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VALIDITY : Prices are based on current dollar rate and subject to changes without

1. [ G.R. No. 200602, December 11, 2013 ] prior notice.

DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-
ACE FOODS, INC., PETITIONER, VS. MICRO PACIFIC TECHNOLOGIES five days upon receipt of [Purchase Order]
CO., LTD.,[1] RESPONDENT.
WARRANTY : One (1) year on parts and services. Accessories not included in
DECISION warranty.
On October 29, 2001, ACE Foods accepted MTCL's proposal and accordingly
PERLAS-BERNABE, J.: issued Purchase Order No. 100023[10] (Purchase Order) for the subject products
amounting to P646,464.00 (purchase price). Thereafter, or on March 4, 2002,
Assailed in this petition for review on certiorari[2] are the Decision[3] dated
MTCL delivered the said products to ACE Foods as reflected in Invoice No.
October 21, 2011 and Resolution[4]dated February 8, 2012 of the Court of Appeals
7733[11] (Invoice Receipt). The fine print of the invoice states, inter alia, that
(CA) in CA-G.R. CV No. 89426 which reversed and set aside the Decision[5] dated
"[t]itle to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD.
February 28, 2007 of the Regional Trial Court of Makati, Branch 148 (RTC) in Civil
until full compliance of the terms and conditions of above and payment of the
Case No. 02-1248, holding petitioner ACE Foods, Inc. (ACE Foods) liable to
price"[12] (title reservation stipulation). After delivery, the subject products were
respondent Micro Pacific Technologies Co., Ltd. (MTCL) for the payment of Cisco
then installed and configured in ACE Foods's premises. MTCL's demands against
Routers and Frame Relay Products (subject products) amounting to P646,464.00
ACE Foods to pay the purchase price, however, remained unheeded. [13] Instead of
pursuant to a perfected contract of sale.
paying the purchase price, ACE Foods sent MTCL a Letter[14] dated September 19,
2002, stating that it "ha[s] been returning the [subject products] to [MTCL] thru
[its] sales representative Mr. Mark Anteola who has agreed to pull out the said
The Facts
[products] but had failed to do so up to now."
ACE Foods is a domestic corporation engaged in the trading and distribution of
Eventually, or on October 16, 2002, ACE Foods lodged a Complaint [15] against
consumer goods in wholesale and retail bases,[6] while MTCL is one engaged in
MTCL before the RTC, praying that the latter pull out from its premises the
the supply of computer hardware and equipment.[7]
subject products since MTCL breached its "after delivery services" obligations to
it, particularly, to: (a) install and configure the subject products; (b) submit a cost
On September 26, 2001, MTCL sent a letter-proposal[8] for the delivery and sale of
benefit study to justify the purchase of the subject products; and (c) train ACE
the subject products to be installed at various offices of ACE Foods. Aside from
Foods's technicians on how to use and maintain the subject products. [16] ACE
the itemization of the products offered for sale, the said proposal further
Foods likewise claimed that the subject products MTCL delivered are defective
provides for the following terms, viz.:[9]
and not working.[17]
TERMS : Thirty (30) days upon delivery
For its part, MTCL, in its Answer with Counterclaim,[18] maintained that it had duly
complied with its obligations to ACE Foods and that the subject products were in premises. Also, in view of the foregoing, the RTC found it unnecessary to delve
good working condition when they were delivered, installed and configured in into the allegations of breach since the non-happening of the aforesaid
ACE Foods's premises. Thereafter, MTCL even conducted a training course for suspensive condition ipso jure prevented the obligation to sell from arising.[24]
ACE Foods's representatives/employees; MTCL, however, alleged that there was
actually no agreement as to the purported "after delivery services." Further, Dissatisfied, MTCL elevated the matter on appeal.[25]
MTCL posited that ACE Foods refused and failed to pay the purchase price for the
subject products despite the latter's use of the same for a period of nine (9)
months. As such, MTCL prayed that ACE Foods be compelled to pay the purchase The CA Ruling
price, as well as damages related to the transaction.[19]
In a Decision[26] dated October 21, 2011, the CA reversed and set aside the RTC's
ruling, ordering ACE Foods to pay MTCL the amount of P646,464.00, plus legal
The RTC Ruling interest at the rate of 6% per annum to be computed from April 4, 2002, and
attorney's fees amounting to P50,000.00.[27]
On February 28, 2007, the RTC rendered a Decision,[20] directing MTCL to remove
the subject products from ACE Foods's premises and pay actual damages and It found that the agreement between the parties is in the nature of a contract of
