as initial payment for the whole
package.81 The separate purchase price for each item was merely intended to particularize the unit
prices, not to negate the indivisible nature of their transaction. 82 As to the issue of delivery, petitioners
claim that their acceptance of separate deliveries of the units was solely due to the constraints faced
by respondent, who had sole control over delivery matters.83

With the obligation being indivisible, petitioners argue that respondent's failure to comply with its
obligation to deliver the two (2) remaining Minilab Equipment units amounted to a breach. Petitioners
claim that the breach entitled them to the remedy of rescission and damages under Article 1191 of
the New Civil Code.84

Petitioners also argue that they are entitled to moral damages more than the P50,000.00 awarded by
the Court of Appeals since respondent's wrongful act of accusing them of non-payment of their
obligations caused them sleepless nights, mental anguish, and wounded feelings. 85 They further
claim that, to serve as an example for the public good, they are entitled to exemplary damages as
respondent, in making false allegations, acted in evident bad faith and in a wanton, oppressive,
capricious, and malevolent manner.86

Petitioners also assert that they are entitled to attorney's fees and litigation expenses under Article
2208 of the New Civil Code since respondent's act of bringing a suit against them was baseless and
malicious. This prompted them to engage the services of a lawyer.87

Respondent argues that the parties' Letter Agreement contained divisible obligations susceptible of
partial performance as defined by Article 1225 of the New Civil Code.88 In respondent's view, it was
the intention of the parties to be bound separately for each individually priced Minilab Equipment unit
to be delivered to different outlets:89chanroblesvirtuallawlibrary

The three (3) Minilab Equipment are intended by petitioners LAM for install[a]tion at their Tagum,
Davao del Norte, Sta. Cruz, Manila and Cotabato City outlets. Each of these units [is] independent
from one another, as many of them may perform its own job without the other. Clearly the objective or
purpose of the prestation, the obligation is divisible.

The nature of each unit of the three (3) Minilab Equipment is such that one can perform its own
functions, without awaiting for the other units to perform and complete its job. So much so, the nature
of the object of the Letter Agreement is susceptible of partial performance, thus the obligation is
divisible.90cralawlawlibrary

With the contract being severable in character, respondent argues that it performed its obligation
when it delivered one unit of the Minilab Equipment.91 Since each unit could perform on its own, there
was no need to await the delivery of the other units to complete its job. 92 Respondent then is of the
view that when petitioners ordered the depository bank to stop payment of the issued checks
covering the first delivered unit, they violated their obligations under the Letter Agreement since
respondent was already entitled to full payment.93

Respondent also argues that petitioners benefited from the use of the Minilab Equipment for 10
months—from March to December 1992— despite having paid only two (2) monthly
installments.94 Respondent avers that the two monthly installments amounting to P70,000.00 should
be the subject of an offset against the amount the Court of Appeals awarded to petitioners. 95

Respondent further avers that petitioners have no basis for claiming damages since the seizure and
recovery of the Minilab Equipment was not in bad faith and respondent was well within its right.96

III

The Letter Agreement contained an indivisible obligation.

Both parties rely on the Letter Agreement97 as basis of their respective obligations. Written by
respondent's Jeffrey T. Go and Antonio V. Mines and addressed to petitioner Alexander Lam, the
Letter Agreement contemplated a "package deal" involving three (3) units of the Kodak Minilab
System 22XL, with the following terms and conditions:chanRoblesvirtualLawlibrary

This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc. with
three (3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal Avenue (Manila),
Tagum (Davao del Norte), and your existing Multicolor photo counter in Cotabato City under the
following terms and conditions:chanRoblesvirtualLawlibrary

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on
prevailing equipment price provided said equipment packages will be purchased not later than June
30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in advance
immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE


THOUSAND PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the balance
shall be re-amortized for the remaining 36 months and the prevailing interest shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION SEVEN
HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due 45 days after installation[.] 98cralawlawlibrary

Based on the foregoing, the intention of the parties is for there to be a single transaction covering all
three (3) units of the Minilab Equipment. Respondent's obligation was to deliver all products
purchased under a "package," and, in turn, petitioners' obligation was to pay for the total purchase
price, payable in installments.

The intention of the parties to bind themselves to an indivisible obligation can be further discerned
through their direct acts in relation to the package deal. There was only one agreement covering all
three (3) units of the Minilab Equipment and their accessories. The Letter Agreement specified only
one purpose for the buyer, which was to obtain these units for three different outlets. If the intention of
the parties were to have a divisible contract, then separate agreements could have been made for
each Minilab Equipment unit instead of covering all three in one package deal. Furthermore, the 19%
multiple order discount as contained in the Letter Agreement was applied to all three acquired
units.99 The "no downpayment" term contained in the Letter Agreement was also applicable to all the
Minilab Equipment units. Lastly, the fourth clause of the Letter Agreement clearly referred to the
object of the contract as "Minilab Equipment Package."

In ruling that the contract between the parties intended to cover divisible obligations, the Court of
Appeals highlighted: (a) the separate purchase price of each item; (b) petitioners' acceptance of
separate deliveries of the units; and (c) the separate payment arrangements for each
unit.100 However, through the specified terms and conditions, the tenor of the Letter Agreement
indicated an intention for a single transaction. This intent must prevail even though the articles
involved are physically separable and capable of being paid for and delivered individually, consistent
with the New Civil Code:chanRoblesvirtualLawlibrary

Article 1225. For the purposes of the preceding articles, obligations to give definite things and those
which are not susceptible of partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible
of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if
so provided by law or intended by the parties. (Emphasis supplied)cralawlawlibrary

In Nazareno v. Court of Appeals,101 the indivisibility of an obligation is tested against whether it can be
the subject of partial performance:chanRoblesvirtualLawlibrary

