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Dignos vs CA, 158 SCRA 375

VOL. 158, FEBRUARY 29, 1988 375


Dignos vs. Court of Appeals
No. L-59266. February 29, 1988.*
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners; vs.HON. COURT OF APPEALS and ATILANO G, JABIL, respondents.
Civil Law; Sales; Contracts; A deed of sale is absolute in nature although denominated as Deed of Conditional Sale, absent a
proviso that the title to the property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the
vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period.—Thus, it has been held
that a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale” where nowhere in the contract in
question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the
purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails
to pay within a fixed period (Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA
305).
_______________

*
THIRD DIVISION.
376
376 SUPREME COURT REPORTS ANNOTATED
Dignos vs. Court of Appeals
Same; Same; Same; All elements of a valid contract of sale are present in the case at bar.—On the contrary, all the elements of
a valid contract of sale under Article 1458 of the Civil Code, are present, such as: (1) consent or meeting of the minds; (2) determinate
subject matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that "The
ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." As applied in the case of
Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the
ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.
Same; Same; Same; Delivery; Although there was no constructive delivery of the land sold, as the deed of sale is a private
instrument there was actual delivery thereof by the delivery of possession of the land to the vendees.—While it may be conceded that
there was no constructive delivery of the land sold in the case at bar, as subject Deed of Sale is a private instrument, it is beyond
question that there was actual delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the land
in question to Jabil as early as March 27, 1965 so that the latter constructed thereon Sally’s Beach Resort also known as Jabil's Beach
Resort in March, 1965; Mactan White Beach Resort on January 15, 1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts
were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108).
Same; Same; Same; Same; Same; Contemporaneous acts; The act of the petitioners of delivering the possession of the land to
the vendees, contemporaneous with the contract, clearly show that an absolute deed of sale was intended by the parties and not a
contract to sell.—Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners,
contemporaneous with the contract. clearly show that an absolute deed of sale was intended by the parties and not a contract to sell.
Same; Same; Same; Sale of the property by the vendors to a second vendee is null and void as at the time of sale they were no
longer owners of the property.—Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were
no longer owners of the same and the sale is null and void.
Same; Same; Same; Rescission; Absence of notice to the first vendees of alleged extrajudicial rescission of the contract by
petitioners and of a court suit to rescind the sale; Public document; Acts and contracts which have for their object the extinguishments
of real rights over immovable
377
VOL. 158, FEBRUARY 29, 1988 377
Dignos vs. Court of Appeals
property must appear in a public document.—Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on
all fours with the case at bar, the contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. It is undisputed
that petitioners never notified private respondents Jabil by notarial act that they were rescinding the contract, and neither did they
file a suit in court to rescind the sale. The most that they were able to show is a letter of Cipriano Amistad who, claiming to be an
emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the latter had no money and further advised
petitioners to sell the land in litigation to another party (Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is
no showing that Amistad was properly authorized by Jabil to make such extra-judicial rescission for the latter who, on the contrary,
vigorously denied having sent Amistad to tell petitioners that he was already waiving his rights to the land in question. Under Article
1358 of the Civil Code, it is required that acts and contracts which have for their object the extinguishment of real rights over
immovable property must appear in a public document.
Same; Same; Same; Same; Slight delay on the part of one party in the performance of his obligation is not a sufficient ground for
rescission of the agreement; Equity and justice mandate that the vendee be given an additional period to complete payment of the
purchase price.—It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part of
one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement" (Taguba v. Vda. de Leon,
supra). Considering that private respondent has only a balance of P4,000.00 and was delayed in payment only for one month, equity
and justice mandate as in the aforecited case that Jabil be given an additional period within which to complete payment of the
purchase price.

PETITION for certiorari to review the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

BIDIN, J.:

This is a petition for review on certiorari seeking the reversal of the: (1) Decision** of the 9th Division, Court of Appeals dated July 31,
1981, affirming with modification the Decision*** dated
_______________

**
Penned by Justice Elias B. Asuncion and concurred by Justices Porfirio V. Sison and Vicente V. Mendoza.
***
Penned by Judge Ramon E. Nazareno.
378
378 SUPREME COURT REPORTS ANNOTATED
Dignos vs. Court of Appeals
August 25, 1972 of the Court of First Instance of Cebu in Civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela
Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated
December 16, 1981, denying defendantappellant's (Petitioner's) motion for reconsideration, for lack of merit.
The undisputed facts as found by the Court of Appeals are as follows:
"The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On June
7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the
sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of
P12,000.00, which was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and
the next installment in the sum of P4,000.00 to be paid on or before September 15, 1965.
"On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano Cabigas and Jovita L. De
Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by
the Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register of Deeds pursuant to the
provisions of Act No. 3344.
"As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the land, and as plaintiff-
appellant discovered the second sale made by defendants-appellants to the Cabigas spouses, plaintiff-appellant brought the present
suit." (Rollo, pp. 27-28)
After due trial, the Court of First Instance of Cebu rendered its Decision on August 25, 1972, the decretal portion of which reads:
"WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant Isabela L. de Dignos in favor
of defendant Luciano Cabigas, a citizen of the United States of America, null and void ab initio, and the deed of sale executed by
defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby
ordered to pay the sum, of Sixteen Thousand Pesos (P1 6,000.00) to the defendantsspouses upon the execution of the Deed of
Absolute Sale of Lot No. 3453,
379
VOL. 158, FEBRUARY 29, 1988 379
Dignos vs. Court of Appeals
Opon Cadastre and when the decision of this case becomes final and executory.
"The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de Cabigas, through their
attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding to the expenses or costs of the hollow block fence, so far
constructed.
"It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should return to
defendantsspouses Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall enrich
himself at the expense of another,
"The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this decision.
"With costs against the defendants."
From the foregoing, the plaintiff (respondent herein) and defendants-spouses (petitioners herein) appealed to the Court of Appeals,
which appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for
the expenses incurred by the Cabigas spouses for the building of a fence upon the land in question. The dispositive portion of said
decision of the Court of Appeals reads:
"IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment as pertains to plaintiff-appellant above
indicated. the judgment appealed from is hereby AFFIRMED in all other respects.
"With costs against defendants-appellants,
"SO ORDERED.
"Judgment MODIFIED."
A motion for reconsideration of said decision was filed by the defendants-appellants (petitioners) Dignos spouses, but on December
16? 1981, a resolution was issued by the Court of Appeals denying the motion for lack of merit.
Hence, this petition.
In the resolution of February 10,1982, the Second Division of this Court denied the petition for lack of merit. A motion for
reconsideration of said resolution was filed on March 16,1982. In the resolution dated April 26,1982, respondents were required to
comment thereon, which comment was filed on May 11,1982
380
380 SUPREME COURT REPORTS ANNOTATED
Dignos vs. Court of Appeals
and a reply thereto was filed on July 26,1982 in compliance with the resolution of June 16,1982. On August 9,1982, acting on the
motion for reconsider ation and on all subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10, 1982
and to give due course to the instant petition, On September 6, 1982, respondents filed a rejoinder to reply of petitioners which was
noted on the resolution of September 20,1982.
Petitioners raised the following assignment of errors:
I

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE
CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION
TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE
1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS
THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL.

II

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF
THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE
SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.

III

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF
THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND ATTORNEYS FEES TO
PETITIONERS.

IV

PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO CO URT WITH
UNCLEAN HANDS.

BY AND LARGE, THE COURT OF APPEALS COMMITTED AN


381
VOL. 158, FEBRUARY 29, 1988 381
Dignos vs. Court of Appeals
ERROR IN AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION,
MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO.
The foregoing assignment of errors may be synthesized into two main issues, to wit:
1. I.Whether or not subject contract is a deed of absolute sale or a contract to sell.
2. II.Whether or not there was a valid rescission thereof.

There is no merit in this petition.


It is significant to note that this petition was denied by the Second Division of this Court in its Resolution dated February 10,1982
for lack of merit, but on motion for reconsideration and on the basis of all subsequent pleadings filed, the petition was given due
course.
I.
The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:

1. "1.That Atilano G. Jabil is to pay the amount of Twelve Thousand Pesos (P12,000.00) Philippine Currency as advance payment;
2. "2.That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P1 2,000.00) Loan from the First Insular Bank of
Cebu;
3. "3.That Atilano G. Jabil is to pay the said spouses the balance of Four Thousand Pesos (P4,000.00) on or before September
15, 1965;
4. "4.That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the said property;
5. "5.That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over the above-mentioned property
upon the payment of the balance of Four Thousand Pesos." (Original Record, pp. 10-11)

In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C") is a mere contract to sell
and not an absolute sale; that the same is subject to two (2) positive suspensive conditions, namely: the payment of the balance of
P4,000.00 on or before September 15, 1965 and the immediate assumption of the mortgage of P12,000.00 with
382
382 SUPREME COURT REPORTS ANNOTATED
Dignos vs. Court of Appeals
the First Insular Bank of Cebu. It is further contended that in said contract, title or ownership over the property was expressly reserved
in the vendor, the Dignos spouses, until the suspensive condition of full and punctual payment of the balance of the purchase price
shall have been met. So that there is no actual sale until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is absolutely nothing in Exhibit
"C" that indicates that the vendors thereby sell, convey or transfer their ownership to the alleged vendee. Petitioners insist that
Exhibit "C" (or 6) is a private instrument and the absence of a formal deed of conveyance is a very strong indication that the parties
did not intend "transfer of ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored
their contention on the very terms and conditions of the contract, more particularly paragraph four which reads, "that said spouses
has agreed to sell the herein mentioned property to Atilano G. Jabil x x x" and condition number five which reads, "that the spouses
agrees to sign a final deed of absolute sale over the mentioned property upon the payment of the balance of four thousand pesos."
Such contention is untenable.
By and large, the issues in this case have already been settled by this Court in analogous cases.
Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where
nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor
until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period (Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc, v, Maritime
Building Co., Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such stipulation reserving the title of the property on the vendor s
nor does it give them the right to unilaterally rescind the contract upon non-payment of the balance thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present, such as: (1) consent
or meeting of the minds; (2) determinate subject matter;
383
VOL. 158, FEBRUARY 29, 1988 383
Dignos vs. Court of Appeals
and (3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that "The ownership of the thing
sold shall be transferred to the vendee upon actual or constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental
Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the ownership of the thing sold
passes to the vendee upon actual or constructive delivery thereof.
While it may be conceded that there was no constructive delivery of the land sold in the case at bar, as subject Deed of Sale is a
private instrument, it is beyond question that there was actual delivery thereof. As found by the trial court, the Dignos spouses
delivered the possession of the land in question to Jabil as early as March 27, 1965 so that the latter constructed thereon Sally's Beach
Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on January 15, 1966 and Bevirlyn's Beach Resort
on September 1, 1965. Such facts were admitted by petitioner spouses (Decision, Civil Case No. 23L; Record on Appeal, p, 108).
Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners, contemporaneous
with the contract, clearly show that an absolute deed of sale was intended by the parties and not a contract to sell.
Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same
and the sale is null and void.
II.
Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon(supra) which is on all fours with the case at bar, the contract of sale
being absolute in nature is governed by Article 1592 of the Civil Code. It is undisputed that petitioners never notified private
respondents Jabil by notarial act that they were rescinding the contract, and neither did they file a suit in court to rescind the sale.
The most that they were able to show is a letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos
spouses not to go to the house of Jabil because the latter had no money and further advised petitioners to sell the land in litigation to
another party (Record on Appeal,
384
384 SUPREME COURT REPORTS ANNOTATED
Dignos vs. Court of Appeals
p. 23). As correctly found by the Court of Appeals, there is no showing that Amistad was properly authorized by Jabil to make such
extra-judicial rescission for the latter who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he was
already waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is required that acts and contracts which have
for their object the extinguishment of real rights over immovable property must appear in a public document.
Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money on the stipulated date of payment
on September 15, 1965 and was able to raise the necessary amount only by mid-October, 1965.
It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part of one party in the
performance of his obligation is not a sufficient ground for the rescission of the agreement" (Taguba v. Vda. de
Leon, supra).Considering that private respondent has only a balance of P4,000.00 and was delayed in payment only for one month,
equity and justice mandate as in the aforecited case that Jabil be given an additional period within which to complete payment of the
purchase price.
WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of the Court of Appeals is Affirmed in
toto.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortés, JJ., concur.
Petition dismissed. Decision affirmed.
Notes.—Public documents entitled to full faith and credit in the absence of competent evidence their execution was tainted with
defects and irregularities that would warrant a declaration of nullity. (Anchuelo vs. ICA, 147 SCRA 434.)
Period for conventional redemption by agreement limited to the maximum of ten (10) years from the date of the
contract. (Anchuelo vs. ICA, 147 SCRA 434.)

——o0o——

385
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2. Tan vs Benorilao, G.R. No. 153820, October 16, 2009

Republic of the Philippines


Supreme Court
Manila

SECOND DIVISION
DELFIN TAN, G.R. No. 153820
Petitioner,
Present:
*
QUISUMBING, J.,
CARPIO-MORALES,
**
NACHURA,
- versus - BRION, and
ABAD, JJ.

ERLINDA C. BENOLIRAO,
ANDREW C. BENOLIRAO,
ROMANO C. BENOLIRAO,
DION C. BENOLIRAO,
SPS. REYNALDO TANINGCO Promulgated:
and NORMA D. BENOLIRAO,
EVELYN T. MONREAL, and
ANN KARINA TANINGCO, October 16, 2009
Respondents.

x-------------------------------------------------------------------------------------- x

DECISION

BRION, J.:

Is an annotation made pursuant to Section 4, Rule 74 of the Rules of Court (Rules) on a certificate of title covering real property
considered an encumbrance on the property? We resolve this question in the petition for review on certiorari[1] filed by Delfin Tan
(Tan) to assail the decision of the Court of Appeals (CA) in CA-G.R. CV No. 52033[2] and the decision of the Regional Trial Court
(RTC)[3] that commonly declared the forfeiture of his P200,000.00 down payment as proper, pursuant to the terms of his contract with
the respondents.

THE ANTECEDENTS

The facts are not disputed. Spouses Lamberto and Erlinda Benolirao and the Spouses Reynaldo and Norma Taningco were the co-
owners of a 689-square meter parcel of land (property) located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No.
26423. On October 6, 1992, the co-owners executed a Deed of Conditional Sale over the property in favor of Tan for the price
of P1,378,000.00. The deed stated:

a) An initial down-payment of TWO HUNDRED (P200,000.00) THOUSAND PESOS, Philippine Currency, upon signing of this
contract; then the remaining balance of ONE MILLION ONE HUNDRED SEVENTY EIGHT THOUSAND (P1,178,000.00)
PESOS, shall be payable within a period of one hundred fifty (150) days from date hereof without interest;

b) That for any reason, BUYER fails to pay the remaining balance within above mentioned period, the BUYER shall have a
grace period of sixty (60) days within which to make the payment, provided that there shall be an interest of 15% per
annum on the balance amount due from the SELLERS;

c) That should in case (sic) the BUYER fails to comply with the terms and conditions within the above stated grace period,
then the SELLERS shall have the right to forfeit the down payment, and to rescind this conditional sale without need of
judicial action;
d) That in case, BUYER have complied with the terms and conditions of this contract, then the SELLERS shall execute and
deliver to the BUYER the appropriate Deed of Absolute Sale;

Pursuant to the Deed of Conditional Sale, Tan issued and delivered to the co-owners/vendors Metrobank Check No. 904407
for P200,000.00 as down payment for the property, for which the vendors issued a corresponding receipt.

On November 6, 1992, Lamberto Benolirao died intestate. Erlinda Benolirao (his widow and one of the vendors of the
property) and her children, as heirs of the deceased, executed an extrajudicial settlement of Lambertos estate on January 20, 1993. On
the basis of the extrajudicial settlement, a new certificate of title over the property, TCT No. 27335, was issued on March 26, 1993 in
the names of the Spouses Reynaldo and Norma Taningco and Erlinda Benolirao and her children. Pursuant to Section 4, Rule 74 of the
Rules, the following annotation was made on TCT No. 27335:

x x x any liability to credirots (sic), excluded heirs and other persons having right to the property, for a period
of two (2) years, with respect only to the share of Erlinda, Andrew, Romano and Dion, all surnamed Benolirao

As stated in the Deed of Conditional Sale, Tan had until March 15, 1993 to pay the balance of the purchase price. By
agreement of the parties, this period was extended by two months, so Tan had until May 15, 1993 to pay the balance. Tan failed to
pay and asked for another extension, which the vendors again granted. Notwithstanding this second extension, Tan still failed to pay
the remaining balance due on May 21, 1993. The vendors thus wrote him a letter demanding payment of the balance of the purchase
price within five (5) days from notice; otherwise, they would declare the rescission of the conditional sale and the forfeiture of his
down payment based on the terms of the contract.

Tan refused to comply with the vendors demand and instead wrote them a letter (dated May 28, 1993) claiming that the
annotation on the title, made pursuant to Section 4, Rule 74 of the Rules, constituted an encumbrance on the property that would
prevent the vendors from delivering a clean title to him. Thus, he alleged that he could no longer be required to pay the balance of
the purchase price and demanded the return of his down payment.

When the vendors refused to refund the down payment, Tan, through counsel, sent another demand letter to the vendors
on June 18, 1993. The vendors still refused to heed Tans demand, prompting Tan to file on June 19, 1993 a complaint with the RTC of
Pasay City for specific performance against the vendors, including Andrew Benolirao, Romano Benolirao, Dion Benolirao as heirs of
Lamberto Benolirao, together with Evelyn Monreal and Ann Karina Taningco (collectively, the respondents). In his complaint, Tan
alleged that there was a novation of the Deed of Conditional Sale done without his consent since the annotation on the title created
an encumbrance over the property. Tan prayed for the refund of the down payment and the rescission of the contract.

On August 9, 1993, Tan amended his Complaint, contending that if the respondents insist on forfeiting the down payment,
he would be willing to pay the balance of the purchase price provided there is reformation of the Deed of Conditional Sale. In the
meantime, Tan caused the annotation on the title of a notice of lis pendens.
On August 21, 1993, the respondents executed a Deed of Absolute Sale over the property in favor of Hector de Guzman (de
Guzman) for the price of P689,000.00.

Thereafter, the respondents moved for the cancellation of the notice of lis pendens on the ground that it was inappropriate
since the case that Tan filed was a personal action which did not involve either title to, or possession of, real property. The RTC issued
an order dated October 22, 1993 granting the respondents motion to cancel the lis pendens annotation on the title.