attorney fees in the amounts of P200,000.00 and P100,000.00, respectively. [21] sale, observing that the said contract had been perfected from the time ACE
Foods sent the Purchase Order to MTCL which, in turn, delivered the subject
At the outset, it observed that the agreement between ACE Foods and MTCL is in products covered by the Invoice Receipt and subsequently installed and
the nature of a contract to sell. Its conclusion was based on the fine print of the configured them in ACE Foods's premises.[28] Thus, considering that MTCL had
Invoice Receipt which expressly indicated that "title to sold property is reserved already complied with its obligation, ACE Foods's corresponding obligation arose
in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and and was then duty bound to pay the agreed purchase price within thirty (30) days
conditions of above and payment of the price," noting further that in a contract from March 5, 2002.[29] In this light, the CA concluded that it was erroneous for
to sell, the prospective seller explicitly reserves the transfer of title to the ACE Foods not to pay the purchase price therefor, despite its receipt of the
prospective buyer, and said transfer is conditioned upon the full payment of the subject products, because its refusal to pay disregards the very essence of
purchase price.[22] Thus, notwithstanding the execution of the Purchase Order reciprocity in a contract of sale.[30] The CA also dismissed ACE Foods's claim
and the delivery and installation of the subject products at the offices of ACE regarding MTCL's failure to perform its "after delivery services" obligations since
Foods, by express stipulation stated in the Invoice Receipt issued by MTCL and the letter-proposal, Purchase Order and Invoice Receipt do not reflect any
signed by ACE Foods, i.e., the title reservation stipulation, it is still the former who agreement to that effect.[31]
holds title to the products until full payment of the purchase price therefor. In
this relation, it noted that the full payment of the price is a positive suspensive Aggrieved, ACE Foods moved for reconsideration which was, however, denied in
condition, the non-payment of which prevents the obligation to sell on the part of a Resolution[32] dated February 8, 2012, hence, this petition.
the seller/vendor from materializing at all.[23] Since title remained with MTCL, the
RTC therefore directed it to withdraw the subject products from ACE Foods's
The Issue Before the Court
In contrast, a contract to sell is defined as a bilateral contract whereby the
The essential issue in this case is whether ACE Foods should pay MTCL the prospective seller, while expressly reserving the ownership of the property
purchase price for the subject products. despite delivery thereof to the prospective buyer, binds himself to sell the
property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, i.e., the full payment of the purchase price. A contract to sell may
The Court's Ruling 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
The petition lacks merit. 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
A contract is what the law defines it to be, taking into consideration its essential contingent event which may or may not occur.[37]
elements, and not what the contracting parties call it.[33] The real nature of a
contract may be determined from the express terms of the written agreement In this case, the Court concurs with the CA that the parties have agreed to a
and from the contemporaneous and subsequent acts of the contracting parties. contract of sale and not to a contract to sell as adjudged by the RTC. Bearing in
However, in the construction or interpretation of an instrument, the intention of mind its consensual nature, a contract of sale had been perfected at the precise
the parties is primordial and is to be pursued. The denomination or title given by moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order,
the parties in their contract is not conclusive of the nature of its contents. [34] accepted the latter's proposal to sell the subject products in consideration of the
purchase price of P646,464.00. From that point in time, the reciprocal obligations
The very essence of a contract of sale is the transfer of ownership in exchange of the parties i.e., on the one hand, of MTCL to deliver the said products to ACE
for a price paid or promised.[35] This may be gleaned from Article 1458 of the Civil Foods, and, on the other hand, of ACE Foods to pay the purchase price therefor
Code which defines a contract of sale as follows: within thirty (30) days from delivery already arose and consequently may be
demanded. Article 1475 of the Civil Code makes this clear:
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 Art. 1475. The contract of sale is perfected at the moment there is a meeting of
pay therefor a price certain in money or its equivalent. minds upon the thing which is the object of the contract and upon the price.