An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature
of the thing which is the object thereof. The indivisibility refers to the prestation and not to the object
thereof. In the present case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots
to Natividad. The obligation is clearly indivisible because the performance of the contract cannot be
done in parts, otherwise the value of what is transferred is diminished. Petitioners are therefore
mistaken in basing the indivisibility of a contract on the number of obligors. 102 (Emphasis supplied,
citation omitted)cralawlawlibrary

There is no indication in the Letter Agreement that the units petitioners ordered were covered by
three (3) separate transactions. The factors considered by the Court of Appeals are mere incidents of
the execution of the obligation, which is to deliver three units of the Minilab Equipment on the part of
respondent and payment for all three on the part of petitioners. The intention to create an indivisible
contract is apparent from the benefits that the Letter Agreement afforded to both parties. Petitioners
were given the 19% discount on account of a multiple order, with the discount being equally
applicable to all units that they sought to acquire. The provision on "no downpayment" was also
applicable to all units. Respondent, in turn, was entitled to payment of all three Minilab Equipment
units, payable by installments.

IV

With both parties opting for rescission of the contract under Article 1191, the Court of Appeals
correctly ordered for restitution.

The contract between the parties is one of sale, where one party obligates himself or herself to
transfer the ownership and deliver a determinate thing, while the other pays a certain price in money
or its equivalent.103 A contract of sale is perfected upon the meeting of minds as to the object and the
price, and the parties may reciprocally demand the performance of their respective obligations from
that point on.104

The Court of Appeals correctly noted that respondent had rescinded the parties' Letter Agreement
through the letter dated October 14, 1992.105 It likewise noted petitioners' rescission through the letter
dated November 18, 1992.106 This rescission from both parties is founded on Article 1191 of the New
Civil Code:chanRoblesvirtualLawlibrary

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 injured party may choose between the fulfilment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfilment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
cralawlawlibrary

Rescission under Article 1191 has the effect of mutual restitution.107 In Velarde v. Court of
Appeals:108chanroblesvirtuallawlibrary

Rescission abrogates the contract from its inception and requires a mutual restitution of benefits
received.
....

Rescission creates the obligation to return the object of the contract. It can be carried out only when
the one who demands rescission can return whatever he may be obliged to restore. To rescind is to
declare a contract void at its inception and to put an end to it as though it never was. It is not merely
to terminate it and release the parties from further obligations to each other, but to abrogate it from
the beginning and restore the parties to their relative positions as if no contract has been made.
(Emphasis supplied, citations omitted)cralawlawlibrary

The Court of Appeals correctly ruled that both parties must be restored to their original situation as far
as practicable, as if the contract was never entered into. Petitioners must relinquish possession of the
delivered Minilab Equipment unit and accessories, while respondent must return the amount tendered
by petitioners as partial payment for the unit received. Further, respondent cannot claim that the two
(2) monthly installments should be offset against the amount awarded by the Court of Appeals to
petitioners because the effect of rescission under Article 1191 is to bring the parties back to their
original positions before the contract was entered into. Also in Velarde:chanRoblesvirtualLawlibrary

As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the
automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their original situation prior to the inception of the
contract. Accordingly, the initial payment of P800.000 and the corresponding mortgage payments in
the amounts of P27,225, P23.000 and P23.925 (totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of
the former.110] (Emphasis supplied)cralawlawlibrary

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked
because the power to resolve is implied in reciprocal obligations.111 The right to resolve allows an
injured party to minimize the damages he or she may suffer on account of the other party's failure to
perform what is incumbent upon him or her.112 When a party fails to comply with his or her obligation,
the other party's right to resolve the contract is triggered.113 The resolution immediately produces legal
effects if the non-performing party does not question the resolution.114 Court intervention only
becomes necessary when the party who allegedly failed to comply with his or her obligation disputes
the resolution of the contract.115 Since both parties in this case have exercised their right to resolve
under Article 1191, there is no need for a judicial decree before the resolution produces effects.

The issue of damages is a factual one. A petition for review on certiorari under Rule 45 shall only
pertain to questions of law.116 It is not the duty of this court to re-evaluate the evidence adduced
before the lower courts.117 Furthermore, unless the petition clearly shows that there is grave abuse of
discretion, the findings of fact of the trial court as affirmed by the Court of Appeals are conclusive
upon this court.118 In Lorzano v. Tabayag, Jr.:119chanroblesvirtuallawlibrary

For a question to be one of law, the same must not involve an examination of the probative value of
the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact.
....

For the same reason, we would ordinarily disregard the petitioner's allegation as to the propriety of
the award of moral damages and attorney's fees in favor of the respondent as it is a question of fact.
Thus, questions on whether or not there was a preponderance of evidence to justify the award of
damages or whether or not there was a causal connection between the given set of facts and the
damage suffered by the private complainant or whether or not the act from which civil liability might
arise exists are questions of fact.

Essentially, the petitioner is questioning the award of moral damages and attorney's fees in favor of
the respondent as the same is supposedly not fully supported by evidence. However, in the final
analysis, the question of whether the said award is fully supported by evidence is a factual question
as it would necessitate whether the evidence adduced in support of the same has any probative
value. For a question to be one of law, it must involve no examination of the probative value of the
evidence presented by the litigants or any of them.120 (Emphasis supplied, citations
omitted)cralawlawlibrary

The damages awarded by the Court of Appeals were supported by documentary


evidence.121 Petitioners failed to show any reason why the factual determination of the Court of
Appeals must be reviewed, especially in light of their failure to produce receipts or check payments to
support their other claim for actual damages.122

Furthermore, the actual damages amounting to P2,040,000.00 being sought by petitioners 123 must be
tempered on account of their own failure to pay the rest of the installments for the delivered unit. This
failure on their part is a breach of their obligation, for which the liability of respondent, for its failure to
deliver the remaining units, shall be equitably tempered on account of Article 1192 of the New Civil
Code.124 In Central Bank of the Philippines v. Court of Appeals:125chanroblesvirtuallawlibrary