Meanwhile, based on the Deed of Absolute Sale in his favor, de Guzman registered the property and TCT No. 28104 was
issued in his name. Tan then filed a motion to carry over the lis pendens annotation to TCT No. 28104 registered in de Guzmans name,
but the RTC denied the motion.

On September 8, 1995, after due proceedings, the RTC rendered judgment ruling that the respondents forfeiture of Tans down
payment was proper in accordance with the terms and conditions of the contract between the parties. [4] The RTC ordered Tan to pay
the respondents the amount of P30,000.00, plus P1,000.00 per court appearance, as attorneys fees, and to pay the cost of suit.

On appeal, the CA dismissed the petition and affirmed the ruling of the trial court in toto. Hence, the present petition.

THE ISSUES

Tan argues that the CA erred in affirming the RTCs ruling to cancel the lis pendens annotation on TCT No. 27335. Due to the
unauthorized novation of the agreement, Tan presented before the trial court two alternative remedies in his complaint either the
rescission of the contract and the return of the down payment, or the reformation of the contract to adjust the payment period, so
that Tan will pay the remaining balance of the purchase price only after the lapse of the required two-year encumbrance on the
title. Tan posits that the CA erroneously disregarded the alternative remedy of reformation of contract when it affirmed the removal
of the lis pendens annotation on the title.

Tan further contends that the CA erred when it recognized the validity of the forfeiture of the down payment in favor of the
vendors. While admitting that the Deed of Conditional Sale contained a forfeiture clause, he insists that this clause applies only if the
failure to pay the balance of the purchase price was through his own fault or negligence. In the present case, Tan claims that he was
justified in refusing to pay the balance price since the vendors would not have been able to comply with their obligation to deliver a
clean title covering the property.

Lastly, Tan maintains that the CA erred in ordering him to pay the respondents P30,000.00, plus P1,000.00 per court
appearance as attorneys fees, since he filed the foregoing action in good faith, believing that he is in the right.

The respondents, on the other hand, assert that the petition should be dismissed for raising pure questions of fact, in contravention
of the provisions of Rule 45 of the Rules which provides that only questions of law can be raised in petitions for review on certiorari.

THE COURTS RULING


The petition is granted.

No new issues can be raised in the Memorandum

At the onset, we note that Tan raised the following additional assignment of errors in his Memorandum: (a) the CA erred in
holding that the petitioner could seek reformation of the Deed of Conditional Sale only if he paid the balance of the purchase price
and if the vendors refused to execute the deed of absolute sale; and (b) the CA erred in holding that the petitioner was estopped from
asking for the reformation of the contract or for specific performance.

The Courts September 27, 2004 Resolution expressly stated that No new issues may be raised by a party in his/its
Memorandum. Explaining the reason for this rule, we said that:

The raising of additional issues in a memorandum before the Supreme Court is irregular, because said
memorandum is supposed to be in support merely of the position taken by the party concerned in his petition, and
the raising of new issues amounts to the filing of a petition beyond the reglementary period. The purpose of this rule
is to provide all parties to a case a fair opportunity to be heard. No new points of law, theories, issues or arguments
may be raised by a party in the Memorandum for the reason that to permit these would be offensive to the basic
rules of fair play, justice and due process.[5]

Tan contravened the Courts explicit instructions by raising these additional errors. Hence, we disregard them and focus instead on the
issues previously raised in the petition and properly included in the Memorandum.

Petition raises a question of law

Contrary to the respondents claim, the issue raised in the present petition defined in the opening paragraph of this Decision is a pure
question of law. Hence, the petition and the issue it presents are properly cognizable by this Court.

Lis pendens annotation not proper in personal actions

Section 14, Rule 13 of the Rules enumerates the instances when a notice of lis pendens can be validly annotated on the title
to real property:

Sec. 14. Notice of lis pendens.


In an action affecting the title or the right of possession of real property, the plaintiff and the defendant,
when affirmative relief is claimed in his answer, may record in the office of the registry of deeds of the province in
which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the
parties and the object of the action or defense, and a description of the property in that province affected thereby.
Only from the time of filing such notice for record shall a purchaser, or encumbrancer of the property affected
thereby, be deemed to have constructive notice of the pendency of the action, and only of its pendency against the
parties designated by their real names.

The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court, after
proper showing that the notice is for the purpose of molesting the adverse party, or that it is not necessary to protect
the rights of the party who caused it to be recorded.
The litigation subject of the notice of lis pendens must directly involve a specific property which is necessarily affected by the
judgment.[6]

Tans complaint prayed for either the rescission or the reformation of the Deed of Conditional Sale. While the Deed does have
real property for its object, we find that Tans complaint is an in personam action, as Tan asked the court to compel the respondents
to do something either to rescind the contract and return the down payment, or to reform the contract by extending the period given
to pay the remaining balance of the purchase price. Either way, Tan wants to enforce his personal rights against the respondents, not
against the property subject of the Deed. As we explained in Domagas v. Jensen:[7]

The settled rule is that the aim and object of an action determine its character. Whether a proceeding is in
rem, or in personam, or quasi in rem for that matter, is determined by its nature and purpose, and by these only. A
proceeding in personam is a proceeding to enforce personal rights and obligations brought against the person and
is based on the jurisdiction of the person, although it may involve his right to, or the exercise of ownership of, specific
property, or seek to compel him to control or dispose of it in accordance with the mandate of the court. The purpose
of a proceeding in personam is to impose, through the judgment of a court, some responsibility or liability directly
upon the person of the defendant. Of this character are suits to compel a defendant to specifically perform some
act or actions to fasten a pecuniary liability on him.

Furthermore, as will be explained in detail below, the contract between the parties was merely a contract to sell where the vendors
retained title and ownership to the property until Tan had fully paid the purchase price. Since Tan had no claim of ownership or title
to the property yet, he obviously had no right to ask for the annotation of a lis pendens notice on the title of the property.

Contract is a mere contract to sell

A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting
parties call it.[8] Article 1485 of the Civil Code defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised.[9]

In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the
prospective buyer upon fulfillment of the condition agreed, i.e., full payment of the purchase price.[10]A contract to sell may not even
be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until
the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although
it is conditioned upon the happening of a contingent event which may or may not occur.[11]

In the present case, the true nature of the contract is revealed by paragraph D thereof, which states:
xxx
d) That in case, BUYER has complied with the terms and conditions of this contract, then the SELLERS shall execute and
deliver to the BUYER the appropriate Deed of Absolute Sale;
xxx

Jurisprudence has established that where the seller promises to execute a deed of absolute sale upon the completion by the
buyer of the payment of the price, the contract is only a contract to sell. [12] Thus, while the contract is denominated as a Deed of
Conditional Sale, the presence of the above-quoted provision identifies the contract as being a mere contract to sell.

A Section 4, Rule 74 annotation is an encumbrance on the property

While Tan admits that he refused to pay the balance of the purchase price, he claims that he had valid reason to do so the
sudden appearance of an annotation on the title pursuant to Section 4, Rule 74 of the Rules, which Tan considered an encumbrance
on the property.

We find Tans argument meritorious.

The annotation placed on TCT No. 27335, the new title issued to reflect the extrajudicial partition of Lamberto Benoliraos
estate among his heirs, states:

x x x any liability to credirots (sic), excluded heirs and other persons having right to the property, for a period
of two (2) years, with respect only to the share of Erlinda, Andrew, Romano and Dion, all surnamed
Benolirao [Emphasis supplied.]

This annotation was placed on the title pursuant to Section 4, Rule 74 of the Rules, which reads:

Sec. 4. Liability of distributees and estate. - If it shall appear at any time within two (2) years after the settlement and
distribution of an estate in accordance with the provisions of either of the first two sections of this rule, that an heir
or other person has been unduly deprived of his lawful participation in the estate, such heir or such other person
may compel the settlement of the estate in the courts in the manner hereinafter provided for the purpose of
satisfying such lawful participation. And if within the same time of two (2) years, it shall appear that there are debts
outstanding against the estate which have not been paid, or that an heir or other person has been unduly deprived
of his lawful participation payable in money, the court having jurisdiction of the estate may, by order for that
purpose, after hearing, settle the amount of such debts or lawful participation and order how much and in what
manner each distributee shall contribute in the payment thereof, and may issue execution, if circumstances
require, against the bond provided in the preceding section or against the real estate belonging to the deceased,
or both. Such bond and such real estate shall remain charged with a liability to creditors, heirs, or other persons for
the full period of two (2) years after such distribution, notwithstanding any transfers of real estate that may have
been made. [Emphasis supplied.]

Senator Vicente Francisco discusses this provision in his book The Revised Rules of Court in the Philippines,[13] where he states:

The provision of Section 4, Rule 74 prescribes the procedure to be followed if within two years after an
extrajudicial partition or summary distribution is made, an heir or other person appears to have been deprived of
his lawful participation in the estate, or some outstanding debts which have not been paid are discovered. When
the lawful participation of the heir is not payable in money, because, for instance, he is entitled to a part of the
real property that has been partitioned, there can be no other procedure than to cancel the partition so made and
make a new division, unless, of course, the heir agrees to be paid the value of his participation with interest. But
in case the lawful participation of the heir consists in his share in personal property of money left by the decedent,
or in case unpaid debts are discovered within the said period of two years, the procedure is not to cancel the
partition, nor to appoint an administrator to re-assemble the assets, as was allowed under the old Code, but the
court, after hearing, shall fix the amount of such debts or lawful participation in proportion to or to the extent of the
assets they have respectively received and, if circumstances require, it may issue execution against the real estate
belonging to the decedent, or both. The present procedure is more expedient and less expensive in that it dispenses
with the appointment of an administrator and does not disturb the possession enjoyed by the
distributees.[14] [Emphasis supplied.]

An annotation is placed on new certificates of title issued pursuant to the distribution and partition of a decedents real
properties to warn third persons on the possible interests of excluded heirs or unpaid creditors in these properties. The annotation,
therefore, creates a legal encumbrance or lien on the real property in favor of the excluded heirs or creditors. Where a buyer
purchases the real property despite the annotation, he must be ready for the possibility that the title could be subject to the rights
of excluded parties. The cancellation of the sale would be the logical consequence where: (a) the annotation clearly appears on the
title, warning all would-be buyers; (b) the sale unlawfully interferes with the rights of heirs; and (c) the rightful heirs bring an action to
question the transfer within the two-year period provided by law.

As we held in Vda. de Francisco v. Carreon:[15]

And Section 4, Rule 74 xxx expressly authorizes the court to give to every heir his lawful participation in the
real estate notwithstanding any transfers of such real estate and to issue execution thereon. All this implies
that, when within the amendatory period the realty has been alienated, the court in re-dividing it among the heirs
has the authority to direct cancellation of such alienation in the same estate proceedings, whenever it becomes
necessary to do so. To require the institution of a separate action for such annulment would run counter to the
letter of the above rule and the spirit of these summary settlements. [Emphasis supplied.]

Similarly, in Sps. Domingo v. Roces,[16] we said:

The foregoing rule clearly covers transfers of real property to any person, as long as the deprived heir or
creditor vindicates his rights within two years from the date of the settlement and distribution of estate. Contrary
to petitioners contention, the effects of this provision are not limited to the heirs or original distributees of the
estate properties, but shall affect any transferee of the properties. [Emphasis supplied.]

Indeed, in David v. Malay,[17] although the title of the property had already been registered in the name of the third party
buyers, we cancelled the sale and ordered the reconveyance of the property to the estate of the deceased for proper disposal among
his rightful heirs.

By the time Tans obligation to pay the balance of the purchase price arose on May 21, 1993 (on account of the extensions
granted by the respondents), a new certificate of title covering the property had already been issued on March 26, 1993, which
contained the encumbrance on the property; the encumbrance would remain so attached until the expiration of the two-year
period. Clearly, at this time, the vendors could no longer compel Tan to pay the balance of the purchase since considering they
themselves could not fulfill their obligation to transfer a clean title over the property to Tan.

Contract to sell is not rescinded but terminated


What then happens to the contract?

We have held in numerous cases[18] that the remedy of rescission under Article 1191 cannot apply to mere contracts to

sell. We explained the reason for this in Santos v. Court of Appeals,[19] where we said:

[I]n a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is
paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure
to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation
of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a
contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not
identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the
contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long
as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject
the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. x x x Article
1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply to a contract to sell.
As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property.
Neither provision is applicable [to a contract to sell]. [Emphasis supplied.]

We, therefore, hold that the contract to sell was terminated when the vendors could no longer legally compel Tan to pay the
balance of the purchase price as a result of the legal encumbrance which attached to the title of the property. Since Tans refusal to
pay was due to the supervening event of a legal encumbrance on the property and not through his own fault or negligence, we find
and so hold that the forfeiture of Tans down payment was clearly unwarranted.

Award of Attorneys fees

As evident from our previous discussion, Tan had a valid reason for refusing to pay the balance of the purchase price for the
property. Consequently, there is no basis for the award of attorneys fees in favor of the respondents.

On the other hand, we award attorneys fees in favor of Tan, since he was compelled to litigate due to the respondents refusal
to return his down payment despite the fact that they could no longer comply with their obligation under the contract to sell, i.e., to
convey a clean title. Given the facts of this case, we find the award of P50,000.00 as attorneys fees proper.

Monetary award is subject to legal interest

Undoubtedly, Tan made a clear and unequivocal demand on the vendors to return his down payment as early as May 28,
1993. Pursuant to

our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] we hold that the vendors should return the P200,000.00
down payment to Tan, subject to the legal interest of 6% per annum computed from May 28, 1993, the date of the first demand letter.

Furthermore, after a judgment has become final and executory, the rate of legal interest, whether the obligation was in the form of a
loan or forbearance of money or otherwise, shall be 12% per annum from such finality until its satisfaction. Accordingly, the principal
obligation of P200,000.00 shall bear 6% interest from the date of first demand or from May 28, 1993. From the date the liability for
the principal obligation and attorneys fees has become final and executory, an annual interest of 12% shall be imposed on these
obligations until their final satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

WHEREFORE, premises considered, we hereby GRANT the petition and, accordingly, ANNUL and SET ASIDE the May 30,
2002 decision of the Court of Appeals in CA-G.R. CV No. 52033. Another judgment is rendered declaring the Deed of Conditional Sale
terminated and ordering the respondents to return the P200,000.00 down payment to petitioner Delfin Tan, subject to legal interest
of 6% per annum, computed from May 28, 1993. The respondents are also ordered to pay, jointly and severally, petitioner Delfin Tan
the amount of P50,000.00 as and by way of attorneys fees. Once this decision becomes final and executory, respondents are ordered
to pay interest at 12% per annum on the principal obligation as well as the attorneys fees, until full payment of these amounts. Costs
against the respondents.

SO ORDERED.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is madejudicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount of finally
adjudged.

3. Artates vs URBI, G.R. No. L-29421, January 30, 1971

VOL. 37, JANUARY 30, 1971 395


Artates vs. Urbi
41
LINO ARTATES & MANUELA POJAS, plaintiffs-appellants, vs.DANIEL URBI,CRISANTO SOLIVEN, assisted by his Guardian ‘ad litem,’
MARCELA B. SOLIVEN,REMEGIO BUTACAN and NEMESIO OÑATE, in their private capacities and/or as Ex-Oficio Provincial Sheriff and
Deputy Sheriff of Cagayan, respectively, and BIENVENIDO CACATIAN, as Deputy Register of Deeds of Cagayan, defendants-appellees.
Public land law; Homestead patent; Prohibition against alienation or encumbrance of public lands within 5 years from grant;
Purpose.—As prescribed by law, for a period of five years from the date of the government grant, lands acquired by free or homestead
patent shall not be only incapable of being encumbered or alienated except in favor of the government itself or any of its institutions
or of duly constituted banking corporations, but also, they shall not be liable to the satisfaction of any debt contracted within the said
period, whether or
396
396 SUPREME COURT REPORTS ANNOTATED
Artates vs. Urbi
not the indebtedness shall mature during or after the prohibited time. This provision against the alienation or encumbrance of
public lands granted within five years from the issuance of the patent, it has been held, is mandatory; a sale made in violation thereof
is null and void and produces no effect whatsoever. Though it may be a limitation on the right of ownership of the grantee, the salutary
purpose of the provision cannot be denied; it is to preserve and keep for the homesteader or his family the land given to him
gratuitously by the State, so that being a property owner, he may become and remain a contented and useful member of our society.
Same; Same; Prohibition applies even in case of involuntary sale.—The homestead patent covering the land in question was
issued to appellants on 23 September 1952, and it was sold at public auction to satisfy the civil liability of appellant Lino Artates to
Daniel Urbi, adjudged on the 14 March 1956 decision of the Justice of the Peace Court of Camalaniugan, Caga-yan. There can be no
doubt that the award of damages to Urbi created for Artates a civil obligation, an indebtedness, that commenced from the date such
obligation was decreed on 14 March 1956. Consequently, it is evident that, it can not be enforced against, or satisfied out of, the sale
of the homestead lot acquired by appellants less than 5 years before the obligation accrued. And this is true even if the sale involved
here is not voluntary. For purposes of complying with the law, it is immaterial that the satisfaction of the debt by the encumbrancing
or alienation of land grant was made voluntarily, as in the case of an ordinary sale, or involuntarily, such as that effected through levy
on the property and consequent sale at public auction. In both instances, the spirit of the law would have been violated.
Same; Same; Non-liability of homestead grant extends to extra-contractual obligation.—Doubts have been expressed as to
whether the words “debt contracted prior to the expiration of said period” (of 5 years from and after the grant) would include the civil
liability arising from a crime committed by the homesteader. While there is no direct Philippine precedent on this point, there are
various reasons why the non-liability of the homestead grant should be extended to extra-contractual obligations. First and foremost,
whether it be viewed as an exemption or as a condition attached to the grant to encourage people to settle and cultivate public land,
the immunity in question is in consonance with the definite public policy underlying these grants, which is to “to preserve and keep in
the family of the homesteader that portion of public land which the State has given to him” so he may have a place to live with his
family and become a happy citizen and a useful member of society and the exemption should not be given restrictive application.
397
VOL. 37, JANUARY 30, 1971 397
Artates vs. Urbi
A levy and sale of the homestead on account of extra-contractual liability incurred would uproot the homesteader and his family
and turn them into homeless waifs as effectively as a levy for non-payment of a contractual debt. Secondly, the word “debt” in
exemption statutes, in its wider sense, includes all that is due to a man under any form or obligation or promise, and covers not only
obligations arising under contract, but also those imposed by law without contract. Considering the protective policy of the law, it
becomes apparent that “debt contracted” was used in it in the sense of “obligation incurred,” since Webster gives the verb to
“contract” the meaning of “to bring on; incur; acquire.” Finally, our public land laws being copied from American legislation, resort to
American precedents reveals that, under the weight of authority, exemption from “debts contracted” by a homesteader has been
held to include freedom from money liabilities, from torts or crimes committed by him, such as from bigamy or slander, breach of
contract or other torts.
Same; Same; Execution being null and void; Possession of land to be returned.—The execution sale being null and void, the
possession of the land should be returned to the owners, the herein appellants. There would even be no need to order appellee Urbi
to execute a deed of reconveyance thereof to the owners. It appears that what was issued here to the judgment creditor/purchaser
was only the sheriffs provisional certificate, under which he derived no definite title or right until the period for redemption has
expired, without a redemption having been made, or issuance of a final deed or certificate of sale. In other words, the purchaser herein
has not acquired an absolute ownership or title in fee over the land that would necessitate a deed of reconveyance to revert ownership
back to appellant spouses.