A contract of sale may be absolute or conditional. (Emphasis supplied) From that moment, the parties may reciprocally demand performance, subject to
Corollary thereto, a contract of sale is classified as a consensual contract, which the provisions of the law governing the form of contracts.
means that the sale is perfected by mere consent. No particular form is required At this juncture, the Court must dispel the notion that the stipulation anent
for its validity. Upon perfection of the contract, the parties may reciprocally MTCL's reservation of ownership of the subject products as reflected in the
demand performance, i.e., the vendee may compel transfer of ownership of the Invoice Receipt, i.e., the title reservation stipulation, changed the complexion of
object of the sale, and the vendor may require the vendee to pay the thing the transaction from a contract of sale into a contract to sell. Records are bereft
sold.[36] of any showing that the said stipulation novated the contract of sale between the
parties which, to repeat, already existed at the precise moment ACE Foods must prove his own affirmative allegation; one who asserts the affirmative of the
accepted MTCL's proposal. To be sure, novation, in its broad concept, may either issue has the burden of presenting at the trial such amount of evidence required
be extinctive or modificatory. It is extinctive when an old obligation is terminated by law to obtain a favorable judgment, which in civil cases, is by preponderance
by the creation of a new obligation that takes the place of the former; it is merely of evidence.[42] This, however, ACE Foods failed to observe as regards its
modificatory when the old obligation subsists to the extent it remains compatible allegations of breach. Hence, the same cannot be sustained.
with the amendatory agreement. In either case, however, novation is never
presumed, and the animus novandi, whether totally or partially, must appear by WHEREFORE, the petition is DENIED. Accordingly, the Decision dated October 21,
express agreement of the parties, or by their acts that are too clear and 2011 and Resolution dated February 8, 2012 of the Court of Appeals in CA-G.R.
unequivocal to be mistaken.[38] CV No. 89426 are hereby AFFIRMED.

In the present case, it has not been shown that the title reservation stipulation
appearing in the Invoice Receipt had been included or had subsequently modified Supplement:
or superseded the original agreement of the parties. The fact that the Invoice
 But although the Charge Invoices are not actionable documents, we find
Receipt was signed by a representative of ACE Foods does not, by and of itself,
that these, along with the Purchase Orders, are sufficient to prove that
prove animus novandisince: (a) it was not shown that the signatory was
petitioner indeed ordered supplies and materials from Highett and that
authorized by ACE Foods (the actual party to the transaction) to novate the
these were delivered to petitioner." (Asian Construction and
original agreement; (b) the signature only proves that the Invoice Receipt was
Development Corporation v. Mendoza, G.R. No. 176949, June 27, 2012,
received by a representative of ACE Foods to show the fact of delivery; and (c) as
675 SCRA 284, 289; emphases supplied; citations omitted)
matter of judicial notice, invoices are generally issued at the consummation stage
of the contract and not its perfection, and have been even treated as documents [40]
Article 1582 of the Civil Code states:
which are not actionable per se, although they may prove sufficient
delivery.[39] Thus, absent any clear indication that the title reservation stipulation
 Art. 1582. The vendee is bound to accept delivery and to pay the price of
was actually agreed upon, the Court must deem the same to be a mere unilateral
the thing sold at the time and place stipulated in the contract.
imposition on the part of MTCL which has no effect on the nature of the parties'
original agreement as a contract of sale. Perforce, the obligations arising thereto,
xxxx
among others, ACE Foods's obligation to pay the purchase price as well as to
 "Considering that the rescission of the contract is based on Article 1191
accept the delivery of the goods,[40] remain enforceable and subsisting.