Since both parties were in default in the performance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE
rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his
P17,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the
interest thereon.126 (Emphasis supplied)cralawlawlibrary

The award for moral and exemplary damages also appears to be sufficient. Moral damages are
granted to alleviate the moral suffering suffered by a party due to an act of another, but it is not
intended to enrich the victim at the defendant's expense.127 It is not meant to punish the culpable
party and, therefore, must always be reasonable vis-a-vis the injury caused.128 Exemplary damages,
on the other hand, are awarded when the injurious act is attended by bad faith. 129 In this case,
respondent was found to have misrepresented its right over the generator set that was seized. As
such, it is properly liable for exemplary damages as an example to the public.130

However, the dispositive portion of the Court of Appeals Amended Decision dated September 9, 2005
must be modified to include the recovery of attorney's fees and costs of suit in favor of petitioners.
In Sunbanun v. Go:131chanroblesvirtuallawlibrary

Furthermore, we affirm the award of exemplary damages and attorney's fees. Exemplary damages
may be awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner which would justify an award of
exemplary damages under Article 2232 of the Civil Code. Since the award of exemplary damages is
proper in this case, attorney's fees and cost of the suit may also be recovered as provided under
Article 2208 of the Civil Code.132 (Emphasis supplied, citation omitted)cralawlawlibrary
Based on the amount awarded for moral and exemplary damages, it is reasonable to award
petitioners P20,000.00 as attorney's fees.

WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9, 2005
is AFFIRMED with MODIFICATION. Respondent Kodak Philippines, Ltd. is ordered to pay
petitioners Alexander and Julie Lam:chanRoblesvirtualLawlibrary

(a) P270,000.00, representing the partial payment made on the Minilab Equipment;

(b) P130,000.00, representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid;

(c) P440,000.00 as actual damages;

(d) P25,000.00 as moral damages;

(e) P50,000.00 as exemplary damages; and

(f) P20,000.00 as attorney's fees.

Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard accessories to
respondent.

SO ORDERED.chanroblesvirtuallawlibrary

Carpio, (Chairperson), Brion, Del Castillo, and Mendoza, JJ., concur.

Gaite v Fonacier (1961)

G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,


vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO
TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.


Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims involved
aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a
representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the
municipality of Jose Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and
appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a
contract with any individual or juridical person for the exploration and development of the mining
claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted
therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp.
17-19) conveying the development and exploitation of said mining claims into the Larap Iron Mines, a
single proprietorship owned solely by and belonging to him, on the same royalty basis provided for in
Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the mining claims
in question, opening and paving roads within and outside their boundaries, making other
improvements and installing facilities therein for use in the development of the mines, and in time
extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite
to exploit and develop the mining claims in question, and Gaite assented thereto subject to certain
conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract" was
executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the
consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records
and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his
rights and interests over the "24,000 tons of iron ore, more or less" that the former had already
extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which
was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of
the first letter of credit covering the first shipment of iron ores and of the first amount derived
from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns,
administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of
Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated
December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its
stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando
Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by
Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December
8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a bonding company
was put up by defendants to secure the payment of the P65,000.00 balance of their price of the iron
ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954
(Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with the Far Eastern
Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company
would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co.
for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company
would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of
Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed
and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a
"Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and
Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question, together
with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in
consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete
title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap &
Smelting Co., in consideration for the signing by the company and its stockholders of the surety
bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety
and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the
Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid
to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right to
make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to
"C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the
present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the
payment of the P65,000.00 balance of the price of the ore, consequential damages, and attorney's
fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon
by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first
letter of credit covering the first shipment of iron ore and/or the first amount derived from the local
sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the
complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and
that consequently, the obligation was not yet due and demandable. Defendant Fonacier also
contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was
actually delivered, and counterclaimed for more than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due
and demandable when the defendants failed to renew the surety bond underwritten by the Far
Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were
actually in existence in the mining claims when these parties executed the "Revocation of Power of
Attorney and Contract", Exhibit "A."

On the first question, the lower court held that the obligation of the defendants to pay plaintiff the
P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term:
i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected
within one year or before December 8, 1955; that the giving of security was a condition precedent to
Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient
security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the
obligation became due and demandable under Article 1198 of the New Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000
tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit
"A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly
and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus
costs. From this judgment, defendants jointly appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for resolution: a
motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt,
filed by appellant Fonacier, and two motions to dismiss the appeal as having become academic and a
motion for new trial and/or to take judicial notice of certain documents, filed by appellee Gaite. The
motion for contempt is unmeritorious because the main allegation therein that the appellants Larap
Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is
"property in litigation", has not been substantiated; and even if true, does not make these appellants
guilty of contempt, because what is under litigation in this appeal is appellee Gaite's right to the
payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions
presented by appellee Gaite, it is unnecessary to resolve these motions in view of the results that we
have reached in this case, which we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite
the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not
one with a suspensive condition, and that the term expired on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron
ore sold by appellee Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his
rights and interests over the 24,000 tons of iron ore, more or less, above-referred to together
with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-
FIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of
the first letter of credit covering the first shipment of iron ore made by the Larap Mines &
Smelting Co., Inc., its assigns, administrators, or successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is
not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only
a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or
obligatory force (as distinguished from its demandability) is subordinated to the happening of a future
and uncertain event; so that if the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed. That the parties to the contract Exhibit "A" did not
intend any such state of things to prevail is supported by several circumstances:

1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of
Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first
shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner
or later; what is undetermined is merely the exact date at which it will be made. By the very terms of
the contract, therefore, the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the parties
assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the
buyer to pay the price),but each party anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the
other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a
sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence,
the contingent character of the obligation must clearly appear. Nothing is found in the record to
evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting
paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact
that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a bond by
Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a
surety company; and the fact that appellants did put up such bonds indicates that they admitted the
definite existence of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore
as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor,
for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants
would thus be able to postpone payment indefinitely. The desireability of avoiding such a construction
of the contract Exhibit "A" needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties indented a
suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the
rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since
sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine,
provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be
actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were
viewed as non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit,
and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at
all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment
of the balance of the agreed price, but was intended merely to fix the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have
the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment;
or, in other words, whether or not they are entitled to take full advantage of the period granted them
for making the payment.