MAKALINTAL, J., concurring:

Public land law; Homestead patent; Five-year prohibitory period; The word “contracted,” as used in Section 118 of the Public
Land Law, should be given ordinary meaning.—I am for giving the word “contracted,” as used in the law, its ordinary meaning, for
after all one who contracts with a homestead patentee during the five-year period and accepts an obligation from him does so with
full knowledge of the law’s exempting provision, which is deemed in effect a part of the agreement. The same, however, is not true of
the victim of a tort or a crime, as in the present case, for here his volition does not come into play, the obligation being imposed
entirely by law.

TEEHANKEE, J ., concurring and dissenting:

Public land law; Homestead patent; Judgment debt of the


398
398 SUPREME COURT REPORTS ANNOTATED
Artates vs. Urbi
homesteader was not contracted but duly adjudicated by competent court.—The judgment debt of the homesteader in favor of
Urbi was not contracted but duly adjudicated by a competent court in a lawful judgment for injuries inflicted by Artates upon Urbi in
1955, which, gauging the same from the substantial amount of P1,476.35 awarded, must have been quite serious. The happenstance
that Artates’ assault on Urbi and the judgment award occurred within the prohibitory period should not be construed beyond the
law’s text and intent to favor the wrong-doer Artates as against his victim Urbi.

BARREDO: J ., dissenting:

Public land law; Homestead patent; Five-year prohibitory period; Exceptions; Purpose.—The ultimate reason behind the
exceptions contained in the cited provision of the Public Land Law is to insure the accomplishment of the double purpose of a
homestead grant, which is to encourage the development of arable lands and enhance their productivity in the interest of the national
economy and, at the same time, provide qualified citizens with a piece of land which they and their families may call their own, on
which they can live and which they can work and thereby become useful members of society. Accordingly, the homesteader is
safeguarded against his own weaknesses, imprudence and improvidence by making it impossible for him to directly or indirectly, by
his voluntary act, dispose of or lose the land in favor of others. So also do the exceptions make it impossible for him to allow himself
to be utilized as dummy of opportunists.
Same; Same; Same; One who is guilty of a crime forfeits whatever rights he may have acquired by virtue of the State’s
generosity.—Crime is assault upon the sovereign people and the social order, even if not always directly against the national security,
and it is my considered view that, in principle, one who is guilty thereof forfeits whatever rights he might have acquired by virtue of
the State’s generosity, particularly, when, as in this case, it is a grant of a special privilege under specified circumstances and not
generally and commonly enjoyed by all citizens/inhabitants of the country.
APPEAL from a decision of the Court of First Instance of Cagayan. Ramos, J .
The facts are stated in the opinion of the Court.
Bienvenido J. Jimenez for plaintiffs-appellants.
Rogelio Re. Ubarde for defendants-appellees Daniel Urbi and Crisanto Soliven.
399
VOL. 37, JANUARY 30, 1971 399
Artates vs. Urbi
Alfredo J. Donato for defendant-appellee Nemesio Oñate.
The Provincial Fiscal (Cagayan) for defendants-appellees Provincial Sheriff and Deputy Register of Deeds.

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

This is an appeal from the decision of the Court of First Instance of Cagayan (Civil Case No. 116-T), involving the public sale of a
homestead to satisfy a civil judgment against the grantee.
The records show that in an action filed in the Court of First Instance of Cagayan, the spouses Lino Artates and Manuela Pojas
sought annulment of the execution of a homestead1 covered by Patent No. V-12775 issued to them by the proper land authorities on
23 September 1952, and duly registered in their names (OCT No. P-572). The public sale, conducted by the Provincial Sheriff of Cagayan
on 2 June 1962, was made to satisfy a judgment against Lino Artates in the amount of P1,476.35, and awarded to Daniel Urbi by the
Justice of the Peace Court of Camalaniugan, Cagayan, in its Civil Case No. 40, for physical injuries inflicted by Artates upon Urbi on 21
October 1955. In the execution sale, the property was sold to the judgment creditor, the only bidder, for P1,476.35. In their complaint,
the plaintiffs spouses alleged that the sale of the homestead to satisfy an indebtedness of Lino Artates that accrued on 21 October
1955, violated the provision of the Public Land law exempting said property from execution for any debt contracted within five years
from the date of the issuance of the patent; that defendant Urbi, with the intention of defrauding the plaintiffs, executed on 26 June
1961 a deed for the sale of the same parcel of land to defendant Crisanto Soliven, a minor, supposedly for the sum of P2,676.35; that
as a result of the aforementioned transactions, defendants Urbi and Soliven entered into the possession of the land and deprived
plaintiffs
_______________

1
Lot No. 151 of the Allacapan Public Land Subdivision, situated in barrio Allig, municipality of Allacapan, province of Cagayan.
400
400 SUPREME COURT REPORTS ANNOTATED
Artates vs. Urbi
of the owners’ share in the rice crops harvested during the agricultural year 1961-1962. Plaintiffs, therefore, prayed that the public
sale of the land to defendant Urbi, as well as the deed of sale executed by the latter in favor of defendant Soliven, be declared null
and void; that defendants be ordered to deliver to plaintiffs possession of the land; and to pay to plaintiffs compensatory damages at
the rate of P1,000.00 per agricultural year until possession is finally restored to them, the sum of P2,000.00 as damages for maliciously
casting cloud upon plaintiffs’ title on the land, plus attorneys’ fees and costs.
The defendants2 filed separate answers disputing the averments of the complaint. On 29 March 1963, the court rendered
judgment upholding the regularity and validity of the execution conducted by the defendant Provincial Sheriff, but finding that the
sale of the lands by defendant Urbi to the minor Soliven was simulated, intended to place the property beyond the reach of the
judgment debtor, and that plaintiffs had offered to redeem the land within the 5-year period allowed by Section 119 of the Public
Land law for reacquisition thereof by the grantee. Consequently, the court declared the sale of the land by defendant Daniel Urbi to
defendant Crisanto Soliven null and void; and Daniel Urbi was ordered to reconvey the property to the plaintiffs upon the latter’s
payment (to Urbi) of the sum of P1,476.35 plus the sheriff’s fee incident to the sale at public auction, with interest thereon at the rate
of 12% per annum from 2 June 1961 until said amount shall have been fully paid, and the further sum of P783.45 representing the
amount paid by defendant Daniel Urbi to the Philippine National Bank for the release of the real estate mortgage on the land,
contracted by Lino Artates, with legal rate of interest thereon from 29 June 1961.
From this decision, the plaintiffs interposed the present appeal assigning several errors allegedly committed by the court below,
all hinged on the validity or invalidity of the public sale of the lot involved herein.
_______________

2
Defendant Crisanto Soliven, a minor, was represented by Marcela B. Soliven, who was appointed by the court as his guardian ad
litem.
401
VOL. 37, JANUARY 30, 1971 401
Artates vs. Urbi
Section 118 of the Public Land law (Commonwealth Act 141) provides as follows:
“SEC. 118. Except in favor of the Government or any of its branches, units, or institution, or legally constituted banking corporations,
lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the
approval of the application and for a term of five years from and after the date of issuance of the patent or grant, nor shall they
become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the
land may be mortgaged or pledged to qualified persons, associations or corporations.”

xxxxx xxxxx xxxxx


As thus prescribed by law, for a period of five years from the date of the government grant, lands acquired by free or homestead
patent shall not only be incapable of being encumbered or alienated except in favor of the government itself or any of its institutions
or of duly constituted banking corporations, but also, they shall not be liable to the satisfaction of any debt contracted within the said
period,3whether or not the indebtedness shall mature during or after the prohibited time. 4 This provision against the alienation or
encumbrance of public lands granted within five years from the issuance of the patent, it has been held, is mandatory; 5 a sale made
in violation thereof is null and void6 and produces no effect whatsoever. Though it may be a limitation on the right of ownership of
the grantee, the salutary purpose of the provision cannot be denied: it is to preserve and keep for the homesteader or his family the
land given to him gratuitously by the State,7 so that being a property owner, he may become and remain a contented and useful
member of our society.8
_______________

3
Francisco vs. Parsons Hardware, 67 Phil. 234.
4
Bautista vs. Marcos, L-17072, 31 October 1961.
5
Republic vs. Ruiz, L-23712, 29 April 1968, 23 SCRA 348.
6
Eugenio vs. Perdido, 97 Phil. 41; Angeles vs. Court of Appeals, 102 Phil. 1006; Cadiz vs. Nicolas, 102 Phil. 1032; Santander vs.
Villanueva, 103 Phil. 1; Felices vs. Iriola, 103 Phil. 125; Del Rosario vs. Abad, L-10881, 30 Sept. 1958; Republic vs. Garcia, 105 Phil.
826; Republic vs. Ruiz, supra.; Baje vs. Court of Appeals, L-18783, 25 May 1964
7
Manzano vs. Ocampo, L-14778, 28 February 1961, 1 SCRA 691.
8
Cadiz vs. Nicolas, supra.
402
402 SUPREME COURT REPORTS ANNOTATED
Artates vs. Urbi
In the case at bar, the homestead patent covering the land in question (No. V-12775) was issued to appellants on 23 September
1952, and it was sold at public auction to satisfy the civil liability of appellant Lino Artates to Daniel Urbi, adjudged in the 14 March
1956 decision of the Justice of the Peace Court of Camalaniugan, Cagayan. There can be no doubt that the award of damages to Urbi
created for Artates a civil obligation, an indebtedness, that commenced from the date such obligation was decreed on 14 March
1956. Consequently, it is evident that it can not be enforced against, or satisfied out of, the sale of the homestead lot acquired by
appellants less than 5 years before the obligation accrued. And this is true even if the sale involved here is not voluntary. For purposes
of complying with the law, it is immaterial that the satisfaction of the debt by the encumbrancing or alienation of the land grant was
made voluntarily, as in the case of an ordinary sale, or involuntarily, such as that effected through levy on the property and consequent
sale at public auction. In both instances, the spirit of the law would have been violated.9
Doubts have been expressed as to whether the words “debt contracted prior to the expiration of said period” (of 5 years from and
after the grant) would include the civil liability arising from a crime committed by the homesteader. While there is no direct Philippine
precedent on this point, there are various reasons why the non-liability of the homestead grant should be extended to extra-
contractual obligations. First and foremost, whether it be viewed as an exemption or as a condition attached to the grant to encourage
people to settle and cultivate public land, the immunity in question is in consonance with the definite public policy underlying these
grants, which is to “preserve and keep in the family of the homesteader that portion of public land which the State has given to him”
so he may have a place to live with his family and become a happy
_______________

9
Beach vs. Pacific Commercial Co., 49 Phil. 765; Francisco vs. Parsons Hardware Co., 67 Phil. 234; Gonzalo Puyat & Sons vs. De las
Ama, 74 Phil. 3; Cadiz vs. Nicolas, 102 Phil 1032, 1039.
403
VOL. 37, JANUARY 30, 1971 403
Artates vs. Urbi
citizen and a useful member of society,10 and the exemption should not be given restrictive application.11 A levy and sale of the
homestead on account of extra-contractual liability incurred would uproot the homesteader and his family and turn them into
homeless waifs as effectively as a levy for non-payment of a contractual debt. Secondly, the word “debt” in exemption statutes,—
“in its wider sense, (it) includes all that is due to a man under any form or obligation or promise, and covers not only obligations arising
under contract, but also those imposed by law without contract.”12
Considering the protective policy of the law, it becomes apparent that “debt contracted” was used in it in the sense of “obligation
incurred,” since Webster gives the verb to “contract” the meaning of “to bring on; incur; acquire.” Finally, our public land laws being
copied from American legislation,13 resort to American precedents reveals that, under the weight of authority, exemption from “debts
contracted” by a homesteader has been held to include freedom from money liabilities, from torts or crimes committed by him, such
as from bigamy (State vs. O’Neil, 7 Ore. 141, 11 Words and Phrases 318) or slander (Conway vs. Sullivan, 44 111. 451, 452), breach of
contract (Flanagan vs. Forsythe, 50 Pac. 152, 153) or other torts (In Re Radway, 20 Fed. Cas. 154, 162).
The execution sale in this case being null and void, the possession of the land should be returned to the owners, the herein
appellants. There would even be no need to order appellee Urbi to execute a deed of reconveyance thereof to the owners. It appears
that what was issued here to the judgment creditor/purchaser was only the sheriff’s provisional certificate, under which he derived
no definite title or right until the period for redemption has expired, with-
_______________

10
Pascua vs. Talens, 80 Phil. 792; Santos vs. Roman Catholic Church, 94 Phil. 406, 409; Cadiz vs. Nicolas, 102 Phil. 1039; Jocson vs.
Soriano, 45 Phil. 375; Beniga vs. Bugas, L-28918, 29 September 1970.
11
Duling vs. Salaz, 26 Pac. 2d. 1069; 22 Am. Jur. 80 793, 795.
12
Duling vs. Salaz, 26 Pac. 2d. 1069; 22 Am. Jur. 80.
13
Jocson vs. Soriano, 45 Phil. 375, 379.
404
404 SUPREME COURT REPORTS ANNOTATED
Artates vs. Urbi
out a redemption having been made,14 or issuance of a final deed or certificate of sale. In other words, the purchaser herein has not
acquired an absolute ownership or title in fee over the land that would necessitate a deed of reconveyance to revert ownership back
to the appellant spouses. As things now stand, title to the property covered by OCT No. P-572 remains with the appellants, but Lino
Artates shall continue to be under obligation to satisfy the judgment debt to Daniel Urbi in the sum of P1,476.35, with legal interest
thereon accruing from the date the writ of execution was first returned unsatisfied. It appearing also that appellee Daniel Urbi paid to
the Philippine National Bank the sum of P783.45 to release the mortgage on the land, appellants should reimburse him of said amount
or of whatever amount appellants have actually been benefited by the said payment.
FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby reversed, and appellants are declared entitled to
the return and possession of the lot covered by Original Certificate of Title No. P-572, without prejudice to their continuing obligation
to pay the judgment debt, and expenses connected therewith. No costs.
Concepcion, C.J., Dizon, Zaldivar, Fernando and Makasiar, JJ., concur.
Makalintal, J., concurs with Mr. Justice Teehankee in a separate opinion.
Castro, J., concurs in the dissenting opinion of Mr. Justice Teehankee.
Teehankee, J., concurs and dissents in a separate opinion.
Barredo, J., dissents in separate opinion.
Villamor, J., concurs in the separate concurring and dissenting opinion of Mr. Justice Teehankee.

MAKALINTAL, J .:

I concur in the opinion of Justice Teehankee, and vote


_______________

14
Section 26, Revised Rule 39; 2 Moran’s Comments on the Bales of Court, 1970 ed., page 327.
405
VOL. 37, JANUARY 30, 1971 405
Artates vs. Urbi
for the affirmance of the appealed judgment in toto. The date of the issuance of the homestead patent to appellants was September
23, 1952. Under Section 118 of the Public Land Law the homestead could not be held liable for the satisfaction of any debt contracted
during a period of five years thereafter, or up to September 23, 1957. The opinion of the majority holds that since the civil obligation
of appellant Artates was adjudged on March 14, 1956, or within the said period, the homestead cannot be held liable for its
satisfaction. The obvious implication is that if the judgment had been delayed—if for instance it had been rendered on September 24,
1957—the result would have been otherwise. I do not believe that such a difference should be made to depend upon the more or less
fortuitous and irrelevant circumstance of when the judgment decreeing the obligation was rendered. I am for giving the word
“contracted,” as used in the law, its ordinary meaning, for after all one who contracts with a homestead patentee during the five-year
period and accepts an obligation from him does so with full knowledge of the law’s exempting provision, which is deemed in effect a
part of the agreement. The same, however, is not true of the victim of a tort or a crime, as in the present case, for here his volition
does not come into play, the obligation being imposed entirely by law.