of the Civil Code, mutual restitution is required to bring back the parties
to their original situation prior to the inception of the contract. x x x
As a final point, it may not be amiss to state that the return of the subject
products pursuant to a rescissory action[41] is neither warranted by ACE Foods's
Rescission creates the obligation to return the object of the contract. It
claims of breach either with respect to MTCL's breach of its purported "after
can be carried out only when the one who demands rescission can
delivery services" obligations or the defective condition of the products since
return whatever he may be obliged to restore. To rescind is to declare a
such claims were not adequately proven in this case. The rule is clear: each party
contract void at its inception and to put an end to it as though it never the price of P7,600,000.00. On July 18, 1980, to secure Rhogen's compliance with
was. It is not merely to terminate it and release the parties from further its obligation under the contract, Gaite and FGU Insurance Corporation (FGU)
obligations to each other, but to abrogate it from the beginning and executed a surety bond in the amount of P1,155,000.00 in favor of The Plaza. On
restore the parties to their relative positions as if no contract has been July 28, 1980, The Plaza paid P1,155,000.00 less withholding taxes as down
made." (Sps. Velarde v. CA, 413 Phil. 360, 375 (2001); citations omitted) payment to Gaite. Thereafter, Rhogen commenced construction of the
restaurant building.

In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting
2. [ GR No. 177685, Jan 26, 2011 ] Building Official of the Municipality of Makati, ordered Gaite to cease and desist
from continuing with the construction of the building for violation of Sections 301
HEIRS OF RAMON C. GAITE v. PLAZA + and 302 of the National Building Code (P.D. 1096) and its implementing rules and
regulations.[5] The letter was referred to The Plaza's Project Manager, Architect
Roberto L. Tayzon.
DECISION

On September 15, 1980, Engr. Gonzales informed Gaite that the building permit
for the construction of the restaurant was revoked for non-compliance with the
655 Phil. 574
provisions of the National Building Code and for the additional temporary
construction without permit.[6] The Memorandum Report of Building Inspector
Victor Gregory enumerated the following violations of Rhogen in the construction
VILLARAMA, JR., J.:
of the building:
This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, which seeks to reverse and set aside the Decision [1] dated June 27,
2006 and Resolution[2] dated April 20, 2007 of the Court of Appeals (CA) in CA- 1) No permit for Temporary Structure.
G.R. CV No. 58790. The CA affirmed with modification the Decision[3] dated July
3, 1997 of the Regional Trial Court (RTC) of Makati City, Branch 63, in Civil Case 2) No notice of concrete pouring.
Nos. 1328 (43083) and 40755.
3) Some workers have no safety devices.
The facts are as follows:
4) The Secretary and Construction Foreman refused to [receive] the Letter of
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the Stoppage dated September 10, 1980.
restaurant business, through its President, Jose C. Reyes, entered into a
contract[4] with Rhogen Builders (Rhogen), represented by Ramon C. Gaite, for 5) Mr. Ramon Gaite [is] questioning the authority of the Building Official's
the construction of a restaurant building in Greenbelt, Makati, Metro Manila for Inspector.
handle the matter by himself.[9]
6) Construction plans use[d] on the job site is not in accordance to the approved
plan.[7] On the same day, Gaite notified Reyes that he is suspending all construction
works until Reyes and the Project Manager cooperate to resolve the issue he had
On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo raised to address the problem.[10] This was followed by another letter dated
#23 reported on his evaluation of Progress Billing #1 submitted by Rhogen. November 18, 1980 in which Gaite expressed his sentiments on their aborted
Tayzon stated that actual jobsite assessment showed that the finished works fall project and reiterated that they can still resolve the matter with cooperation
short of Rhogen's claimed percentage of accomplishment and Rhogen was from the side of The Plaza.[11] In his reply-letter dated November 24, 1980, Reyes
entitled to only P32,684.16 and not P260,649.91 being demanded by asserted that The Plaza is not the one to initiate a solution to the situation,
Rhogen. Further, he recommended that said amount payable to Rhogen be especially after The Plaza already paid the agreed down payment of
withheld pending compliance with Construction Memo #18, resolution of cases P1,155,000.00, which compensation so far exceeds the work completed by
regarding unauthorized withdrawal of materials from jobsite and stoppage of Rhogen before the municipal authorities stopped the construction for several