We agree with the court below that the appellant have forfeited the right court below that the
appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern
Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding
company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights
as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he
had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case
squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

(2) When he does not furnish to the creditor the guaranties or securities which he has
promised.

(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired
the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with
full knowledge that on its face it would automatically expire within one year was a waiver of its
renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose
and had nothing to gain barely; and if there was any, it could be rationally explained only if the
appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on
December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding
payment and instituting this action one year from and after the contract (Exhibit "A") was executed,
either because the appellant debtors had impaired the securities originally given and thereby forfeited
any further time within which to pay; or because the term of payment was originally of no more than
one year, and the balance of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron
ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a
short-delivery as claimed by appellants, they are entitled to the payment of damages, we must, at the
outset, stress two things: first, that this is a case of a sale of a specific mass of fungible goods for a
single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated in the
contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the mass;
and second, that the evidence shows that neither of the parties had actually measured of weighed the
mass, so that they both tried to arrive at the total quantity by making an estimate of the volume
thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was made
in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale,
nor was the price of P75,000,00 agreed upon by the parties based upon any such measurement.(see
Art. 1480, second par., New Civil Code). The subject matter of the sale is, therefore, a determinate
object, the mass, and not the actual number of units or tons contained therein, so that all that was
required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass,
notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile
Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the
Louisiana Civil Code). There is no charge in this case that Gaite did not deliver to appellants all the
ore found in the stockpiles in the mining claims in questions; Gaite had, therefore, complied with his
promise to deliver, and appellants in turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite
mass, but approximately 24,000 tons of ore, so that any substantial difference in this quantity
delivered would entitle the buyers to recover damages for the short-delivery, was there really a short-
delivery in this case?

We think not. As already stated, neither of the parties had actually measured or weighed the whole
mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims
only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per
cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that
he sold to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano
Manlañgit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the
average weight in tons per cubic meter, the parties are again in disagreement, with appellants
claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that
the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of
iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical
Division of the Bureau of Mines, a government pensionado to the States and a mining engineering
graduate of the Universities of Nevada and California, with almost 22 years of experience in the
Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between 3
metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to
the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by
engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims involved at
the request of appellant Krakower, precisely to make an official estimate of the amount of iron ore in
Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by
appellant's witness Cipriano Manlañgit is correct, if we multiply it by the average tonnage factor of 3.3
tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000
tons made by appellee Gaite, considering that actual weighing of each unit of the mass was
practically impossible, so that a reasonable percentage of error should be allowed anyone making an
estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract
Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging &
Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the payment of
damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to
appellants as to the total quantity of ore in the stockpiles of the mining claims in question, as charged
by appellants, since Gaite's estimate appears to be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs
against appellants.
Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De Leon and Natividad,
JJ., concur.

Buenaventura v Court of Appeals (2003)

[G.R. No. 126376. November 20, 2003]

SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN, SPOUSES JUANITO


EDRA and NORA JOAQUIN, SPOUSES RUFINO VALDOZ and EMMA JOAQUIN, and
NATIVIDAD JOAQUIN, petitioners, vs. COURT OF APPEALS, SPOUSES LEONARDO
JOAQUIN and FELICIANA LANDRITO, SPOUSES FIDEL JOAQUIN and CONCHITA
BERNARDO, SPOUSES TOMAS JOAQUIN and SOLEDAD ALCORAN, SPOUSES
ARTEMIO JOAQUIN and SOCORRO ANGELES, SPOUSES ALEXANDER MENDOZA and
CLARITA JOAQUIN, SPOUSES TELESFORO CARREON and FELICITAS JOAQUIN,
SPOUSES DANILO VALDOZ and FE JOAQUIN, and SPOUSES GAVINO JOAQUIN and
LEA ASIS, respondents.

DECISION
CARPIO, J.:

The Case

This is a petition for review on certiorari[1] to annul the Decision[2] dated 26 June 1996 of the Court
of Appeals in CA-G.R. CV No. 41996. The Court of Appeals affirmed the Decision[3] dated 18
February 1993 rendered by Branch 65 of the Regional Trial Court of Makati (trial court) in Civil Case
No. 89-5174. The trial court dismissed the case after it found that the parties executed the Deeds of
Sale for valid consideration and that the plaintiffs did not have a cause of action against the
defendants.

The Facts

The Court of Appeals summarized the facts of the case as follows:

Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs
Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita,
Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The married Joaquin children are joined in this
action by their respective spouses.

Sought to be declared null and void ab initio are certain deeds of sale of real property executed by
defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children
and the corresponding certificates of title issued in their names, to wit:
1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-256395
executed on 11 July 1978, in favor of defendant Felicitas Joaquin, for a consideration
of P6,000.00 (Exh. C), pursuant to which TCT No. [36113/T-172] was issued in her name
(Exh. C-1);
2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-256394
executed on 7 June 1979, in favor of defendant Clarita Joaquin, for a consideration
of P1[2],000.00 (Exh. D), pursuant to which TCT No. S-109772 was issued in her name
(Exh. D-1);
3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-256394
executed on 12 May 1988, in favor of defendant spouses Fidel Joaquin and Conchita
Bernardo, for a consideration of P54,[3]00.00 (Exh. E), pursuant to which TCT No. 155329
was issued to them (Exh. E-1);
4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-256394
executed on 12 May 1988, in favor of defendant spouses Artemio Joaquin and Socorro
Angeles, for a consideration of P[54,3]00.00 (Exh. F), pursuant to which TCT No. 155330
was issued to them (Exh. F-1); and
5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan (LRC) Psd-
256395 executed on 9 September 1988, in favor of Tomas Joaquin, for a consideration
of P20,000.00 (Exh. G), pursuant to which TCT No. 157203 was issued in her name (Exh.
G-1).
[6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-256395
executed on 7 October 1988, in favor of Gavino Joaquin, for a consideration of P25,000.00
(Exh. K), pursuant to which TCT No. 157779 was issued in his name (Exh. K-1).]