TEEHANKEE, J ., concurring and dissenting:

I vote for the affirmance in toto of the judgment appealed from. Hence, I concur in that portion of the decision decreeing that
appellants should reimburse appellee Urbi for the sums that Urbi had paid to the Philippine National Bank to release the mortgage
previously executed by appellants on the subject homestead land, but I dissent from the principal decree thereof that “title to the
property . . . . remains with the appellants, but (appellant) Lino Artates shall continue to be under obligation to satisfy the judgment
debt to Daniel Urbi in the sum of P1,476.35, with legal interest thereon accruing from the date the writ of execution was first returned
unsatisfied.”
The issue at bar is whether the execution sale conducted in 1962by the sheriff of Artates’ homestead lot acquired
406
406 SUPREME COURT REPORTS ANNOTATED
Artates vs. Urbi
in 1952 to satisfy a 1956 judgment against Artates in favor of Urbi (for physical injuries inflicted by Artates upon Urbi in 1955), at which
public sale the homestead lot was sold to Urbi as the only bidder for the amount of his judgment credit in the sum of P1,476.35 should
be held null and void, as the majority would now hold, by virtue of the prohibitory provisions of Section 118 of the Public Land Law.
The key provision cited is that providing that such homesteads “shall not be subject to encumbrance or alienation from the date of
the approval of the application and for a term of five years from and after the date of issuance of the patent or grant, nor shall they
become liable to the satisfaction of any debt contracted prior to the expiration of said period x x.”
Under the cited provision, all sales and alienations of the homestead property made by the homesteader within the 5-year
prohibition are null and void. Similarly, the homestead is held not liable to the satisfaction of any debt contracted by the homesteader
within the said period, even though it be contracted that the indebtedness shall mature after the prohibited period. The law’s purpose
is clear and salutary: to preserve and keep for the homesteader the land given to him gratuitously by the State and to protect him
from his own weakness and improvidence.
But in the case at bar, the judgment debt of the home-steader in favor of Ubi* was not contracted but duly adjudicated by a
competent court in a lawful judgment for injuries inflicted by Artates upon Urbi in 1955, which, gauging the same from the substantial
amount of P1,476.35 awarded, must have been quite serious. The happenstance that Artates’ assault on Urbi and the judgment award
occurred within the prohibitory period should not be construed beyond the law’s text and intent to favor the wrongdoer Artates as
against his victim Urbi.
We would have the anomalous situation thereby where, while recognizing that Artates has a just and continuing obligation to pay
Urbi the judgment debt, the debt would in effect be nullified. The judgment debt was awarded
_______________

*
Editor’s Note: Should be read “Urbi.”
407
VOL. 37, JANUARY 30, 1971 407
Artates vs. Urbi
since 1956 and would by now have prescribed, but the majority decision would nullify the levy and public sale of the land to satisfy
Urbi’s judgment credit conducted in 1966 long after the expiration of the statutory five-year prohibitory period. The majority decision
bars Urbi forever from looking to Artates homestead property for the satisfaction of his judgment credit. Artates’ evasion of his
judgment debt to Urbi is thereby made certain. Any later creditor of Artates, real or simulated, from one day after the expiration on
23 September 1957 of the said five-year prohibitory period is given sole and exclusive preference to look to the said property for
satisfaction as against Urbi beyond whose reach it is placed, contrary to the priority and preference that Urbi would lawfully be entitled
to as a bona fidejudgment creditor.
Finally, pursuant to Artates’ offer to redeem the property from Urbi within the 5-year redemption period allowed by section 119
of the Public Land Law, the lower court in its appealed judgment so ordered such redemption and reconveyance. This strikes me as an
eminently fair and just judgment which should be upheld. Artates, the homesteader, is thus assured of keeping and preserving his
homestead in accordancer** with the spirit of the law and the lawful judgment credit of Urbi against him is at the same time duly
satisfied.

BARREDO, J ., dissenting:
I regret I am unable to concur in the ruling in this decision that the provision of Section 118 of the Public Land Law which says that
“lands acquired under free patent or homestead provisions shall not x x x become liable to the satisfaction of any debt contracted
prior to the expiration of five years from and after the date of issuance of the patent or grant” contemplates inclusively “the civil
liability arising from a crime committed by the homesteader” within said period. Indeed, I do not feel it is necessary to go deep into
the Webster’s dictionary meaning of the verb “to contract” or to look for state court decisions in America, which could be isolated and
based on statutes not similar-
_______________

**
Editor’s Note: Should be read “accordance.’
408
408 SUPREME COURT REPORTS ANNOTATED
Artates vs. Urbi
ly phrased and oriented as Ours, to resolve the legal issue before Us, it being sufficient, towards that end, to consider only the basic
principles that underlie the disposition of public lands under our own laws on the matter.
I understand that the ultimate reason behind the exceptions contained in the cited provision of the Public Land Law is to insure
the accomplishment of the double purpose of a homestead grant, which is to encourage the development of arable lands and enhance
their productivity in the interest of the national economy and, at the same time, provide qualified citizens with a piece of land which
they and their families may call their own, on which they can live and which they can work and thereby become useful members of
society. Accordingly, the homesteader is safeguarded against his own weaknesses, imprudence and improvidence by making it
impossible for him to directly or indirectly, by his voluntary act, dispose of or lose the land in favor of others. So also do the exceptions
make it impossible for him to allow himself to be utilized as dummy of opportunists. If this understanding of mine is correct, it should
follow necessarily that for these purposes to be achieved, a homesteader must be, during the exempt period, in physical condition to
work the land granted to him. I cannot help wondering how a person who has been convicted of a crime, the penalty for which is most
likely to include a period of incarceration can work on and develop his homestead in the manner conceived in the law. That such a
contingency may not be true in all instances, for there may be punishment of crimes with imprisonment of insignificantly short
duration or even fines only, does not affect the general principle involved. I consider it implicit in all land grants by the State that the
grantees bind themselves to be loyal and useful members of society, at least, during the period of development thereof that the law
contemplates, namely, the first five years from the grant. Surely, one who commits an offense against the State and his fellow-citizens
or other inhabitants in this country is far from being a useful member of society. To be sure, his act of committing an offense is
voluntary, but this is not the voluntary act of imprudence and improvidence against which the law guards the homesteader even
against
409
VOL. 37, JANUARY 30, 1971 409
Artates vs. Urbi
himself. Crime is an assault upon the sovereign people and the social order, even if not always directly against the national security,
and it is my considered view that, in principle, one who is guilty thereof forfeits whatever rights he might have acquired by virtue of
the State’s generosity, particularly, when, as in this case, it is a grant of a special privilege under specified circumstances and not
generally and commonly enjoyed by all citizens/inhabitants of the country.
For these reasons, I vote to affirm the judgment of the court a quo which, after all, recognizes the appellants’ right to redeem the
land in question under Section 119 of the Public Land Law, which is the most they should expect from the State, as thus, their right to
the land is reinstated without practically depriving the innocent victims of the crime herein involved of their remedy for the private
injury they have suffered. In other words, under the trial court’s decision, all the ends of justice and equity are subserved, whereas it
is difficult to say the same of the decision of this Court.
Decision reversed.
Notes.—(a) Right acquired by purchaser at public sale before confirmation or the expiration of the time for redemption.—The rights
of a purchaser of land at execution sale are inchoate until after the expiration of the redemption period, but are nevertheless to
protection and must be respected until extinguished by redemption (Bautista vs. Fide, L-1577, Jan. 31, 1950, 47 O.G. 3494).
The acceptance of a bid at a foreclosure sale of realty confers no title upon the purchaser. Until the sale has been fully confirmed
by the court, he is nothing more than a preferred bidder. Title vests only when the sale has been validly confirmed by the court and
for such purpose it is necessary that a hearing be given the interested parties, at which they have an opportunity to show cause why
the sale should not be confirmed. It is the result of the hearing on confirmation of a sale on foreclosure of mortgage which divests the
title if the sale is confirmed
410
410 SUPREME COURT REPORTS ANNOTATED
Geotina vs. Broadway & Co., Hongkong
(Raymundo vs. Sunico, 25 Phil. 365). See also Samson vs. Honrudo,12 Phil. 37, stating that a sale of property by public auction does not
confer on the purchaser any right without the corresponding judicial approval.
(b) Alienation or encumbrance within five years absolutely null and void.—See the notes under Beniga vs. Bugas, L-28918, Sept.
29, 1970, 35 SCRA 111, 117.

_______________

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4. Heirs of Enriquez Zambales vs CA, 120 SCRA 897

VOL. 120, FEBRUARY 28, 1983 897


Heirs of Enrique Zambales vs. Court of Appeals
No. L-54070. February 28, 1983.*
HEIRS OF ENRIQUE ZAMBALES and JOAQUINA ZAMBALES, petitioners, vs. THE COURT OF APPEALS, NIN BAY MINING CORPORATION,
ANGELA C. PREYSLER and JOAQUIN B. PREYSLER, respondents.
Evidence; One who alleges fraud or mistake must, as a rule, substantiate said allegation.—The general rule is that whoever
alleges fraud or mistake must substantiate his allegation, since the presumption is that a person takes ordinary care of his concerns
and that private transactions have been fair and regular.
Same; Where there is proof that a party to an agreement is unschooled, the burden of proof shifts to the other party to show
that the agreement in question had been fully explained to the former.—For the proper application of said provision, it has first to be
established convincingly that the illiterate or the party at a disadvantage could not read or understand the language in which the
contract was written. The evidence discloses that the spouses Zambales are unschooled. They cannot read, speak, much less
understand English or write, except to sign their names. The Zambaleses alleged in their Complaint that the Compromise Agreement
(Exhibit “8”)
_______________

*
FIRST DIVISION.
898
898 SUPREME COURT REPORTS ANNOTATED
Heirs of Enrique Zambales vs. Court of Appeals
was executed through fraud by the Corporation and by their counsel Atty. Perfecto de los Reyes, whom they included as a
defendant. The burden of proof, therefore, shifted to the Corporation to show that the compromise agreement had been fully
explained to the plaintiffs.
Appeal; An issue not raised in the court below may be raised and resolved on appeal if necessary for a just decision.—We sustain
that contention. The fact that the issue was not raised in the Courts below is not a deterrent factor considering that the question
affects the validity of the agreement between the parties. The Supreme Court has the authority to review matters even if they are not
assigned as errors in the appeal, if it is found that their consideration is necessary in arriving at a just decision of the case.
Same; A party may change his legal theory on appeal if no presentation of further evidence would be needed thereby.—
Moreover, a party may change his legal theory on appeal only when the factual bases thereof would not require presentation of any
further evidence by the adverse party in order to enable it to properly meet the issue raised in the new theory. In the case at bar it is
indisputable that Homestead Patent No. V-59502 was issued on September 6, 1955 as shown in Original Certificate of Title No. 1193
(Exhibit “A”).
Public Land Act; Contracts; Compromise Agreement; A compromise agreement approved by the court wherein a grantee of public
land promised to sell the same where executed within the 5-year prohibitory period is null and void ab initio. The fact that the land was
actually sold after the five-year period and the same was approved by the Secretary of Agriculture does not cure the defect.—Clearly,
the bilateral promise to buy and sell the homestead lot at a price certain, which was reciprocally demandable, was entered into within
the five-year prohibitory period and is therefore, illegal and void. Further, the agency to sell the homestead lot to a third party was
coupled with an interest inasmuch as a bilateral contract was dependent on it and was not revocable at will by any of the parties. To
all intents and purposes, therefore, there was an actual executory sale perfected during the period of prohibition except that it was
reciprocally demandable thereafter and the agency to sell to any third party was deferred until after the expiration of the prohibitory
period. That “rentals” were ostensibly to be paid during the five-year prohibitory period, and the agency to sell made effective only
after the lapse of the said period, was merely a devise to circumvent the prohibition.
899
VOL. 120, FEBRUARY 28, 1983 899
Heirs of Enrique Zambales vs. Court of Appeals
Same; Same; Same; Same.—As the contract is void from the beginning, for being expressly prohibited by law the action for the
declaration of its inexistence does not prescribe. Being absolutely void, it is entitled to no authority or respect, the sale may be
impeached in a collateral proceeding by any one with whose rights and interest it conflicts. There is no presumption of its validity. The
approval of the sale by the Secretary of Agriculture and Natural Resources after the lapse of five years from the date of the patent
would neither legalize the sale.
Same; Action for reversion may be filed by the State where public land was promised to be sold in a compromise agreement
entered into within the 5-year prohibited period.—This is without prejudice to the corresponding action on the part of the State for
reversion of the property and its improvements, if any, under Section 124 of the Public Land Act.

PETITION to review on certiorari of the judgment of the Court of Appeals.

The facts are stated in the opinion of the Court.

MELENCIO-HERRERA, J.:

The Decision of respondent Court of Appeals in the case entitled “Enrique Zambales and Joaquina Zambales, Plaintiffs-appellees vs.
Atty. Perfecto de los Reyes, Nin Bay Mining Corporation and Joaquin B. Preysler, Defendants-appellants” (CA-G.R. No. 59386-R), setting
aside the judgment of the Court of First Instance of Palawan in Civil Case No. 678 for Annulment of a Deed of Sale with Recovery of
Possession and Ownership with Damages”, is the subject of this Petition for Review on Certiorari.
Joaquin B. Preysler is now deceased and was substituted by Angela C. Preysler, his widow.
Atty. Perfecto de los Reyes was originally a defendant in Civil Case No. 678 but he did not appeal from the Decision of the lower
Court.
The Zambales spouses (Zambaleses, for brevity) were the homestead patentees of a parcel of land with an area of 17.8474 hectares
situated in the Municipality of Del Pilar, Roxas,
900
900 SUPREME COURT REPORTS ANNOTATED
Heirs of Enrique Zambales vs. Court of Appeals
Palawan, covered by Original Certificate of Title No. G-1193 of the Registry of Deeds for the Province of Palawan, issued pursuant to
Homestead Patent No. V-59502 dated September 6, 1955.
Claiming that the Nin Bay Mining Corporation (Corporation, for short) had removed silica sand from their land and destroyed the
plants and others improvements thereon, the Zambaleses instituted, on November 10, 1958, Civil Case No. 316 before the Court of
First Instance of Palawan claiming damages in the total sum of P48,000.00.
The Corporation denied having caused any damages and claimed that it had excavated and extracted silica sand only from its own
mining claims and on which it had mining lease contracts with the Philippine Government.
On October 29, 1959, the Zambaleses, duly assisted by their counsel, Atty. Perfecto de los Reyes, and the Corporation, entered
into a Compromise Agreement, the portions of which, pertinent to this case, read:

1. “1.DEFENDANT shall pay the PLAINTIFFS a rental of TWENTY (P20.00) PESOS per hectare per year from September 9, 1955 to
September 30, 1960, or a total rental price of ONE THOUSAND SEVEN HUNDRED EIGHTY-FOUR PESOS AND SEVENTY-FOUR
CENTAVOS (P1,784.74), Philippine currency, in lieu of all damages x x x x.
2. “2.The payment to the PLAINTIFFS of the above-mentioned rental price shall be considered full, absolute and final payment
and indemnity for all the alleged damages to PLAINTIFFS’ property and its improvements, or any other actual, moral,
exemplary or other damages that PLAINTIFFS may have suffered or will suffer in connection with the mining operations of
DEFENDANT on the property in question, which property, by virtue of the terms of this Agreement shall be used by
DEFENDANT as occupant thereof until September 30, 1960.
3. “3.PLAINTIFFS hereby agree and bind themselves to sell, transfer and convey, and DEFENDANT or its assigns, qualified to
acquire or hold lands of the public domain, hereby agrees to purchase and pay for, the aforesaid property of the PLAINTIFFS,
containing an area of 17.8474 hectares, situated in the Municipality of Del Pilar, Roxas, Palawan, and covered by Original
Certificate of Title No. G-1193 of the Registry of Deeds of Palawan, at the fixed selling price of

901
VOL. 120, FEBRUARY 28, 1983 901
Heirs of Enrique Zambales vs. Court of Appeals

1. FIVE HUNDRED (P500.00) PESOS per hectare or a total purchase price of EIGHT THOUSAND NINE HUNDRED TWENTY THREE
PESOS and SEVENTY CENTAVOS (P8,923.70), Philippine currency. The contract to purchase and sell herein provided for, shall
be reciprocally demandable and enforceable by the parties hereto on September 10, 1960. PLAINTIFFS hereby irrevocably
constitute and appoint DEFENDANT, its successors and/or assigns their true and lawful attorney-in-fact with full power and
authority to sell, transfer and convey on September 10, 1960 or at any time thereafter the whole or any part of PLAINTIFFS’
property hereinabove mentioned to the DEFENDANT, its successors and/or assigns, or to any third party, and to execute
and deliver all instruments and documents whatsoever necessary for the purpose, and all acts done and to be done by
DEFENDANT, its successors and/or assigns in conformity with the powers herein granted are hereby ratified and confirmed
by the PLAINTIFFS. x x x”
2. “4.In consideration of the payment of the amount of P1,784.74 by DEFENDANT, and of other good and valuable consideration,
PLAINTIFFS, jointly and severally, do hereby forever release, fully and completely, said DEFENDANT, its successors and/or
assigns in interest, from any and all liabilities, whether arising from past, present or future excavation or removal of silica
sand from the property in question or otherwise, and from all the other claims against the DEFENDANT contained in their
Complaint in Civil Case No. 316 of the Court of First Instance of Palawan.” 1

The Trial Court rendered judgment on October 29, 1959 based on the Compromise Agreement. The document was duly annotated an
OCT No. G-1193 (Exhibit “A”) the day after, or on October 30, 1959 (Exhibit “10-A”).
On September 10, 1960, the Corporation, as attorney-in-fact for the Zambaleses, as Vendors, sold the disputed property to Joaquin
B. Preysler for the sum of P8,923.70 fixed in the Compromise Agreement (Exhibit “11”). Transfer Certificate of Title No. T-970 was
issued in the vendee’s name on December 19, 1960 (Exhibit “12”).
The Deed of Sale to Preysler contained the following proviso:
“The VENDORS hereby represent and warrant that the five-
______________

1
Annex “E”, pp. 88-90, Rollo.
902
902 SUPREME COURT REPORTS ANNOTATED
Heirs of Enrique Zambales vs. Court of Appeals
year restrictive period on alienation of lands acquired under the homestead provisions of Commonwealth Act No. 141, as amended,
otherwise known as the Public Land Act, has already expired, the date of issuance of the herein homestead patent to the VENDORS as
aforesaid being September 6, 1955 as shown in Original Certificate of Title No. G-1193.”
On October 18, 1960, the Secretary of Agriculture and Natural Resources approved the sale to Preysler of the subject property (Exhibit
“13”).
On-December 6, 1969, or ten (10) years after the Trial Court’s Decision based on the Compromise Agreement, and nine (9) years
after the sale to Preysler, the Zambaleses filed Civil Case No. 678 before the Court of First Instance of Palawan for “Annulment of a
Deed of Sale with Recovery of Possession and Ownership with Damages”. They contended that it was their lawyer who prevailed upon
them to sign the Compromise Agreement; that they are unschooled and did not understand the contents thereof; that they were
made to understand that they would receive the sum of P10,700.00, only as payment for damages sustained by the land from 1955
to 1960; that through fraud, deceit and manipulation by their lawyer and the Corporation, they were made to agree to appoint the
Corporation as their attorney-in-fact with full power and authority to sell; that it was never their intention to sell the land; that in
September 1969, they were surprised to learn that the land was already titled in the name of Joaquin B. Preysler; that the land was
acquired and registered in the latter’s name through fraud and deceit. The Zambaleses then prayed that the deed of sale and the title
in Preysler’s name be annulled on the ground of fraud and that the property be reconveyed to them.
In their Answer, the Corporation denied all allegations that the Zambaleses had signed the Compromise Agreement without
understanding the contents thereof, the truth being that it was read to them by their counsel, Atty. Perfecto de los Reyes, who
explained thoroughly the full implication and legal consequence of each and every provision, which was then submitted and approved
by then Presiding Judge Juan L. Bocar; and that the Corporation had sold the property to Preysler as a
903
VOL. 120, FEBRUARY 28, 1983 903
Heirs of Enrique Zambales vs. Court of Appeals
duly constituted attorney-in-fact pursuant to the Compromise Agreement.
After trial, the lower Court rendered judgment in favor of the Zambaleses, the dispositive part of which reads:
“WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:

1. 1)That the deed of sale executed by Nin Bay Mining Corporation through its president, to Joaquin B. Preysler is hereby
declared null and void;
2. 2)That the defendant Joaquin B. Preysler is hereby ordered to reconvey the land subject matter of this litigation to the
plaintiffs;
3. 3)That the defendants Nin Bay Mining Corporation and Joaquin B. Preysler shall pay the plaintiffs the sum of P85,000.00 as
actual damages plus the legal rate of interest from September 30, 1960 up to the time the amount is fully paid;
4. 4)That the defendants to pay the sum of FIVE THOUSAND (P5,000.00) PESOS as attorneys fees; and
5. 5)The defendants to pay the costs.”
On appeal by the Corporation, the Court of Appeals reversed the Trial Court, after finding that the alleged fraud or misrepresentation
in the execution of the Compromise Agreement had not been substantiated by evidence.
The case is now before us on review.
The controversy revolves around the issue of due execution and validity of the Compromise Agreement (Exhibit “8”) dated October
29; 1959, and of the subsequent Deed of Sale (Exhibit “11”), dated 10 September 1960.
I.
The general rule is that whoever alleges fraud or mistake must substantiate his allegation, since the presumption is that a person takes
ordinary care of his concerns and that private transactions have been fair and regular. The rule admits of an exception in Article 1332
of the Civil Code which provides:
“When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged,
904
904 SUPREME COURT REPORTS ANNOTATED
Heirs of Enrique Zambales vs. Court of Appeals
the person enforcing the contract must show that the terms thereof have been fully explained to the former.”
For the proper application of said provision, it has first to be established convincingly that the illiterate or the party at a disadvantage
could not read or understand the language in which the contract was written. 2 The evidence discloses that the spouses Zambales are
unschooled. They cannot read, speak, much less understand English or write, except to sign their names. 3 The Zambaleses alleged in
their Complaint that the Compromise Agreement (Exhibit “8”) was executed through fraud by the Corporation and by their counsel
Atty. Perfecto de los Reyes, whom they included as a defendant. The burden of proof, therefore, shifted to the Corporation to show
that the compromise agreement had been fully explained to the plaintiffs.
In refuting the allegation that plaintiffs were misled into signing the compromise agreement, their former counsel, Atty. Perfecto
de los Reyes, and the notary, Atty. Salomon Reyes, a lawyer for Nin Bay Mining Corporation, established that the terms and conditions
of the Compromise Agreementwere thoroughly explained and fully understood by the spouses Zambales in accordance with their
proposal to sell the land at P500.00 a hectare; that before the signing of the Compromise Agreement, the notary requested Atty. de
los Reyes to read and explain each and every provision to the spouses, and with the help of Ricardo Nuñala, Atty. de los Reyes did so
in their dialect (Cuyuno). Thereafter, the parties went to Judge Juan Bocar, who was assured that the spouses Zambales understood
and signed the Compromise Agreement.4
We sustain the finding of the Court of Appeals that fraud and misrepresentation did not vitiate petitioners’ consent to the
Agreement when it observed:
_______________

2
Bunyi vs. Reyes, 39 SCRA 504 (1971).
3
T.s.n., February 23, 1972, p. 18; t.s.n., January 8, 1973, pp. 4, 20 & 26; t.s.n., June 19, 1974, p. 30.
4
T.s.n., July 28, 1975, pp. 23-27; Deposition of Atty. Salomon F. Reyes (Exhibit “18”), pp. 27-33.
905
VOL. 120, FEBRUARY 28, 1983 905
Heirs of Enrique Zambales vs. Court of Appeals
“Taking into account the foregoing observations, this Court is not convinced that indeed appellees were victims of a fraudulent scheme
employed upon them by their former counsel by reason of their alleged illiteracy and ignorance. The evidence discloses that appellees,
although unschooled, are intelligent, well-informed and intelligent people. They are not the kind of persons who could easily be fooled
of their rights and interests. Even as commented by the court a quo, which had a chance to observe the demeanor of the witness, it
had no observation that the witness, Joaquina Zambales, is ignorant. As correctly observed by appellants, appelees ‘are political
leaders and chief campaigners; they speak in the platform during political rallies; and they are widely travelled’ (p. 28, Appellants’
Brief). As a matter of fact they are knowledgeable of the right connections in the government. They had approached former Sen.
Rogelio de la Rosa, no less, the congressman and the governor. Even the lawyers they have retained previous to their present counsel
are the Padilla Law Office and the Diokno Law Office. It is common knowledge that these law offices are among the established law
offices in Manila. It is far convincing that an ignorant couple would have knowledge of these law firms. All these are obvious
manifestations of their being wellinformed and the way they have conducted their way of living apparently is inconsistent with the
plea of being illiterate and/or ignorant. They cannot capitalize on the fact that they are uneducated only because they had no formal
schooling inasmuch as one’s knowledge of the facts of life is not dependent on whether one had formal schooling or not and it does
not necessarily follow always that if one is unschooled he is ignorant.
Furthermore, when plaintiffs-appellees signed the questioned compromise agreement they were duly assisted and represented
by their counsel, Atty. de los Reyes. When Atty. de los Reyes testified in court he categorically declared that it was to the best interest
of his clients that they compromise Civil Case No. 316. This declaration finds support in Joaquina Zambales’ testimony wherein she
stated thus:
ATTY. SEMBRANO:
Q. Except for this present case, w`ould you say to the Court that Atty. de los
Reyes extended to you legal assistance to your satisfaction?
A. Yes, sir, he is good to us.
xxx
Q. So these people never gave their services to you?
906
906 SUPREME COURT REPORTS ANNOTATED
Heirs of Enrique Zambales vs. Court of Appeals
A Nobody was able to help us except Atty. de los Reyes. (Tsn., pp. 29, 31 &
32, June 19, 1974)
x x x Thus, it having been established that appelees could not have been misled by their former counsel into signing the compromise
agreement and taking into account the acts of the appellees and their children subsequent to the execution of the compromise
agreement perforce the court a quo erred in not giving credence to the clear and convincing testimonies of Atty. Perfecto de los Reyes
and Atty. Salomon Reyes anent the execution of the compromise agreement.” 5
However, although we find that the Zambaleses were not misled into signing the Compromise Agreement, we hold that there has
been violation of the Public Land Act. The evidence on record shows that the land in question was awarded to the Zambaleses as a
homestead on September 6, 1955 (Exhibit “A”). Before us, the Zambaleses now argue that the Compromise Agreement executed on
October 29, 1959 is in violation of the Public Land Act, which prohibits alienation and encumbrance of a homestead lot within five
years from the issuance of the patent.6
We sustain that contention. The fact that the issue was not raised in the Courts below is not a deterrent factor considering that
the question affects the validity of the agreement between the parties. The Supreme Court has the authority to review matters even
if they are not assigned as errors in the appeal, if it is found that their consideration is necessary in arriving at a just decision of the
case.7Moreover, a party may change his legal theory on appeal only when the factual bases thereof would not require presentation
of any further evidence by the adverse party in order to enable it to properly meet the issue raised in the new theory. 8 In the case at
bar it is indisputable that Homestead Patent No. V-59502 was issued on September
______________

5
Pp. 61-63, Rollo.
6
Sec. 118, Commonwealth Act No. 141, as amended.
7
Saura Import & Export Co., Inc. vs. Phil. International Surety Co., Inc., 8 SCRA 143 (1963); Miguel vs. Court of Appeals, 29 SCRA
760 (1969).
8
Lianga Lumber Company vs. Lianga Timber Co., Inc., 76 SCRA 197 (1977).
907
VOL. 120, FEBRUARY 28, 1983 907
Heirs of Enrique Zambales vs. Court of Appeals
6, 1955 as shown in Original Certificate of Title No. 1193 (Exhibit “A”).
The sale of a homestead lot within the five-year prohibitory period is illegal and void. The law does not distinguish between
executory and consummated sales.
“The law prohibiting any transfer or alienation of homestead land within five years from the issuance of the patent does not distinguish
between executory and consummated sales; and it would hardly be in keeping with the primordial aim of this prohibition to preserve
and keep in the family of the homesteader the piece of land that the state had gratuitously given to them, to hold valid a homestead
sale actually perfected during the period of prohibition but with the execution of the formal deed of conveyance and the delivery of
possession of the land sold to the buyer deferred until after the expiration of the prohibitory period, purposely to circumvent the very
law that prohibits and declares invalid such transaction to protect the homesteader and his family.”9
In the compromise agreement executed between the parties, (1) the Zambaleses promised to sell and the Corporation agreed to buy
the disputed lot at P500.00 per hectare, the contract to be reciprocally demandable and enforceable on September 10, 1960; and as
a substitute procedure, (2) an irrevocable agency was constituted in favor of the Corporation as attorney-in-fact to sell the land to any
third person on September 10, 1960 or any time thereafter.
Clearly, the bilateral promise to buy and sell the homestead lot at a price certain, which was reciprocally demandable10, was
entered into within the five-year prohibitory period and is therefore, illegal and void. Further, the agency to sell the homestead lot to
a third party was coupled with an interest inasmuch as a bilateral contract was dependent on it and was not revocable at will by any
of the parties.11 To all intents and purposes, therefore, there was an actual executory sale perfected during the period of prohibition
except that it was reciprocally demandable thereafter and the agency to sell to any third par-
_____________

9
Manzano vs. Ocampo, 1 SCRA 691, 697 (1961).
10
Article 1479, Civil Code.
11
Article 1927, ibid.
908
908 SUPREME COURT REPORTS ANNOTATED
Heirs of Enrique Zambales vs. Court of Appeals
ty was deferred until after the expiration of the prohibitory period. That “rentals” were ostensibly to be paid during the five-year
prohibitory period, and the agency to sell made effective only after the lapse of the said period, was merely a devise to circumvent
the prohibition.
To hold valid such an arrangement would be to throw the door wide open to all possible subterfuges that persons interested in
homesteads may devise to defeat the legal prohibition against alienation within five years from the issuance of the patent.
We hold, therefore, that the bilateral promise to buy and sell, and the agency to sell, entered into within five years from the date
of the homestead patent, was in violation of section 118 of the Public Land Law, although the executed sale was deferred until after
the expiration of the five-year-prohibitory period.
As the contract is void from the beginning, for being expressly prohibited by law 12 the action for the declaration of its inexistence
does not prescribe.13 Being absolutely void, it is entitled to no authority or respect, the sale may be impeached in a collateral
proceeding by any one with whose rights and interest it conflicts. There is no presumption of its validity. 14 The approval of the sale by
the Secretary of Agriculture and Natural Resources after the lapse of five years from the date of the patent would neither legalize the
sale.15
The homestead in question should be returned to the Zambaleses, petitioners herein, who are, in turn, bound to restore to the
Corporation the sum of P8,923.70 as the price thereof. The actual damages awarded by the Trial Court of P85,000.00 have not been
adequately substantiated. Moreover, under the agreement, the total rental price of P1,784.74 was intended to be “in lieu of all
damages, or any other actual, moral, exemplary or other damages.”
______________

12
Article 1409, ibid.
13
Article 1410, ibid.
14
Inton vs. Quintana, 81 Phil. 97 (1948).
15
Santander vs. Villanueva, 103 Phil. 1 (1958); Cadiz vs. Nicolas, 102 Phil. 1032(1958); cited in Manzano vs. Ocampo, 1 SCRA
691 (1961).
909
VOL. 120, FEBRUARY 28, 1983 909
Heirs of Enrique Zambales vs. Court of Appeals
This is without prejudice to the corresponding action on the part of the State for reversion of the property and its improvements, if
any, under Section 124 of the Public Land Act.16
WHEREFORE, the judgment under review is hereby REVERSED, and another one entered (1) declaring null and void a) the bilateral
promise to buy and sell entered into between Enrique Zambales and Joaquina Zambales, on the one hand, and the Nin Bay Mining
Corporation on the other, and b) the sale executed by Nin Bay Mining Corporation in favor of Joaquin B. Preysler; (2) ordering Angela
C. Preysler to reconvey the land subject matter of this litigation to petitioners upon refund by the latter to the Nin Bay Mining
Corporation of the sum of P8,923.70, all expenses for the reconveyance to be borne by private respondents; (3) ordering Nin Bay
Mining Corporation to pay rentals to petitioners at the price of P20.00 per hectare per year from December 6, 1969, the date of the
institution of the Complaint, till the date that possession is turned over to petitioners; and (4) ordering the Register of Deeds for the
Province of Palawan to cancel Transfer Certificate of Title No. T-970 of his Registry, and reissue to the Heirs of Enrique Zambales and
Joaquina Zambales the title to the homestead in question.
Let a copy of this Decision be served on the Solicitor General.
No costs.
SO ORDERED.
______________

16
SEC. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed in violation of any of the
provisions of sections one hundred and eighteen, one hundred and twenty, one hundred and twenty-one, one hundred and twenty-
two, and one hundred and twenty-three of this Act shall be unlawful and null and void from its execution and shall produce the effect
of annulling and cancelling the grant, title, patent, or permit originally issued, recognized or confirmed, actually or presumptively, and
cause the reversion of the property and its improvements to the State.
910
910 SUPREME COURT REPORTS ANNOTATED
Fegurin vs. National Labor Relations Commission
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Judgment reversed.

——o0o——

5 Quiroga vs Parsons, 38 PHIL 501


[No. 11491. August 23, 1918.]
ANDRES QUIROGA, plaintiff and appellant, vs. PARSONS HARDWARE Co., defendant and appellee.

1. 1.SALES; INTERPRETATION OF CONTRACT.—For the classification of contracts, due regard must be paid to their essential
clauses. In the contract in the instant case, what was essential, constituting its cause and subject matter, was that the
plaintiff was to furnish the defendant with the beds which the latter might order, at the stipulated price, and that the
defendant was to pay this price in the manner agreed upon. These are precisely the essential features of a contract of
purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on that of the defendant,
to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatary or agent
receives the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed in selling it, he returns it. Held: That this contract is one of purchase and
sale, and not of commercial agency.

1. 2.ID.; ID.—The testimony of the person who drafted this contract, to the effect that his purpose was to be an agent for the
beds and to collect a commission on the sales, is of no importance to prove that the contract was one of agency, inasmuch
as the agreements contained in the contract constitute, according to law, covenants of purchase and sale, and not of
commercial

502
502 PHILIPPINE REPORTS ANNOTATED
Quiroga vs, Parsons Hardware Co.

1. agency. It must be understood that a contract is what the law defines it to be, and not what it is called by the contracting
parties.

1. 3.ID.; ID.—The fact that the contracting parties did not; perform the contract in accordance with its terms, only shows mutual
tolerance and gives no right to have the contract considered, not as the parties stipulated it, but as they performed it.

4.ID.; ID.—Only the acts of the contracting parties, subsequent to, and in connection with, the performance of the contract
must be considered in the interpretation of the contract, when such interpretation is necessary, but not when, as in the instant
case, its essential agreements are clearly set forth and plainly show that the- contract belongs to a certain kind and not to another.

1. 5.ID.; ID.—The defendant obligated itself to order the beds from the plaintiff by the dozen. Held: That the effect of a breach
of this clause by the defendant would only entitle the plaintiff to disregard the orders which the defendant might place
under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted
thus at his own free will.

APPEAL from a judgment of the Court of First Instance of Manija. Abreu, J.


The facts are stated in the opinion of the court.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.

AVANCENA, J.:

On January 24, 1911, in this city of Manila, a contract in the following tenor was entered into by and between the plaintiff, as party of
the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second.
part:
"CONTBACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND
J. PAKSONS, BOTH MERCHANTS ESTABLISHED IN MANILA,
FOR THE EXCLUSIVE SALE OF 'QUIROGA' BEDS IN THE VI
SAYAN ISLANDS.
"ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following
conditions:
503
VOL. 38, AUGUST 23, 1918 503
Quiroga vs. Parsons Hardware Co.

1. " (A)Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice
them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make an allowance of a discount of 25
per cent of the invoiced. prices, as commission on the sales; and, Mr. Parsons shall order the beds by the dozen, whether
of the same or of different styles.
2. "(B)Mr, Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their
shipment.
3. "(C)The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of
unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons.
4. "(D)If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as
a prompt payment, and as such a deduction of 2 per cent shall be made f rom the amount of the invoice. "The same discount
shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash.
5. "(E)Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to
make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order
pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered,
but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed
the obligation to invoice the beds at the price at which the order was given.
6. "(F)Mr. Parsons binds himself not to sell any other kind except the 'Quiroga' beds.

"ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find
himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to
504
504 PHILIPPINE REPORTS ANNOTATED
Quiroga vs. Parsons Hardware Co.
Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised within the Visayan group.
"ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of 'Quiroga' beds in all the towns of the Archipelago
where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval.
"ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous
notice of ninety days to the other party."
Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal
and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher
prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public
exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As
may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner,
none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff
alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of
commercial agency. The whole question, therefore, reduces itself to a determination as to whether the defendant, by reason of the
contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff f or the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as
constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order,
at the price stipulated, and that the defendant was to pay the price in the manner
505
VOL. 38, AUGUST 23, 1918 505
Quiroga vs. Parsons Hardware Co.
stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from
20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff s request, or in
cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These
are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply
the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to
sell whereby the mandatory or agent received the thing to sell it, and, does not pay its price, but delivers to the principal the price he
obtains from the sale of the thing to a third person, and if he does not succeed in selling if, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term
fixed, without any other consideration and regardless as to whether he had or had not sold the beds.
It would be enough to held, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and
sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts
are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially
supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission
on sales used in clause (A) of article 1 mean nothing else, as stated. in the contract itself, than a mere discount on the invoice price.
The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds
in the Visayan IslandsT. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the
contract of purchase and sale.
506
506 PHILIPPINE REPORTS ANNOTATED
Quiroga vs. Parsons Hardware Co.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who
established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious
trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of
falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in
contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a, commission on sales. However, according
to the def endant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing
that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance,
inasmuch a$ the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase
and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But
it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice,
it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff
directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the
performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated
it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the
contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in
the instant case, its essential
507
VOL. 38, AUGUST 23, 1918 507
Quiroga vs. Parsons Hardware Co.
agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the
return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another
kind; and for the purpose of making this return, the defendant, in its letter Exhibit L-1, requested the plaintiff s prior consent with
respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this
return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the
ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we
have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly
by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement
of the plaintiff's beds, such sales were to be considered as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its
breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the
plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase
and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by
agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
Arellano, C. J., Torres, Johnson, Street, and Malcolm, JJ.,concur.
Judgment affirmed.
508
508 PHILIPPINE REPORTS ANNOTATED
Whitaker vs. Rafferty.
© Copyright 2018 Central Book Supply, Inc. All rights reserved.
6 Concrete Aggregates Inc. vs CTA 461

VOL. 185, MAY 18, 1990


Concrete Aggregates, Inc. vs. Court of Tax Appeals
G.R. No. 55793. May 18, 1990.*
CONCRETE AGGREGATES, INC., petitioner, vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.
Taxation; Petitioner, which operates a batching plant and an asphalt mixing plant is a manufacturer subject to 7% sales tax and
not a mere contractor.—It is quite evident that the percentage tax imposed in Section 191 is generally a tax on the sale of services or
labor. In its factual findings, respondent court found that petitioner was formed and organized primarily as a manufacturer; that it has
an aggregate plant at Montalban, Rizal, which processes rock aggregates mined by it from private lands; it operates a concrete batching
plant at Longos, Quezon City where the specified aggregates from its plant at Montalban are mixed with sand and cement, after which
water is added and
_______________

*
SECOND DIVISION.
462
462 SUPREME COURT REPORTS ANNOTATED
Concrete Aggregates, Inc. vs. Court of Tax Appeals
the concrete mixture is sold and delivered to customers; and at its plant site at Longos, Quezon City, petitioner has also an
asphalt mixing machinery where bituminous asphalt mix is manufactured.
Same; Same.—As aptly pointed out by the Solicitor General, petitioner’s raw materials are processed under a prescribed formula
and thereby changed by means of machinery into a finished product, altering their quality, transforming them into marketable state
or preparing them for any of the specific uses of industry. Thus, the raw materials become a distinct class of merchandise or “finished
products for the purpose of their sales or distribution to others and not for his own use or consumption.” Evidently, without the above
process, the raw materials or aggregates could not, in their original form, perform the uses of the finished product.
Same; Same.—Had it not been for this fact, petitioner could easily mass produce the ready-mixed concrete or asphalt desired
and needed by its various customers and for which it is mechanically equipped to do. It is clear, however, that petitioner does nothing
more than sell the articles that it habitually manufactures. It stocks raw materials, ready at any time, for the manufacture of asphalt
and/or concrete mix. Its marketing system would readily disclose that its products are available for sale to anyone needing them.
Whosoever would need its products, whether builder, contractor, homeowner or paver with sufficient money, may order aggregates,
concrete mix or bituminous asphalt mix of the kind manufactured by petitioner. The habituality of the production of goods for the
general public characterizes the business of petitioner.

PETITION for certiorari to review the decision of the Court of Tax Appeals. Filler, J.

The facts are stated in the opinion of the Court.


Santiago, Tinga & Associates for petitioner.

REGALADO, J.:

This petition for review on certiorari seeks the annulment of the decision of respondent Court of Tax Appeals, 1 dated September 19,
1980, and its resolution denying reconsideration
_______________

1
Per Presiding Judge Amante Filler, with the concurrence of Associate Judges Constante C. Roaquin and Alex Z. Reyes.
463
VOL. 185, MAY 18, 1990 463
Concrete Aggregates, Inc. vs. Court of Tax Appeals
thereof, dated December 3, 1980, both promulgated in CTA Case No. 2433, entitled “Concrete Aggregates, Inc. vs. Commissioner of
Internal Revenue,” the decretal portion of which decision reads:
“Having reached the conclusion that petitioner is a manufacturer subject to the 7% sales tax under Section 186 of the then National
Internal Revenue Code, the decision of respondent dated July 24, 1972 should therefore be sustained. Accordingly,
petitioner Concrete Aggregates, Inc. is hereby ordered to pay to respondent Commissioner of Internal Revenue the total amount of
P244,022.76 representing sales and ad valorem taxes for the first semester of 1968 inclusive of surcharges, plus interest at the rate of
14% per centum from January 1, 1973 up to the date of full payment thereof pursuant to Section 183 (now 193) of the National Internal
Revenue Code.
“WHEREFORE, the decision appealed from is hereby affirmed at petitioner’s costs.
“SO ORDERED.”2
The records disclose that petitioner is a domestic corporation, duly organized and existing under the laws of the Philip-pines, with
business address at Longos, Quezon City. It has an aggregate plant at Montalban, Rizal which processes rock aggregates mined by it
from private lands. Petitioner also maintains and operates a plant at Longos, Quezon City for the production of ready-
mixed concreteand plant-mixed hot asphalt.
Sometime in 1968, the agents of respondent commissioner conducted an investigation of petitioner’s tax liabilities. As a
consequence thereof, in a letter dated December 14, 1970 said respondent assessed and demanded payment from petitioner of the
amount of P244,002.76 as sales and ad valorem taxes for the first semester of 1968, inclusive of surcharges. Petitioner disputed the
said assessment in its letter dated February 2, 1971 without, however, contesting the portion pertaining to the ad valorem tax.
In his letter dated July 24, 1972, respondent reiterated the said assessment of sales and ad valorem taxes which, as ex-
_______________

2
Rollo, 51-52.
464
464 SUPREME COURT REPORTS ANNOTATED
Concrete Aggregates, Inc. vs. Court of Tax Appeals
plained in his preceding letter, had been arrived at as follows:3
Taxable sales ............................................................ P4,164,092.44
7% sales tax due thereon .......................................... P 291,486.47
Less: Tax already paid .................................................. 116,523.55
Deficiency tax due ..................................................... P 174,962.92
Add: 25% surcharge ........................................................ 43,740.73
Total deficiency tax and surcharge .......................... P 218,703.65
Add: 1 1/2% ad valorem on P20,239.29
25% surcharge thereon 5,059.82 ..................... 25,299.11
TOTAL AMOUNT DUE & COLLECTIBLE ............ P 244,002.76
Consequently, demand for the payment of the said amount within ten days from receipt of the letter was made by respondent on
petitioner, otherwise the same would be collected thru the summary remedies provided for by law. Instead of paying, petitioner
appealed to respondent court.
As earlier stated, a judgment adverse to petitioner was handed down by respondent court, whereupon he came to this Court on
a petition for review. In its resolution dated September 7, 1981, the Court, through its First Division, denied the petition for review for
lack of merit.4 Petitioner filed a motion for reconsideration which was likewise denied in the resolution of October 19, 1981 for lack
of merit, the denial being expressly declared to be final. 5 With leave of court, petitioner filed its second motion for reconsideration
which was granted by the Court in its resolution dated November 23, 1981. 6
The sole issue in this case is whether petitioner is a contractor subject to the 3% contractor’s tax under Section 191 of the 1968
National Internal Revenue Code or a manufacturer subject to the 7% sales tax under Section 186 of the same Code.
Petitioner disclaims liability on the ground that it is a contractor within the meaning of Section 191 of the 1968 Tax Code, the
pertinent portion of which reads:
_______________

3
Ibid., 25.
4
Ibid., 130.
5
Ibid., 140.
6
Ibid., 170.
465
VOEL. 185, MAY 18, 1990 465
Concrete Aggregates, Inc. vs. Court of Tax Appeals
“Sec. 191. Percentage tax on road, building, irrigation, artesian well, waterworks, and other construction work contractors, proprietors
or operators of dockyards, and others.—Road, building, irrigation, artesian well, waterworks, and other construction work contractors;
x x x and other independent contractors, x x x shall pay a tax equivalent to three per centum of their gross receipts.”
xxx
Petitioner contends that its business falls under “other construction work contractors” or “other independent contractors” and, as
such, it was a holder of a license under Republic Act No. 4566, otherwise known as the “Contractors Licensing Law” and was classified
thereunder as a “general engineering contractor” and “specialty asphalt and concrete contractor.”7 It advances the theory that it
produced asphalt and concrete mix only upon previous orders, which may be proved by its system of requiring the filling of job orders
where the customers specify the construction requirements, and that without such order, it would not do so considering the highly
perishable nature of the asphalt and concrete mix.8
It emphasizes that the mixing of asphalt and cement, if they were to be sold to the public, is not a simple matter of putting things
together in a rotating bowl but involves a careful selection of components, proper measuring and weighing of ingredients, calibration
of the plant to arrive at the right mixing temperature, and testing of the strength of the material, altogether using its own means and
methods without submitting itself to control by the customers. 9
Thus, it adopts the view that if the article subject of the sale is one which is not ready for delivery, as it is yet to be manufactured
according to the order, the seller thereof is a contractor. However, if the article subject of the sale is one which is ready for delivery
when the order therefor is placed, the seller is a manufacturer. 10Complementary to this, it postulates that as a contractor dealing
exclusively in the construction of roads, build-
_______________

7
Ibid., 257-259.
8
Ibid., 34.
9
Ibid., 127-128.
10
Ibid., 134.
466
466 SUPREME COURT REPORTS ANNOTATED
Concrete Aggregates, Inc. vs. Court of Tax Appeals
ings and other building or construction works, its business consists of rendering service by way of furnishing its customers with pre-
mixed concrete or asphalt, in effect merely doing for the customers what the latter used to do themselves, that is, to buy the
ingredients and then mix the concrete or asphalt.11 It concludes that in doing so, it does not become a manufacturer.
We have had the occasion to construe Section 191, now Section 205, of the Tax Code in Commissioner of Internal Revenue vs. The
Court of Tax Appeals, et al.12 where we reiterated the test as to when one may be considered a contractor within its context, thus;
“The word ‘contractor’ has come to be used with special reference to a person who, in the pursuit of the independent business,
undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to
control as to the petty details. (Aranas, Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191(2),
1970 Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring Co. vs. Trinidad, 43 Phil. 803, 807-808, and La
Carlota Sugar Central vs. Trinidad, 43 Phil. 816, 819, would seem to be that he renders service in the course of an independent
occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished.”
(Italics supplied)
It is quite evident that the percentage tax imposed in Section 191 is generally a tax on the sale of services or labor. In its factual findings,
respondent court found that petitioner was formed and organized primarily as a manufacturer; that it has an aggregate plant at
Montalban, Rizal, which processes rock aggregates mined by it from private lands; it operates a concrete batching plant at Longos,
Quezon City where the specified aggregates from its plant at Montalban are mixed with sand and cement, after which water is added
and the concrete mixture is sold and delivered to customers; and at its plant site at Longos, Quezon City, petitioner has also an asphalt
mixing machinery where bituminous asphalt mix is manufactured.13
_______________

11
Ibid., 257-263.
12
134 SCRA 49 (1985).
13
Rollo, 41-42.
467
VOL. 185, MAY 18, 1990 467
Concrete Aggregates, Inc. vs. Court of Tax Appeals
We see no reason to disturb the findings of respondent court. Petitioner is a manufacturer as defined by Section 194(x), now Section
187(x), of the Tax Code.
“Section 194. Words and phrases defined.—In applying the provisions of this Title, words and phrases shall be taken in the sense and
extension indicated below:
xxx
(x) ‘Manufacturer’ includes every person who by physical or chemical process alters the exterior texture or form or inner substance
of any raw material or manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to
which it could not have been put in its original condition, or who by any such process alters the quality of any such raw material or
manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry,
or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials
or products of the same or different kinds and in such manner that the finished product of such process or manufacture can be put to
a special use or uses to which such raw material or manufactured or partially manufactured products, in their original condition could
not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines
the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or
consumption.”
As aptly pointed out by the Solicitor General, petitioner’s raw materials are processed under a prescribed formula and thereby changed
by means of machinery into a finished product, altering their quality, transforming them into marketable state or preparing them for
any of the specific uses of industry. Thus, the raw materials become a distinct class of merchandise or “finished products for the
purpose of their sales or distribution to others and not for his own use or consumption.” Evidently, without the above process, the
raw materials or aggregates could not, in their original form, perform the uses of the finished product. 14
In a case involving the making of ready-mixed concrete, it was
_______________

14
Ibid., 99-100.
468
468 SUPREME COURT REPORTS ANNOTATED
Concrete Aggregates, Inc. vs. Court of Tax Appeals
held that concrete is a product resulting from a combination of sand or gravel or broken bits of limestones with water and cement; a
combination which requires the use of skill and most generally of machinery. Concrete in forms designed for use and supplied to
others for buildings, bridges and other structures is a distinct article of commerce and the making of them would be manufacturing
by the corporation doing so.15
Selling or distribution is an essential ingredient of manufacturing. The sale of a manufactured product is properly incident to
manufacture. The power to sell is an indispensable adjunct to a manufacturing business. 16 Petitioner, as a manufacturer, not only
manufactures the finished articles but also sells or distributes them to others. This is inferable from the testimonial evidence of
petitioner’s witness that, in the marketing of its products, the company has marketing personnel who visit the client, whether he is a
regular or a prospective customer, and that it is the customer who specifies the requirement according to his needs by filling up a
purchase order, after which a job order is issued. This is followed by the delivery of the finished product to the job site. 17
Petitioner relies heavily on the case of The Commissioner of Internal Revenue vs. Engineering Equipment and Supply Co., et al.18and
on the basis thereof posits that it has passed the test of a contractor under Article 1467 of the Civil Code which provides:
“Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods
are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a
piece of work.”
It is readily apparent that, in declaring private respondent in the aforesaid Engineering Equipment case as a contractor, the
_______________

15
Commonwealth vs. McCrady-Rodgers Co., 316 Pa. 155, 174 Atlantic Reporter 395.
16
38 C.J. 989.
17
Rollo, 255.
18
64 SCRA 590 (1975).
469
VOL. 185, MAY 18, 1990 469
Concrete Aggregates, Inc. vs. Court of Tax Appeals
Court relied on findings of fact distinguishable from those in the case at bar.
“x x x We find that Engineering did not manufacture air conditioning units for sale to the general public, but imported some items (as
refrigeration coils, x x x) which were used in executing contracts entered into by it. Engineering, therefore, undertook negotiations
and execution of individual contracts for the design, supply and installation of air conditioning units of the central type x x x, taking
into consideration in the process such factors as the area of the space to be air conditioned; the number of persons occupying or
would be occupying the premises; the purpose for which the various air conditioning areas are to be used; and the sources of heat
gain or cooling load on the plant such as the sun load, lighting, and other electrical appliances which are or may be in the plan. x x x
Engineering also testified during the hearing in the Court of Tax Appeals that relative to the installation of air conditioning system,
Engineering designed and engineered complete each particular plant and that no two plants were identical but each had to be
engineered separately.
“As found by the lower court, which finding We adopt—
‘Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its various customers the central type air
conditioning system; prepares the plans and specifications therefor which are distinct and different from each other; the air
conditioning units and spare parts or accessories thereof used by petitioner are not the window type of air conditioners which are
manufactured, assembled and produced locally for sale to the general market; and the imported air conditioning units and spare parts
or accessories thereof are supplied and installed by petitioner upon previous orders of its customers conformably with their needs
and requirements.’
“The facts and circumstances aforequoted support the theory that Engineering is a contractor rather than a manufacturer.”
It is still good law that a contract to make is a contract of sale if the article is already substantially in existence at the time of the order
and merely requires some alteration, modification or adaptation to the buyer’s wishes or purposes. A contract for the sale of an article
which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on
hand at the time or not is a contract for
470
470 SUPREME COURT REPORTS ANNOTATED
Concrete Aggregates, Inc. vs. Court of Tax Appeals
the sale of goods.19
Petitioner insists that it would produce asphalt or concrete mix only upon previous job orders otherwise it would not do so. It does
not and will not carry in stock cement and asphalt mix.20 But the reason is obvious. What practically prevents the petitioner from mass
production and storage is the nature of its products, that is, they easily harden due to temperature change and water and cement
reaction.21 Stated differently by respondent court, “it is self-evident that it is due to the highly perishable nature of asphalt
and concretemix, as petitioner itself argues, that makes impossible for them to be carried in stock because they cool and harden with
time, and once hardened, they become useless.”22
Had it not been for this fact, petitioner could easily mass produce the ready-mixed concrete or asphalt desired and needed by its
various customers and for which it is mechanically equipped to do. It is clear, however, that petitioner does nothing more than sell
the articles that it habitually manufactures. It stocks raw materials, ready at any time, for the manufacture of asphalt
and/or concrete mix.23 Its marketing system would readily disclose that its products are available for sale to anyone needing them.
Whosoever would need its products, whether builder, contractor, homeowner or paver with sufficient money, may
order aggregates, concrete mix or bituminous asphalt mix of the kind manufactured by petitioner.24 The habituality of the production
of goods for the general public characterizes the business of petitioner.
We are likewise persuaded by the submissions of the Solicitor General that the ruling in Celestino Co & Company vs. Collector of
Internal Revenue25 is applicable to this case in that unless an
_______________

19
Inchausti & Co. vs. Cromwell, etc., 20 Phil. 345 (1911); Commissioner of Internal Revenue vs. Arnoldus Carpentry Shop, Inc., et
al., 159 SCRA 199 (1988).
20
Rollo, 123.
21
Ibid., 271.
22
Ibid., 45-46.
23
Ibid., 230.
24
Ibid., 47.
25
99 Phil. 841 (1956).
471
VOL. 185, MAY 18, 1990 471
Concrete Aggregates, Inc. vs. Court of Tax Appeals
activity is covered by Section 191 of the Tax Code, one who manufactures articles, although upon a previous order and subject to the
specifications of the buyer, is nonetheless a manufacturer.
We also reject petitioner’s theory that, with the amendment of Section 191 of the Tax Code, it can be considered as a “specialty
contractor.” As observed by respondent, a specialty contractor is one whose operations pertain to construction work requiring special
skill and involves the use of specialized building trades or crafts. The manufacture of concrete and cement mix do not involve the
foregoing requirements as to put it within such special category.
ON THE FOREGOING CONSIDERATIONS, certiorari is DENIED and the appealed decision of respondent Court of Tax Appeals is
AFFIRMED.
SO ORDERED.
Melencio-Herrera (Chairman), Paras, Padilla and Sar-miento, JJ., concur.
Petition denied; decision affirmed.
Notes.—Tax assessments are presumed correct and made in good faith. (Sy Po vs. Court of Tax Appeals, 164 SCRA 524.)
E.O. 273 increased the VAT on every sale to 10% unless zerorated or exempt. (Kapatiran ng mga Naglilingkod sa Pamahalaan vs.
Tan, 163 SCRA 371.)
Monetary Board Resolution 47 is void insofar as the Central Bank imposed the tax mentioned in R.A. 6125. (Shell Philippines, Inc.
vs. Central Bank, 162 SCRA 628.)