work by the Municipal Engineer's Office of Makati.[8] violations. Reyes made it clear they have no obligation to help Rhogen get out of
the situation arising from non-performance of its own contractual undertakings,
On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza and that The Plaza has its rights and remedies to protect its interest.[12]
regarding his actions/observations on the stoppage order issued. On the permit
for temporary structure, Gaite said the plans were being readied for submission Subsequently, the correspondence between Gaite and Reyes involved the
to the Engineering Department of the Municipality of Makati and the application custody of remaining bags of cement in the jobsite, in the course of which Gaite
was being resent to Reyes for his appropriate action. As to the notice for was charged with estafa for ordering the removal of said items. Gaite
concrete pouring, Gaite said that their construction set-up provides for a Project complained that Reyes continued to be uncooperative in refusing to meet with
Manager to whom the Pouring Request is first submitted and whose job is to him to resolve the delay. Gaite further answered the estafa charge by saying that
clear to whoever parties are involved (this could still be worked out with the he only acted to protect the interest of the owner (prevent spoilage/hardening of
Building Inspector). Regarding the safety devices for workers, Gaite averred that cement) and that Reyes did not reply to his request for exchange. [13]
he had given strict rules on this but in the course of construction some workers
have personal preferences. On the refusal of the secretary and construction On January 9, 1981, Gaite informed The Plaza that he is terminating their contract
foreman to receive the stoppage order dated September 10, 1980, Gaite took based on the Contractor's Right to Stop Work or Terminate Contracts as provided
responsibility but insisted it was not a violation of the National Building for in the General Conditions of the Contract. In his letter, Gaite accused Reyes of
Code. Likewise, questioning the authority of the Building Inspector is not a not cooperating with Rhogen in solving the problem concerning the revocation of
violation of the Code although Gaite denied he ever did so. Lastly, on the the building permits, which he described as a "minor problem." Additionally,
construction plans used in the jobsite not being in accordance with the approved Gaite demanded the payment of P63,058.50 from The Plaza representing the
plan, Gaite said he had sent Engr. Cristino V. Laurel on October 3, 1980 to Reyes' work that has already been completed by Rhogen.[14]
office and make a copy of the only approved plan which was in the care of Reyes,
but the latter did not give it to Engr. Laurel. Gaite thus thought that Reyes would On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite
and Rhogen fully responsible for failure to comply with the terms of the contract Ayala. Hence, The Plaza demanded the reimbursement of the down payment,
and to deliver the finished structure on the stipulated date. Reyes argued that the the cost of uprooting or removal of the defective structures, the value of owner-
down payment made by The Plaza was more than enough to cover Rhogen's furnished materials, and payment of liquidated damages.[18]
expenses.[15]
On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract,
In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogen's sum of money and damages against Gaite and FGU in the Court of First Instance
undertaking to complete the construction within 180 calendar days from July 16, (CFI) of Rizal.[19] The Plaza later amended its complaint to include Cynthia G.
1980 or up to January 12, 1981, and to pay the agreed payment of liquidated Gaite and Rhogen.[20] The Plaza likewise filed Civil Case No. 1328 (43083) against
damages for every month of delay, chargeable against the performance bond Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen Builders also in the CFI of Rizal
posted by FGU. Reyes invoked Section 121 of the Articles of General Conditions for nullification of the project development contract executed prior to the
granting the owner the right to terminate the contract if the contractor fails to General Construction Contract subject of Civil Case No. 40755, which was
execute the work properly and to make good such deficiencies and deducting the allegedly in violation of the provisions of R.A. No. 545 (Architectural Law of the
cost from the payment due to the contractor. Reyes also informed Gaite that The Philippines).[21] After the reorganization of the Judiciary in 1983, the cases were
Plaza will continue the completion of the structure utilizing the services of a transferred to the RTC of Makati and eventually consolidated.