In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in
their complaint, aver:

- XX-

The deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are, are NULL AND
VOID AB INITIO because

a) Firstly, there was no actual valid consideration for the deeds of sale xxx over the
properties in litis;

b) Secondly, assuming that there was consideration in the sums reflected in the questioned
deeds, the properties are more than three-fold times more valuable than the measly
sums appearing therein;

c) Thirdly, the deeds of sale do not reflect and express the true intent of the parties (vendors
and vendees); and

d) Fourthly, the purported sale of the properties in litis was the result of a deliberate
conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs
herein) of their legitime.

- XXI -
Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos. 36113/T-172, S-
109772, 155329, 155330, 157203 [and 157779] issued by the Registrar of Deeds over the properties
in litis xxx are NULL AND VOID AB INITIO.

Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action against them as
well as the requisite standing and interest to assail their titles over the properties in litis; (2) that the
sales were with sufficient considerations and made by defendants parents voluntarily, in good faith,
and with full knowledge of the consequences of their deeds of sale; and (3) that the certificates of title
were issued with sufficient factual and legal basis.[4] (Emphasis in the original)

The Ruling of the Trial Court

Before the trial, the trial court ordered the dismissal of the case against defendant spouses
Gavino Joaquin and Lea Asis.[5] Instead of filing an Answer with their co-defendants, Gavino Joaquin
and Lea Asis filed a Motion to Dismiss.[6] In granting the dismissal to Gavino Joaquin and Lea Asis,
the trial court noted that compulsory heirs have the right to a legitime but such right is contingent
since said right commences only from the moment of death of the decedent pursuant to Article 777 of
the Civil Code of the Philippines.[7]
After trial, the trial court ruled in favor of the defendants and dismissed the complaint. The trial
court stated:

In the first place, the testimony of the defendants, particularly that of the xxx father will show that the
Deeds of Sale were all executed for valuable consideration. This assertion must prevail over the
negative allegation of plaintiffs.

And then there is the argument that plaintiffs do not have a valid cause of action against defendants
since there can be no legitime to speak of prior to the death of their parents. The court finds this
contention tenable. In determining the legitime, the value of the property left at the death of the
testator shall be considered (Art. 908 of the New Civil Code). Hence, the legitime of a compulsory heir
is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an
impairment of their legitime while their parents live.

All the foregoing considered, this case is DISMISSED.

In order to preserve whatever is left of the ties that should bind families together, the counterclaim is
likewise DISMISSED.

No costs.

SO ORDERED.[8]

The Ruling of the Court of Appeals

The Court of Appeals affirmed the decision of the trial court. The appellate court ruled:
To the mind of the Court, appellants are skirting the real and decisive issue in this case, which is,
whether xxx they have a cause of action against appellees.

Upon this point, there is no question that plaintiffs-appellants, like their defendant brothers and
sisters, are compulsory heirs of defendant spouses, Leonardo Joaquin and Feliciana Landrito, who
are their parents. However, their right to the properties of their defendant parents, as compulsory
heirs, is merely inchoate and vests only upon the latters death. While still alive, defendant parents are
free to dispose of their properties, provided that such dispositions are not made in fraud of creditors.

Plaintiffs-appellants are definitely not parties to the deeds of sale in question. Neither do they claim to
be creditors of their defendant parents. Consequently, they cannot be considered as real parties in
interest to assail the validity of said deeds either for gross inadequacy or lack of consideration or for
failure to express the true intent of the parties. In point is the ruling of the Supreme Court in Velarde,
et al. vs. Paez, et al., 101 SCRA 376, thus:

The plaintiffs are not parties to the alleged deed of sale and are not principally or subsidiarily bound
thereby; hence, they have no legal capacity to challenge their validity.

Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by the
dispositions made by their defendant parents in favor of their defendant brothers and sisters. But, as
correctly held by the court a quo, the legitime of a compulsory heir is computed as of the time of the
death of the decedent. Plaintiffs therefore cannot claim an impairment of their legitime while their
parents live.

With this posture taken by the Court, consideration of the errors assigned by plaintiffs-appellants is
inconsequential.

WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against plaintiffs-
appellants.

SO ORDERED.[9]

Hence, the instant petition.

Issues

Petitioners assign the following as errors of the Court of Appeals:


1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE IN
QUESTION HAD NO VALID CONSIDERATION.
2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING THAT
THERE WAS A CONSIDERATION, THE SAME IS GROSSLY INADEQUATE.
3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF SALE DO
NOT EXPRESS THE TRUE INTENT OF THE PARTIES.
4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE WAS
PART AND PARCEL OF A CONSPIRACY AIMED AT UNJUSTLY DEPRIVING THE
REST OF THE CHILDREN OF THE SPOUSES LEONARDO JOAQUIN AND FELICIANA
LANDRITO OF THEIR INTEREST OVER THE SUBJECT PROPERTIES.
5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE A
GOOD, SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE PRIVATE
RESPONDENTS.[10]

The Ruling of the Court

We find the petition without merit.


We will discuss petitioners legal interest over the properties subject of the Deeds of Sale before
discussing the issues on the purported lack of consideration and gross inadequacy of the prices of
the Deeds of Sale.