———o0o———

472
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777
7 People’s Homesite & Housing Corp vs CA

VOL. 133, DECEMBER 26, 1984


People’s Homesite & Housing Corp. vs. Court of Appeals
No. L-61623. December 26, 1984.*
PEOPLE’S HOMESITE & HOUSING CORPORATION, petitioner-appellant, vs. COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA
R. MENDOZA, respondents-appellees.
Sale; P.H.H.C.; There is no perfected sale of a subdivision lot where award thereof was expressly made subject to approval by
higher authorities and there was no acceptance manifested by the supposed awardee.—We hold that there was no perfected sale of
Lot 4. It was conditionally or contingently awarded to the Mendozas subject to the approval by the city council of the proposed
consolidation subdivision plan and the approval of the award by the valuation committee and higher authorities.
Same; Same; Same.—The city council did not approve the subdivision plan. The Mendozas were advised in 1961 of the
disapproval. In 1964, when the plan with the area of Lot 4 reduced to 2,608.7 square meters was approved, the Mendozas should
have manifested in writing their acceptance of the award for the purchase of Lot 4 just to show that they were still interested in its
purchase although the area was reduced and to obviate any doubt on the matter. They did not do so. The PHHC board of directors
acted within its rights in withdrawing the tentative award.

APPEAL from the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.


Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M. Brillantes for petitioner PHHC.
Tolentino, Cruz, Reyes, Lava and Manuel for private respondents.

AQUINO, J.:

The question in this case is whether the People’s Homesite & Housing Corporation bound itself to sell to the Mendoza spouses Lot 4
(Road) Pcs-4564 of the revised consolidation
_______________

*
SECOND DIVISION.
778
778 SUPREME COURT REPORTS ANNOTATED
People’s Homesite & Housing Corp. vs. Court of Appeals
subdivision plan with an area of 2,608.7 (2,503.7) square meterslocated at Diliman, Quezon City.
The PHHC board of directors on February 18, 1960 passed Resolution No. 513 wherein it stated “that subject to the approval of
the Quezon City Council of the above-mentioned Consolidation Subdivision Plan, Lot 4, containing 4,182.2 square meters be, as it is
hereby awarded to Spouses Rizalino Mendoza and Adelaida Mendoza, at a price of twenty-one pesos (P21.00) per square meter”
and “that this award shall be subject to the approval of the OEC (PHHC) Valuation Committee and higher authorities”.
The city council disapproved the proposed consolidation subdivision plan on August 20, 1961 (Exh. 2). The said spouses were
advised by registered mail of the disapproval of the plan (Exh. 2-PHHC). Another subdivision plan was prepared and submitted to the
city council for approval. The revised plan, which included Lot 4, with a reduced area of 2,608.7, was approved by the city council on
February 25, 1964 (Exh. H).
On April 26, 1965 the PHHC board of directors passed a resolution recalling all awards of lots to persons who failed to pay the
deposit or down payment for the lots awarded to them (Exh. 5). The Mendozas never paid the price of the lot nor made the 20% initial
deposit.
On October 18, 1965 the PHHC board of directors passed Resolution No. 218, withdrawing the tentative award of Lot 4 to the
Mendoza spouses under Resolution No. 513 and reawarding said lot jointly and in equal shares to Miguela Sto. Domingo, Enrique
Esteban, Virgilio Pinzon, Leonardo Redublo and Jose Fernandez, subject to existing PHHC rules and regulations. The prices would be
the same as those of the adjoining lots. The awardees were required to deposit an amount equivalent to 20% of the total selling price
(Exh. F).
The five awardees made the initial deposit. The corresponding deeds of sale were executed in their favor. The subdivision of Lot 4
into five lots was approved by the city council and the Bureau of Lands.
On March 16, 1966 the Mendoza spouses asked for reconsideration of the withdrawal of the previous award to them of
779
VOL. 133, DECEMBER 26, 1984 779
People’s Homesite & Housing Corp. vs. Court of Appeals
Lot 4 and for the cancellation of the re-award of said lot to Sto. Domingo and four others. Before the request could be acted upon, the
spouses filed the instant action for specific performance and damages.
The trial court sustained the withdrawal of the award. The Mendozas appealed. The Appellate Court reversed that decision and
declared void the re-award of Lot 4 and the deeds of sale and directed the PHHC to sell to the Mendozas Lot 4 with an area of 2,603.7
square meters at P21 a square meter and pay to them P4,000 as attorney’s fees and litigation expenses. The PHHC appealed to this
Court.
The issue is whether there was a perfected sale of Lot 4, with the reduced area, to the Mendozas which they can enforce against
the PHHC by an action for specific performance.
We hold that there was no perfected sale of Lot 4. It was conditionally or contingently awarded to the Mendozas subject to the
approval by the city council of the proposed consolidation subdivision plan and the approval of the award by the valuation committee
and higher authorities.
The city council did not approve the subdivision plan. The Mendozas were advised in 1961 of the disapproval. In 1964, when the
plan with the area of Lot 4 reduced to 2,608.7 square meters was approved, the Mendozas should have manifested in writing their
acceptance of the award for the purchase of Lot 4 just to show that they were still interested in its purchase although the area was
reduced and to obviate any doubt on the matter. They did not do so. The PHHC board of directors acted within its rights in withdrawing
the tentative award.
“The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract
and upon the price. From that moment, the parties may reciprocally demand performance, subject to the law governing the form of
contracts.” (Art. 1475, Civil Code).
“Son, sin embargo, exception a esta regla los casos en que por virtud de la voluntad de las partes o de la ley, se celebra la venta
bajo una condición suspensiva, y en los cuales no se perfecciona la venta hasta el cumplimiento de la condición” (4 Castan Tobeñas,
Derecho Civil Español 8th ed. p. 81).
780
780 SUPREME COURT REPORTS ANNOTATED
People’s Homesite & Housing Corp. vs. Court of Appeals
“In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition”. (Art. 1181, Civil Code). “Se llama suspensive la condición de la que
depende la perfeccion, o sea el principio del contrato”. (9 Giorgi, Teoria de las Obligaciones, p. 57).
Under the facts of this case, we cannot say there was a meeting of minds on the purchase of Lot 4 with an area of 2,608.7 square
meters at P21 a square meter.
The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is not in point because the awardee in that case applied for the purchase
of the lot, paid the 10% deposit and a conditional contract to sell was executed in his favor. The PHHC could not reaward that lot to
another person.
WHEREFORE, the decision of the Appellate Court is reversed and set aside and the judgment of the trial court is affirmed. No costs.
SO ORDERED.
Makasiar, (Chairman), Concepcion, Jr., Abad Santos,Escolin and Cuevas, JJ., concur.
Decision reversed and set aside.
Notes.—There is no perfected contract where the alleged contract was signed by only one party and the record shows that the
other party did not execute or sign the said contract form. (Guardiano vs. Encarnacion, 29 SCRA 326.)
A contract of sale is perfected the moment there is agreement upon the thing object of the contract and upon the price. (Philippine
Virginia Tobacco Administration vs. De los Angeles, 87 SCRA 197.)
Ownership is not transferred by perfection of the contract but by delivery, either actual or constructive. (Sampaguita Pictures, Inc.
vs. Jalwindor Manufacturer, Inc., 93 SCRA 420.)
8 Toyota Shaw, Inc. vs CA, 244 SCRA 320
320 SUPREME COURT REPORTS ANNOTATED
Toyota Shaw, Inc. vs. Court of Appeals
G.R. No. 116650. May 23, 1995.*
TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA L. SOSA, respondents.
Civil Law; Contracts; Sales; Exhibit “A” is not a contract of sale.—What is clear from Exhibit “A” is not what the trial court and
the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a
determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The
provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of
sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned
about the full purchase price and the manner the installments were to be paid.
Same; Same; Same; Definiteness as to the price is an essential element of a binding agreement to sell personal property.—This
Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of
a binding and enforceable contract of sale. This is so because the agreement as to the manner of payment goes into the price such
that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an
essential element of a binding agreement to sell personal property.
Same; Same; Same; Agency; A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of
the agent.—He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent
upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo’s authority as an agent in respect
of contracts to sell Toyota’s vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority
of the agent.
Same; Same; Same; Damages; Attorney’s Fees; Award of moral and exemplary damages and attorney’s fees and costs of suit is
without legal basis.—The award then of moral and exemplary damages and attorney’s fees and costs of suit is without legal basis.
Besides, the only
_______________

*
FIRST DIVISION.
321
VOL. 244, MAY 23, 1995 321
Toyota Shaw, Inc. vs. Court of Appeals
ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was
buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the
van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this
created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and
ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price.
It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. Since Sosa is not entitled to
moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to
exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. Also, it is settled that for
attorney’s fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof,
the legal reason for the award of attorney’s fees. No such explicit determination thereon was made in the body of the decision of the
trial court. No reason thus exists for such an award.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.


Bengzon, Zarraga, Narciso, Cudala, Pecson, Bengzon &Jimenez for petitioner.
Carag, Caballes, Jamora & Somera Law Offices for private respondent.

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit “A” 1 for the private respondent, which was signed by a sales
representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:
_______________

1
Annex “A” of Complaint in Civil Case No. 89-14 of Branch 38 of the Regional Trial Court of Marinduque; Rollo, 70.
322
322 SUPREME COURT REPORTS ANNOTATED
Toyota Shaw, Inc. vs. Court of Appeals
4 June 1989

AGREEMENTS BETWEEN MR. SOSA


& POPONG BERNARDO OF TOYOTA
SHAW, INC.

1. 1.all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr.
Sosa from the Province (Marinduque) where the unit will be used on the 19th of June.
2. 2.the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989
3. 3.the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at
10 a.m.
Very truly yours,
(Sgd.) POPONG BERNARDO.
Was this document, executed and signed by the petitioner’s sales representative, a perfected contract of sale, binding upon the
petitioner, breach of which would entitle the private respondent to damages and attorney’s fees? The trial court and the Court of
Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review on certiorari.
The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of
petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of
1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller’s market and Sosa had difficulty finding a dealer with an
available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa
and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales
representative of Toyota.
Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and
a balikbayanguest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on
the 19th of June. He added that if he does not arrive in his hometown
323
VOL. 244, MAY 23, 1995 323
Toyota Shaw, Inc. vs. Court of Appeals
with the new car, he would become a “laughing stock.” Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on
17 June 1989. Bernardo then signed the aforequoted “Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.” It was
also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for
this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing.
The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who
then accomplished a printed Vehicle Sales Proposal (VSP) No. 928,2on which Gilbert signed under the subheading CONFORME. This
document shows that the customer’s name is “MR. LUNA SOSA” with home address at No. 2316 Guijo Street, United Parañaque II;
that the model series of the vehicle is a “Lite Ace 1500” described as “4 Dr minibus”; that payment is by “installment,” to be financed
by “B.A.,”3 with the initial cash outlay of P100,000.00 broken down as follows:
a) downpayment —P53,148.00
b) insurance —P13,970.00
c) BLT registration fee —P 1,067.00
CHMO fee —P 2,715.00
service fee —P 500.00
accessories —P29,000.00
and that the “BALANCE TO BE FINANCED” is “P274,137.00.” The spaces provided for “Delivery Terms” were not filled-up. It also
contains the following pertinent provisions:
CONDITIONS OF SALES

1. 1.This sale is subject to availability of unit.


2. 2.Stated Price is subject to change without prior notice. Price prevailing and in effect at time of selling will apply . . . .

_______________

2
Annex of Answer in Civil Case No. 89-14; Rollo, 82; Annex “E” of Petition; Rollo, 85.
3
Referring to B.A. Finance.
324
324 SUPREME COURT REPORTS ANNOTATED
Toyota Shaw, Inc. vs. Court of Appeals

1. Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.

On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00
a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter’s office.
According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo
told them that the car could not be delivered because “nasulot ang unit ng ibang malakas.”
Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit
financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not
be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the
unit by paying the full purchase price in cash but Sosa refused.
After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did
so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which was shown by a
check voucher of Toyota,5 which Sosa signed with the re-servation, “without prejudice to our future claims for damages.”
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded the refund,
within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages
with a warning that in case of Toyota’s failure to do so he would be constrained to take legal action. 6 The second, dated 4 November
1989 and signed by M.O. Caballes, Sosa’s counsel, demanded one million pesos representing interest and damages, again, with a
warning that legal action would be taken if pay-
_______________

4
Exhibit “3,” Annex “G” of Petition; Rollo, 86.
5
Exhibit “4,” Annex “H” of Petition; Rollo, 87.
6
Annex “C” of Complaint in Civil Case No. 89-14; Id., 71-72. This downpayment had already been refunded and received by Sosa
himself as shown by the Check Voucher, Exhibit “4.”
325
VOL. 244, MAY 23, 1995 325
Toyota Shaw, Inc. vs. Court of Appeals
ment was not made within three days.7 Toyota’s counsel answered through a letter dated 27 November 19898 refusing to accede to
the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch
38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code
in the total amount of P1,230,000.00.9 He alleges, inter alia, that:

1. 9.As a result of defendant’s failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment,
humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public
transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first
visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends,
neighbors and other provincemates, continuously irked him about “his Brand-New Toyota Lite Ace—that never was.” Under
the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos
(P1,000,000.00).10

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to
sign Exhibit “A” for and in its behalf, and that Bernardo signed Exhibit “A” in his personal capacity. As special and affirmative defenses,
it alleged that: the VSP did not state a date of delivery; Sosa had not completed the documents required by the financing company,
and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements,
submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa;
the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory
counterclaims.
_______________

7
Annex “C-1,” Id.; Id., 73-74.
8
Annex “I” of Petition; Id., 88-89.
9
Annex “B,” Id.; Id., 64-69.
10
Rollo, 67.
326
326 SUPREME COURT REPORTS ANNOTATED
Toyota Shaw, Inc. vs. Court of Appeals
After trial on the issues agreed upon during the pre-trial session,11the trial court rendered on 18 February 1992 a decision in favor of
Sosa.12 It ruled that Exhibit “A,” the “AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO,” was a valid perfected contract of
sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in
bad faith in selling to another the unit already reserved for him.
As to Toyota’s contention that Bernardo had no authority to bind it through Exhibit “A,” the trial court held that the extent of
Bernardo’s authority “was not made known to plaintiff,” for as testified to by Quirante, “they do not volunteer any information as to
the company’s sales policy and guidelines because they are internal matters.”13 Moreover, “[f]rom the beginning of the transaction
up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the
impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent
authority holding him out to the public as possessing power to do these acts.”14Bernardo then “was an agent of the defendant Toyota
Shaw, Inc. and hence bound the defendants.”15
The court further declared that “Luna Sosa proved his social standing in the community and suffered besmirched reputation,
wounded feelings and sleepless nights for which he ought to be compensated.” 16 Accordingly, it disposed as follows:
WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant:

1. 1.ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages;
2. 2.ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages;

_______________

11
Id., 83-84.
12
Id., 90-108. Per Judge Romulo A. Lopez.
13
Rollo, 104.
14
Id.
15
Id.
16
Id., 107.
327
VOL. 244, MAY 23, 1995 327
Toyota Shaw, Inc. vs. Court of Appeals

1. 3.ordering the defendant to pay the sum of P30,000.00 attorney’s fees plus P2,000.00 lawyer’s transportation fare per trip in
attending to the hearing of this case;
2. 4.ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the
hearing of this case; and
3. 5.ordering the defendant to pay the cost of suit.

SO ORDERED.
Dissatisfied with the trial court’s judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043.
In its decision promulgated on 29 July 1994,17 the Court of Appeals affirmed in toto the appealed decision.
Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponencia and also the
following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would
have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle
despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota
acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages.
We find merit in the petition.
Neither logic nor recourse to one’s imagination can lead to the conclusion that Exhibit “A” is a perfected contract of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:
ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. and Article 1475 specifically provides when it is deemed per-
_______________

17
Annex “A” of Petition; Rollo, 45-62. Per Tayao-Jaguros, L., J., with Elbinias, J. and Salas, B., JJ., concurring.
328
328 SUPREME COURT REPORTS ANNOTATED
Toyota Shaw, Inc. vs. Court of Appeals
fected:
ART. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of
contracts.
What is clear from Exhibit “A” is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No
obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the
latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference
to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the
following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid.
This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the
formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to the manner of payment goes into
the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the
price is an essential element of a binding agreement to sell personal property.19
Moreover, Exhibit “A” shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign
it. For another, Sosa was well aware from its title, written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC.
_______________

18
Velasco vs. Court of Appeals, 51 SCRA 439 [1973], citing Navarro vs. Sugar Producers Cooperative Marketing Association, 1 SCRA
1180 [1961].
19
67 Am Jur 2d Sales § 105 [1973].
329
VOL. 244, MAY 23, 1995 329
Toyota Shaw, Inc. vs. Court of Appeals
that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to
sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was
incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo’s authority as an
agent20 in respect of contracts to sell Toyota’s vehicles. A person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent.21
At the most, Exhibit “A” may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale.
There are three stages in the contract of sale, namely:

1. (a)preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of
agreement of the parties;
2. (b)perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and
3. (c)consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22

The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that
thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed
by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not
have mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as “corporations
or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and
________________

20
See Harry Keeler Electric Co. vs. Rodriguez, 44 Phil. 19 [1922]; B.A. Finance Corp. vs. Court of Appeals, 211 SCRA 112 [1992].
21
Cruz vs. Court of Appeals, 201 SCRA 495 [1991]; Pineda vs. Court of Appeals, 226 SCRA 754 [1993].
22
ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the Philippines, vol. 4, 1985 ed., 411; EDGARDO
L. PARAS, Civil Code of the Philippines Annotated, vol. 4, 1989 ed., 490.
330
330 SUPREME COURT REPORTS ANNOTATED
Toyota Shaw, Inc. vs. Court of Appeals
the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and
to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or
by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy
equipment and industrial machinery, business and office machines and equipment, appliances and other movable property.” 23
Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer
who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the
notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the
creditor of the installment buyer.24 Since B.A. Finance did not approve Sosa’s application, there was then no meeting of minds on the
sale on installment basis.
We are inclined to believe Toyota’s version that B.A. Finance disapproved Sosa’s application for which reason it suggested to Sosa
that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa’s
version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was “mas malakas”
does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, “Pasensiya kayo, nasulot ang unit
ng ibang malakas,” while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June
1989. However, in paragraph 7 of his complaint, Sosa solemnly states:
On June 17, 1989 at around 9:30 o’clock in the morning, defendant’s sales representative, Mr. Popong Bernardo, called plaintiff’s
house and informed the plaintiff’s son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of
that day instead. Plaintiff and his son went to defendant’s office on June 17, 1989 at 2:00
_______________

23
See Beltran vs. PAIC Finance Corp., 209 SCRA 105 [1992].
24
International Harvester Macleod, Inc. vs. Medina, 183 SCRA 485 [1990].
331
VOL. 244, MAY 23, 1995 331
Toyota Shaw, Inc. vs. Court of Appeals
p.m. in order to pick-up the vehicle but the defendant, for reasons known only to its representatives, refused and/or failed to release
the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis supplied)25
The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in
favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury.
The award then of moral and exemplary damages and attorney’s fees and costs of suit is without legal basis. Besides, the only
ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying
a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was
not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an
impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should
not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who
brought embarrassment upon himself by bragging about a thing which he did not own yet.
Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is
likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by
way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages.
Also, it is settled that for attorney’s fees to be granted, the court must explicitly state in the body of the decision, and not only in
the dispositive portion thereof, the legal reason for the award of attorney’s fees. 26 No such explicit determination thereon
_______________

25
Rollo, 66.
26
See Central Azucarera de Bais vs. Court of Appeals, 188 SCRA 328 [1990]; Koa vs. Court of Appeals, 219 SCRA 541 [1993]; Scott
Consultants & Resource Development Corp. vs. Court of Appeals, G.R. No. 112916, 16 March 1995.
332
332 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd.
was made in the body of the decision of the trial court. No reason thus exists for such an award.
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No. 40043 as well as
that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in
Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Padilla (Chairman), Bellosillo and Kapunan, JJ., concur.
Quiason, J., On official leave.
Petition granted. Judgment reversed and set aside.
Note.—Moral damages to be recoverable in a relationship based on a contract, a party committing breach thereof must have
acted fraudulently or in bad faith. (Sia vs. Court of Appeals, 222 SCRA 24[1993])

———o0o——

© Copyright 2018 Central Book Supply, Inc. All rights reserved.

9 Sampaguita Pictures vs Jalwindor Manufactures, Inc., 93 SCRA 420

420 SUPREME COURT REPORTS ANNOTATED


Sampaguita Pictures, Inc., vs. Jalwindor Manufacturers, Inc.
No. L-43059. October 11, 1979.*
SAMPAGUITA PICTURES, INC., plaintiff-appellant, vs.JALWINDOR MANUFACTURERS, INC., defendant-appellee.
Civil Law; Ownership; Contracts; When ownership accrues; For the acquisition of ownership, payment of the purchase price is not
essential.—When the glass and wooden jalousies in question were delivered and installed in the leased premises. Capitol became the
owner thereof. Ownership is not transferred by perfection of the contract but by delivery, either actual or constructive. This is true
even if the purchase has been made on credit, as in the case at bar. Payment of the purchase price is not essential to the transfer of
ownership as long as the property sold has been delivered. Ownership is acquired from the moment the thing sold was delivered the
vendee, as when it is placed in his control and possession.
Same; Same; Lease Contract, Execution; A stipulation in a lease contract that improvements shall belong to the lessor effectively
transfers ownership of the same to the lessor and when a levy was made on the improvements by the unpaid seller thereof, the
judgment debtor was no longer the owner thereof.—Capitol entered into a lease contract with Sampaguita in 1964, and the latter
became the owner of the items in question by virtue of the agreement in said contract “that all permanent improvements made by
lessee shall belong to the lessor and that said improvements have been considered as part of the monthly rentals.” When levy or said
items was made on July 31, 1965, Capitol, the judgment debtor, was no longer the owner thereof.
Same; Same; Same; Same; Same; Action annulling the execution sale therefore may prosper.—The items in question were
illegally levied upon since they do not belong to the judgment debtor. The power of the Court in execution of judgment extends only
to properties unquestionably belonging to the judgment debtor. The fact that Capitol failed to pay Jalwindor the purchase price of the
items levied upon did not prevent the transfer of ownership to Capitol. The complaint of Sampaguita to nullify the Sheriff’s sale is well-
founded, and should prosper. Execution sales affect the rights of judgment debtor only, and the purchaser in the auction sale acquires
only the right as
_______________

*
FIRST DIVISION
421
VOL. 93, OCTOBER 11, 1979 421
Sampaguita Pictures, Inc., vs. Jalwindor Manufacturers, Inc.
the debtor has at the time of sale. Since the items already belong to Sampaguita and not to Capitol, the judgment debtor, the
levy and auction sale are, accordingly, null and void. It is well-settled in this jurisdiction that the sheriff is not authorized to attach
property not belonging to the judgment debtor.

DE CASTRO, J.:

This case was certified to this Court by the Court of Appeals pursuant to the provisions of Section 17, paragraph (6) in relation to
Section 31 of the Judiciary Act of 1948.
Plaintiff-appellant Sampaguita Pictures, Inc. (hereinafter referred to as Sampaguita) is the owner of the Sampaguita Pictures
Building located at the corner of General Araneta and General Roxas Streets, Cubao, Quezon City. The roofdeck of the building and all
existing improvements thereon were leased by Sampaguitia to Capitol “300” Inc. (Capitol for short), and it was agreed, among other
things, that the premises shall be used by said club for social purposes exclusively for its members and guests; that ail permanent
improvements made by the lessee on the leased premises shall belong to the lessor without any obligation on the part of the lessor
to reimburse the lessee for the sum spent for said improvements; that the improvements made by lessee have been considered as
part of the consideration of the monthly rental and said improvements belong to the lessor; that any remodelling, alterations and/or
addition to the premises shall be at the expense of the lessee and such improvements belong to the lessor, without any obligation to
reimburse the lessee of any sum spent for said improvements. (pp. 29-32, Record on Appeal).
Capitol “300” purchased on credit from defendant-appellee Jalwindor Manufacturers, Inc. (hereinafter referred to as Jalwindor)
glass and wooden jalousies which were delivered and installed in the leased premises by Jalwindor, replacing the existing windows.
On June 1, 1964, Jalwindor filed with the Court of First Instance of Rizal, Quezon City, an action for collection of a sum of money with
a petition for preliminary attachment against Capitol for its failure to pay its purchases. The parties submitted to the trial court a
Compromise Agree-
422
422 SUPREME COURT REPORTS ANNOTATED
Sampaguita Pictures, Inc., vs. Jalwindor Manufacturers, Inc.
ment wherein Capitol acknowledged its indebtedness to Jalwindor in the amount of P9,531.09, exclusive of attorney’s fees and
interest, payable in monthly installments of at least P300.00 a month beginning December 15, 1964; and pending liquidation of the
said obligation, all the materials purchased by Capitol will be considered as security for such undertaking (p. 13, Record on Appeal).
In the meantime, Capitol “300” was not able to pay rentals to Sampaguita from March 1, 1964 to April 30, 1965, water, electric
and telephone services. Sampaguita filed a complaint for ejectment and for collection of a sum of money against Capitol and on June
8, 1965, the City Court of Quezon City rendered judgment ordering Capitol to vacate the premises and to pay Sampaguita.
On the other hand, Capitol likewise failed to comply with the terms of the Compromise Agreement, and on July 31, 1965, the
Sheriff of Quezon City made levy on the glass and wooden jalousies in question. Sampaguita filed a third-party claim alleging that it is
the owner of said materials and not Capitol. Jalwindor, however, filed an idemnity bond in favor of the Sheriff and the items were sold
at public auction on August 30, 1965 with Jalwindor as the highest bidder for P6,000.00.
Sampaguita filed with the Court of First Instance of Rizal, Branch IV of Quezon City, an action to nullify the Sheriff’s Sale and for
the issuance of a writ of preliminary injunction against Jalwindor from detaching the glass and wooden jalousies. Jalwindor was
ordered to maintain the status quo pending final determination of the case. No actual hearing was held and the parties submitted the
following stipulation of facts for the consideration of the court.

1. “1.That plaintiff and defendant are both domestic corporations duly organized and existing by and under the laws of the
Philippines;
2. “2.That plaintiff leased to the CAPITOL “300”, Inc. the roofdeck of the Sampaguita building and all the existing improvements
thereon for a monthly rental of P650.00; that the parties to the lease contract agreed that all permanent improvements
made by the lessee on the leased premises shall belong to the lessor without

423
VOL. 93, OCTOBER 11, 1979 423
Sampaguita Pictures, Inc., vs. Jalwindor Manufacturers, Inc.

1. any obligation on the part of the lessor to reimburse the lessee for the sum spent for said improvements; that it was agreed
upon by the parties that the improvements made by the lessee have been considered as part of the consideration of the
monthly rental;
2. “3.That CAPITOL “300”, Inc. made alterations on the leased premises; that it removed the then existing windows and replaced
them with the following items bought on credit from the JALWINDOR MANUFACTURERS, INC.. valued at P9,531.09, to wit;

‘J-21 (lever-type) Solex Bluepane


Glass Jalousies
11 Sets 15’-1 3/4” x 47-7/8” (5 units)
4 Sets 13’-5 3/4” x 47-7/8” (5 units)
3 Sets 10’-9 3/4” x 47-7/7” (4 units)
2 Sets 18’-1 3/4” x 65-3/8” (6 units)
1 Set 9’-1 3/4” x 65-3/8” (3 units)
1 Set 3’-0” x 65-3/8” (1 unit)
115 Pcs. Roto Operators for J-21

MODEL J-21 (Roto-type) Glass


and Wood Jalousies
8 Sets 32-1/2” x 60” Solex Bluepane
19 Sets 31-1/4” x 48” Solex Bluepane
18 Sets 34” x 48” Wood’

1. "4.That after the Capitol "300", Inc. failed to pay the price of the items mentioned in the proceedings paragraph, JALWINDOR
MANUFACTURERS, Inc. filed a case for collection of a sum of money against CAPITOL “300”, Inc. with the Court of First
Instance of Rizal (Branch IV, Quezon City), Civil Case No. Q-8040; that by virtue of a Compromise Agreement, CAPITOL “300”,
Inc. acknowledged indebtedness in favor of JALWINDOR in the amount of P9,531.09, with a stipulation in the said
Compromise Agreement, that the items forming part of the improvements will form as security for such an undertaking;
2. “5.That due to non-compliance by CAPITOL “300”, Inc., JALWINDOR executed judgment; that the Sheriff of Quezon City made
levy on the items above-stated in paragraph 3 hereof and sold them at a public auction to JALWINDOR MANUFACTURERS,
INC. as the highest bidder, on August 30, 1965, for the total amount of P6,000.00;

424
424 SUPREME COURT REPORTS ANNOTATED
Sampaguita Pictures, Inc., vs. Jalwindor Manufacturers, Inc.

1. “6.That after CAPITOL “300”, Inc. failed to pay the rentals in arrears from March 1, 1964 to April 30, 1965, water, electric and
telephone services amounting to P10,772.90, the plaintiff SAMPAGUITA PICTURES, INC. filed with the City Court of Quezon
City, Civil Case No. II-13161 for ejectment and collection of a sum of money against the CAPITOL “300”, Inc.; that the City
Court rendered judgment in favor of the Sampaguita Pictures, Inc., on June 8, 1965, ordering the CAPITOL “300”, Inc. to
vacate the premises located at the Sampaguita Building and to pay the Sam-paguita Pictures, Inc.;
2. “7.That after the Sheriff of Quezon City made levy on the items above-stated in paragraph 3 hereof situated on the roofdeck
of the Sampaguita Building, plaintiff filed a Third Party Claim stated in its affidavit on the ground of its right and title to the
possession of the items and that CAPITOL “300”, Inc. has no right or title whatsoever to the possession over said items; that
defendant filed a bond to indemnify the Sheriff against the claim, and the Sheriff sold the items to the defendant; that the
JALWINDOR MANUFACTURERS, Inc., being the highest bidder and the execution creditor, considered itself paid to the
amount of P6,000.00;
3. “8.That the parties herein agree that the matter of attorney’s fees be left to the sound discretion of the Court, which shall
not be less than P500.00.” (Record on Appeal, pp. 11-14).”

On October 20, 1967, based on said Stipulation of Facts, the lower court dismissed the complaint and ordered Sampaguita to pay
Jalwindor the amount of P500.00 as attorney’s fees, Sampaguita filed a motion for reconsideration which was likewise denied, hence,
the instant appeal.
Petitioner-appellant raised the following assignment of errors:
I

“The lower court erred in holding that Capitol “300” Inc. could not legally transfer or assign the glass and wooden jalousies in question
to the plaintiff-appellant.

II

“The lower court erred in not holding that plaintiff-appellant was the rightful owner of the glass and wooden jalousies when they
were sold by the Sheriff at the public auction.
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Sampaguita Pictures, Inc., vs. Jalwindor Manufacturers, Inc.
III

“The lower court erred in not declaring as null and void the levy on execution and the Sheriff’s sale at public auction of the glass and
wooden j alousies.

IV

“The lower court erred in holding that defendant-appellee became the rightful owner of the glass and wooden jalousies.”
When the glass and wooden jalousies in question were delivered and installed in the leased premises, Capitol became the owner
thereof. Ownership is not transferred by perfection of the contract but by delivery, either actual or constructive. This is true even if
the purchase has been made on credit, as in the case at bar. Payment of the purchase price is not essential to the transfer of ownership
as long as the property sold has been delivered. Ownership is acquired from the moment the thing sold was delivered to vendee, as
when it is placed in his control and possession. (Arts. 1477, 1496 and 1497, Civil Code of the Phil.)
Capitol entered into a lease contract with Sampaguita in 1964, and the latter became the owner of the items in question by virtue
of the agreement in said contract “that all permanent improvements made by lessee shall belong to the lessor and that said
improvements have been considered as part of the monthly rentals.” When levy or said items was made on July 31, 1965, Capitol, the
judgment debtor, was no longer the owner thereof.
The action taken by Sampaguita to protect its interest is sanctioned by Section 17, Rule 39 of the Rules of Court, which reads:
“Section 17. Proceedings where property claimed by third person.
‘xxxx The officer is not liable for damages for the taking or keeping of the property to any third-party claimant unless a claim is made
by the latter and unless an action for damages is brought by him against the officer within one hundred twenty (120) days from the
date of the filing of the bond. But nothing
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426 SUPREME COURT REPORTS ANNOTATED
Sampaguita Pictures, Inc., vs. Jalwindor Manufacturers, Inc.
herein contained shall prevent claimant or any third person from vindicating his claim to the property by any action.’”
It is, likewise, recognized in the case of Bayer Phil., Inc. vs. Agana, et al., 63 SCRA 358, wherein the Court declared, “that the rights of
third party claimants over certain properties levied upon by the Sheriff to satisfy the judgment, may not be taken up in the case where
such claims are presented but in a separate and independent action instituted by claimants. xxxx and should a third-party appear to
claim the property levied upon by the Sheriff and the claim is denied, the remedy contemplated by the rules is the filing by said party
of a reivindicatory action against the execution creditor or the purchaser of the property alter the sale is completed or thai a complaint,
for damages to be charged against the bond filed by the creditor in favor of the sheriff. xxx. Thus, when a property levied upon by the
sheriff pursuant to a writ of execution is claimed by a third person in a sworn statement of ownership thereof, as prescribed by the
rules, an entirely different matter calling for a new adjudication arises.”
The items in question were illegally levied upon since they do not belong to the judgment debtor. The power of the Court in
execution of judgment extends only to properties unquestionably belonging to the judgment debtor. The fact that Capitol failed to
pay Jalwindor the purchase price of the items levied upon did not prevent the transfer of ownership to Capitol. The complaint of
Sampaguita to nullify the Sheriff’s sale is well-founded, and should prosper. Execution sales affect the rights of judgment debtor only,
and the purchaser in the auction sale acquires only the right as the debtor has at the time of sale. Since the items already belong to
Sampaguita and not to Capitol, the judgment debtor, the levy and auction sale are, accordingly, null and void, It is well-settled in this
jurisdiction that the sheriff is not authorized to attach property not belonging to the judgment debtor. (Arabay, Inc. vs. Salvador, et
al., 3 PHILAJUR, 413 [1978], Herald Publishing vs. Ramos, 88 Phil. 94, 100).
WHEREFORE, the decision appealed from is hereby reversed, and plaintiff-appeliant Sampaguita is declared the
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Sampaguita Pictures, Inc., vs. Jalwindor Manufacturers, Inc.
lawful owner of the disputed glass and wooden jalousies. Defendant-appellee Jalwindor is permanently enjoined from detaching said
items from the roof deck of the Sampaguita Pictures Building, and is also ordered to pay plaintiff-appellant the sum of P1,000.00 for
and as attorney’s fees, and costs.
SO ORDERED.
Teehankee (Actg. Chief Justice, Chairman), Makasiar, Fernandez, Guerrero and Melencio Herrera. JJ., concur.
Decision reversed.
Notes.—Ownership is not transferred merely by contract but by tradition and delivery. (Aznar vs. Yapdiangco, 13 SCRA 486).
By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay thereof a price certain in money or its equivalent. (Villonco Realty Co. vs. Bormaheco, Inc., 65 SCRA 352).
The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and
upon the price. (Villonco Realty Co. vs. Bormaheco, Inc., 65 SCRA 352).
Action of appellant in suspending payments to defendant Corporation was a breach of contract tainted with fraud or malice such
that it having in bad faith, it was not entitled to ask the court to give it further time to make payment and thereby erase the default
or breach it had deliberately incurred. (Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., 43 SCRA 93).
The lessor has the prerogative to demand a new rate of rental upon termination of the lease. The lessee has the burden of proof
to show that the rental is exorbitant or unreasonable. (Vda. de Roxas vs. Court of Appeals, 83 SCRA 602).
The failure of the lessee to rebuild, reconstruct or replace the factory building previously constructed on the leased premises but
razed to the ground through no fault of his constitute no
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428 SUPREME COURT REPORTS ANNOTATED
Sampaguita Pictures, Inc., vs. Jalwindor Manufacturers, Inc.
breach of contract where the contract provides no fixed period within which to replace the building and the court has not fixed such
period. (Qui vs. Court of Appeals, 66 SCRA 523).
A stipulation authorizing the sublessor to take possession of the leased premises, without resorting to court action, upon failure
of the sublessee to comply with the terms and conditions of the contract is valid and binding. (Consing vs. Jamadre, 64 SCRA 1).
The tenant’s of an agricultural lessee has the right to remain in the land being tilled by them notwithstanding the surrender of the
lease. (Arevalo vs. Benedicto, 58 SCRA 186).

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