Whether Petitioners have a legal interest


over the properties subject of the Deeds of Sale

Petitioners Complaint betrays their motive for filing this case. In their Complaint, petitioners
asserted that the purported sale of the properties in litis was the result of a deliberate conspiracy
designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime.
Petitioners strategy was to have the Deeds of Sale declared void so that ownership of the lots would
eventually revert to their respondent parents. If their parents die still owning the lots, petitioners and
their respondent siblings will then co-own their parents estate by hereditary succession.[11]
It is evident from the records that petitioners are interested in the properties subject of the Deeds
of Sale, but they have failed to show any legal right to the properties. The trial and appellate courts
should have dismissed the action for this reason alone. An action must be prosecuted in the name of
the real party-in-interest.[12]

[T]he question as to real party-in-interest is whether he is the party who would be benefitted or injured
by the judgment, or the party entitled to the avails of the suit.

xxx

In actions for the annulment of contracts, such as this action, the real parties are those who are
parties to the agreement or are bound either principally or subsidiarily or are prejudiced in their rights
with respect to one of the contracting parties and can show the detriment which would positively
result to them from the contract even though they did not intervene in it (Ibaez v. Hongkong &
Shanghai Bank, 22 Phil. 572 [1912]) xxx.

These are parties with a present substantial interest, as distinguished from a mere expectancy or
future, contingent, subordinate, or consequential interest. The phrase present substantial interest
more concretely is meant such interest of a party in the subject matter of the action as will entitle him,
under the substantive law, to recover if the evidence is sufficient, or that he has the legal title to
demand and the defendant will be protected in a payment to or recovery by him.[13]
Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As the
appellate court stated, petitioners right to their parents properties is merely inchoate and vests only
upon their parents death. While still living, the parents of petitioners are free to dispose of their
properties. In their overzealousness to safeguard their future legitime, petitioners forget that
theoretically, the sale of the lots to their siblings does not affect the value of their parents
estate. While the sale of the lots reduced the estate, cash of equivalent value replaced the lots taken
from the estate.

Whether the Deeds of Sale are void


for lack of consideration

Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds
of Sale to their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void.
A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a
contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. If
there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the
manner of payment, or even the breach of that manner of payment. If the real price is not stated in
the contract, then the contract of sale is valid but subject to reformation. If there is no meeting of the
minds of the parties as to the price, because the price stipulated in the contract is simulated, then the
contract is void.[14] Article 1471 of the Civil Code states that if the price in a contract of sale is
simulated, the sale is void.
It is not the act of payment of price that determines the validity of a contract of sale. Payment of
the price has nothing to do with the perfection of the contract. Payment of the price goes into the
performance of the contract. Failure to pay the consideration is different from lack of
consideration. The former results in a right to demand the fulfillment or cancellation of the obligation
under an existing valid contract while the latter prevents the existence of a valid contract. [15]
Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To
prove simulation, petitioners presented Emma Joaquin Valdozs testimony stating that their father,
respondent Leonardo Joaquin, told her that he would transfer a lot to her through a deed of sale
without need for her payment of the purchase price.[16] The trial court did not find the allegation of
absolute simulation of price credible. Petitioners failure to prove absolute simulation of price is
magnified by their lack of knowledge of their respondent siblings financial capacity to buy the
questioned lots.[17] On the other hand, the Deeds of Sale which petitioners presented as evidence
plainly showed the cost of each lot sold. Not only did respondents minds meet as to the purchase
price, but the real price was also stated in the Deeds of Sale. As of the filing of the complaint,
respondent siblings have also fully paid the price to their respondent father.[18]

Whether the Deeds of Sale are void


for gross inadequacy of price

Petitioners ask that assuming that there is consideration, the same is grossly inadequate as to
invalidate the Deeds of Sale.
Articles 1355 of the Civil Code states:
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (Emphasis supplied)

Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate a
defect in the consent, or that the parties really intended a donation or some other act or
contract. (Emphasis supplied)

Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil
Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that
the price be equal to the exact value of the subject matter of sale. All the respondents believed that
they received the commutative value of what they gave.As we stated in Vales v. Villa:[19]

Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from
unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts.Courts
cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate
not because one person has been defeated or overcome by another, but because he has been
defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable
judgment, and lose money by them indeed, all they have in the world; but not for that alone can the
law intervene and restore. There must be, in addition, a violation of the law, the commission of what
the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation
and remedy it. (Emphasis in the original)

Moreover, the factual findings of the appellate court are conclusive on the parties and carry
greater weight when they coincide with the factual findings of the trial court. This Court will not weigh
the evidence all over again unless there has been a showing that the findings of the lower court are
totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion.[20] In
the instant case, the trial court found that the lots were sold for a valid consideration, and that the
defendant children actually paid the purchase price stipulated in their respective Deeds of
Sale. Actual payment of the purchase price by the buyer to the seller is a factual finding that is now
conclusive upon us.
WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

Celestino & co. v Collector of Internal Revenue (1956)

G.R. No. L-8506 August 31, 1956

CELESTINO CO & COMPANY, petitioner,


vs.
COLLECTOR OF INTERNAL REVENUE, respondent.

Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E. Torres
and Solicitor Federico V. Sian for respondent.
BENGZON, J.:

Appeal from a decision of the Court of Tax Appeals.

Celestino Co & Company is a duly registered general copartnership doing business under the trade
name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of 7 per cent on the
gross receipts of its sash, door and window factory, in accordance with section one hundred eighty-
six of the National Revenue Code imposing taxes on sale of manufactured articles. However in 1952
it began to claim liability only to the contractor's 3 per cent tax (instead of 7 per cent) under section
191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the
matter to the Court of Tax Appeals, where it also failed. Said the Court:

To support his contention that his client is an ordinary contractor . . . counsel presented . . .
duplicate copies of letters, sketches of doors and windows and price quotations supposedly
sent by the manager of the Oriental Sash Factory to four customers who allegedly made
special orders to doors and window from the said factory. The conclusion that counsel would
like us to deduce from these few exhibits is that the Oriental Sash Factory does not
manufacture ready-made doors, sash and windows for the public but only upon special order
of its select customers. . . . I cannot believe that petitioner company would take, as in fact it
has taken, all the trouble and expense of registering a special trade name for its sash business
and then orders company stationery carrying the bold print "Oriental Sash Factory (Celestino
Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all
kinds of doors, windows, sashes, furniture, etc. used season-dried and kiln-dried lumber, of the
best quality workmanships" solely for the purpose of supplying the needs for doors, windows
and sash of its special and limited customers. One ill note that petitioner has chosen for its
tradename and has offered itself to the public as a "Factory", which means it is out to do
business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for
doors and windows of special design only in particular cases but the bulk of their sales is
derived from a ready-made doors and windows of standard sizes for the average home.
Moreover, as shown from the investigation of petitioner's book of accounts, during the period
from January 1, 1952 to September 30, 1952, it sold sash, doors and windows worth
P188,754.69. I find it difficult to believe that this amount which runs to six figures was derived
by petitioner entirely from its few customers who made special orders for these items.

Even if we were to believe petitioner's claim that it does not manufacture ready-made sash,
doors and windows for the public and that it makes these articles only special order of its
customers, that does not make it a contractor within the purview of section 191 of the national
Internal Revenue Code. there are no less than fifty occupations enumerated in the aforesaid
section of the national Internal Revenue Code subject to percentage tax and after reading
carefully each and every one of them, we cannot find under which the business of
manufacturing sash, doors and windows upon special order of customers fall under the
category of "road, building, navigation, artesian well, water workers and other construction
work contractors" are those who alter or repair buildings, structures, streets, highways, sewers,
street railways railroads logging roads, electric lines or power lines, and includes any other
work for the construction, altering or repairing for which machinery driven by mechanical power
is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).

Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the
national Internal Revenue Code, this leaves us to decide the remaining issue whether or not
petitioner could be taxed with lesser strain and more accuracy as seller of its manufactured
articles under section 186 of the same code, as the respondent Collector of Internal Revenue
has in fact been doing the Oriental Sash Factory was established in 1946.

The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of
services, in contradiction with the tax imposed in section 186 of the same Code which is a tax
on the original sales of articles by the manufacturer, producer or importer. (Formilleza's
Commentaries and Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The
fact that the articles sold are manufactured by the seller does not exchange the contract from
the purview of section 186 of the National Internal Revenue Code as a sale of articles.

There was a strong dissent; but upon careful consideration of the whole matter are inclines to accept
the above statement of the facts and the law. The important thing to remember is that Celestino Co &
Company habitually makes sash, windows and doors, as it has represented in its stationery and
advertisements to the public. That it "manufactures" the same is practically admitted by appellant
itself. The fact that windows and doors are made by it only when customers place their orders, does
not alter the nature of the establishment, for it is obvious that it only accepted such orders as called
for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in
a position habitually to manufacture.

Perhaps the following paragraph represents in brief the appellant's position in this Court:

Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers
sash, windows and doors only for special customers and upon their special orders and in
accordance with the desired specifications of the persons ordering the same and not for the
general market: since the doors ordered by Don Toribio Teodoro & Sons, Inc., for instance, are
not in existence and which never would have existed but for the order of the party desiring it;
and since petitioner's contractual relation with his customers is that of a contract for a piece of
work or since petitioner is engaged in the sale of services, it follows that the petitioner should
be taxed under section 191 of the Tax Code and NOT under section 185 of the same Code."
(Appellant's brief, p. 11-12).

But the argument rests on a false foundation. Any builder or homeowner, with sufficient money, may
order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it
serves special customers only or confines its services to them alone. And anyone who sees, and
likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of
the same kind, provided he pays the price. Surely, the appellant will not refuse, for it can easily
duplicate or even mass-produce the same doors-it is mechanically equipped to do so.

That the doors and windows must meet desired specifications is neither here nor there. If these
specifications do not happen to be of the kind habitually manufactured by appellant — special forms
for sash, mouldings of panels — it would not accept the order — and no sale is made. If they do, the
transaction would be no different from a purchasers of manufactured goods held is stock for sale;
they are bought because they meet the specifications desired by the purchaser.

Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a
customer-sizes not previously held in stock for sale to the public-it thereby becomes an employee or
servant of the customer,1 not the seller of lumber. The same consideration applies to this sash
manufacturer.
The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually
makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such
forms as its customers may desire.

On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable.
Nobody would regard the doing of two window panels a construction work in common parlance. 2

Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for
windows and doors according to specifications, it did not sell, but merely contracted for particular
pieces of work or "merely sold its services".

Said article reads as follows:

A contract for the delivery at a certain price of an article which the vendor in the ordinary
course of his business manufactures or procures for the general market, whether the same is
on hand at the time or not, is a contract of sale, but if the goods are to be manufactured
specially for the customer and upon his special order, and not for the general market, it is
contract for a piece of work.

It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio
Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the matter is
that it sold materials ordinarily manufactured by it — sash, panels, mouldings — to Teodoro & Co.,
although in such form or combination as suited the fancy of the purchaser. Such new form does not
divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction
out of the category of sales under Article 1467 above quoted, because although the Factory does not,
in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to
Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefor
(some of them at least).

In our opinion when this Factory accepts a job that requires the use of extraordinary or additional
equipment, or involves services not generally performed by it-it thereby contracts for a piece of
work — filing special orders within the meaning of Article 1467. The orders herein exhibited were not
shown to be special. They were merely orders for work — nothing is shown to call them special
requiring extraordinary service of the factory.

The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously
made, such orders should not be called special work, but regular work. Would a factory do business
performing only special, extraordinary or peculiar merchandise?

Anyway, supposing for the moment that the transactions were not sales, they were neither lease of
services nor contract jobs by a contractor. But as the doors and windows had been admittedly
"manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as
"transfers" thereof under section 186 of the National Revenue Code.

The appealed decision is consequently affirmed. So ordered.

Paras, C. J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix,
JJ., concur.
Lo v KJS ECO-Formwork System PH (2003)
SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent.

DECISION
YNARES-SANTIAGO, J.:

Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of
steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style Sans
Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments
from respondent worth P540,425.80.[1] He paid a downpayment in the amount of P150,000.00. The
balance was made payable in ten monthly installments.
Respondent delivered the scaffoldings to petitioner.[2] Petitioner was able to pay the first two
monthly installments. His business, however, encountered financial difficulties and he was unable to
settle his obligation to respondent despite oral and written demands made against him. [3]
On October 11, 1990, petitioner and respondent executed a Deed of Assignment,[4] whereby
petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero Realty
Corporation. Pertinent portions of the Deed provide:

WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located
at Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation;

WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased
on account scaffolding equipments from the ASSIGNEE payable to the latter;

WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of
the aforementioned scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four
Hundred Sixty Two and 14/100 Pesos (P335,462.14);

NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand
Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which represents part
of the ASSIGNORs collectible from Jomero Realty Corp., said ASSIGNOR hereby assigns, transfers
and sets over unto the ASSIGNEE all collectibles amounting to the said amount of P335, 462.14;

And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power
and authority to demand, collect, receive, compound, compromise and give acquittance for the same
or any part thereof, and in the name and stead of the said ASSIGNOR;

And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and
assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and
that said ASSIGNOR has not done and will not cause anything to be done to diminish or discharge
said debt, or delay or to prevent the ASSIGNEE, its successors or assigns, from collecting the same;

And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs,
executors, administrators, or assigns, shall and will at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts
and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these
presents. xxx[5] (Italics supplied)

However, when respondent tried to collect the said credit from Jomero Realty Corporation, the
latter refused to honor the Deed of Assignment because it claimed that petitioner was also indebted
to it.[6] On November 26, 1990, respondent sent a letter[7] to petitioner demanding payment of his
obligation, but petitioner refused to pay claiming that his obligation had been extinguished when they
executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money
against the petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed as
Civil Case No. 91-074.[8]
During the trial, petitioner argued that his obligation was extinguished with the execution of the
Deed of Assignment of credit. Respondent, for its part, presented the testimony of its
employee, Almeda Baaga, who testified that Jomero Realty refused to honor the assignment of credit
because it claimed that petitioner had an outstanding indebtedness to it.
On August 25, 1994, the trial court rendered a decision [9] dismissing the complaint on the ground
that the assignment of credit extinguished the obligation. The decretal portion thereof provides:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the defendant
and against the plaintiff, dismissing the complaint and ordering the plaintiff to pay the defendant
attorneys fees in the amount of P25,000.00.

Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court
rendered a decision,[10] the dispositive portion of which reads:

WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and enters
judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK
SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-Two and
14/100 (P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing of the
Complaint) until fully paid and attorneys fees equivalent to 10% of the amount due and costs of the
suit.

SO ORDERED.[11]

In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the
respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under the
Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void pursuant
to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment
when he failed to execute and do all acts and deeds as shall be necessary to effectually enable the
respondent to recover the collectibles.[12]
Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of
Appeals.[13]
In this petition for review, petitioner assigns the following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING
THE DEED OF ASSIGNMENT (EXH. 4) AS NULL AND VOID FOR LACK OF OBJECT ON THE
BASIS OF A MERE HEARSAY CLAIM.

II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
ASSIGNMENT (EXH. 4) DID NOT EXTINGUISH PETITIONERS OBLIGATION ON THE
WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS WARRANTY
THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE
TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEYS FEES.[14]
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against the
debtor.[15]
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another
thing to the creditor who accepts it as equivalent of payment of an outstanding debt.[16] In order that
there be a valid dation in payment, the following are the requisites: (1) There must be the
performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of
a corporeal thing or a real right or a credit against the third person; (2) There must be some difference
between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be
an agreement between the creditor and debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that due.[17] The undertaking really partakes in
one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtors debt. As such, the vendor in good faith shall
be responsible, for the existence and legality of the credit at the time of the sale but not for the
solvency of the debtor, in specified circumstances.[18]
Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal
property,[19] produced the effects of a dation in payment which may extinguish the
obligation.[20] However, as in any other contract of sale, the vendor or assignor is bound by certain
warranties. More specifically, the first paragraph of Article 1628 of the Civil Code provides:

The vendor in good faith shall be responsible for the existence and legality of the credit at the time of
the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it
has been so expressly stipulated or unless the insolvency was prior to the sale and of common
knowledge.

From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence
and legality of the credit at the time of the sale or assignment. When Jomeroclaimed that it was no
longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant
that its obligation to petitioner has been extinguished by compensation.[21] In other words, respondent
alleged the non-existence of the credit and asserted its claim to petitioners warranty under the
assignment. Therefore, it behooved on petitioner to make good its warranty and paid the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to wit:

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

Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured
the performance thereof in case the same is later found to be inexistent. He should be held liable to
pay to respondent the amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the
sum of P335,462.14 with legal interest thereon. However, we find that the award by the Court of
Appeals of attorneys fees is without factual basis. No evidence or testimony was presented to
substantiate this claim. Attorneys fees, being in the nature of actual damages, must be duly
substantiated by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19,
2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum of P335,462.14 with
legal interest of 6% per annum from January 10, 1991 until fully paid is AFFIRMED with
MODIFICATION. Upon finality of this Decision, the rate of legal interest shall be 12% per annum,
inasmuch as the obligation shall thereafter become equivalent to a forbearance of credit. [23] The
award of attorneys fees is DELETED for lack of evidentiary basis.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio and Azcuna, JJ., concur.