competent contractor but will charge Rhogen for liquidated damages as
stipulated in Article VIII of the Contract. After proper evaluation of the works On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the
completed by Rhogen, The Plaza shall then resume the construction and charge claims of The Plaza against Rhogen, the Gaites and FGU, and the cross-claim of
Rhogen for all the costs and expenses incurred in excess of the contract price. In FGU against Rhogen and the Gaites. The trial court ruled that the Project
the meantime that The Plaza is still evaluating the extent and condition of the Manager was justified in recommending that The Plaza withhold payment on the
works performed by Rhogen to determine whether these are done in accordance progress billings submitted by Rhogen based on his evaluation that The Plaza is
with the approved plans, Reyes demanded from Gaite the reimbursement of the liable to pay only P32,684.16 and not P260,649.91. The other valid grounds for
balance of their initial payment of P1,155,000.00 from the value of the works the withholding of payment were the pending estafa case against Gaite, non-
correctly completed by Rhogen, or if none, to reimburse the entire down compliance by Rhogen with Construction Memorandum No. 18 and the non-
payment plus expenses of removal and replacement. Rhogen was also asked to lifting of the stoppage order.[22]
turn over the jobsite premises as soon as possible.[16] The Plaza sent copy of said
letter to FGU but the latter replied that it has no liability under the circumstances Regarding the non-lifting of the stoppage order, which the trial court said was
and hence it could not act favorably on its claim against the bond.[17] based on simple infractions, the same was held to be solely attributable to
Rhogen's willful inaction. Instead of readily rectifying the violations, Rhogen
On March 3, 1981, The Plaza notified Gaite that it could no longer credit any continued with the construction works thereby causing more damage. The trial
payment to Rhogen for the work it had completed because the evaluation of the court pointed out that Rhogen is not only expected to be aware of standard
extent, condition, and cost of work done revealed that in addition to the requirements and pertinent regulations on construction work, but also expressly
violations committed during the construction of the building, the structure was bound itself under the General Construction Contract to comply with all the laws,
not in accordance with plans approved by the government and accepted by city and municipal ordinances and all government regulations. Having failed to
complete the project within the stipulated period and comply with its obligations, Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to
Rhogen was thus declared guilty of breaching the Construction Contract and is cost.
liable for damages under Articles 1170 and 1167 of the Civil Code.[23]
SO ORDERED.[24]
The dispositive portion of the trial court's decision reads:
Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA. [25] In
view of the death of Ramon C. Gaite on April 21, 1999, the CA issued a Resolution
WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite and dated July 12, 2000 granting the substitution of the former by his heirs Cynthia G.
Rhogen Builders are jointly and severally ordered to pay plaintiff: Gaite, Rhoel Santiago G. Gaite, Genevieve G. Gaite and Roman Juan G. Gaite.[26]

In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen
1. the amount of P525,422.73 as actual damages representing owner- assigned the following errors, to wit:
furnished materials with legal interest from the time of filing of the
complaint until full payment;
2. the amount of P14,504.66 as actual damages representing expenses for
uprooting with interest from the time of filing the complaint until full I. THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED
payment; UPON BY DEFENDANT-APPELLANT RHOGEN BUILDERS IN TERMINATING
3. the amount of P1,155,000.00 as actual damages representing the THE CONTRACT ARE UNTENABLE;
downpayment with legal interest from the time of filing the complaint
until full payment; II. THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF THE
4. the amount of P150,000.00 for moral damages; STOPPAGE ORDER OF THE THEN MUNICIPAL GOVERNMENT OF MAKATI
5. the amount of P100,000.00 for exemplary damages; WAS SOLELY ATTRIBUTABLE TO DEFENDANT-APPELLANT RHOGEN'S
6. the amount of P500,000.00 as liquidated damages; WILLFUL INACTION;
7. the amount of P100,000.00 as reasonable attorney's fees; and,
8. the cost of suit. III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE
WILLFUL INACTION OF PLAINTIFF-APPELLEE WHICH MADE IT IMPOSSIBLE
Under the surety bond, defendants Rhogen and FGU are jointly and severally FOR DEFENDANT-APPELLANT RHOGEN TO PERFORM ITS OBLIGATIONS
ordered to pay plaintiff the amount of P1,155,000.00 with legal interest from the UNDER THE CONTRACT;
time of filing the complaint until full payment. In the event [that] FGU pays the
said amount, third-party defendants are jointly and severally ordered to pay the IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL AS
same amount to FGU plus P50,000.00 as reasonable attorney's fees, the latter MORAL, EXEMPLARY, AND LIQUIDATED DAMAGES AND ATTORNEY'S
having been forced to litigate, and the cost of suit. FEES SINCE THERE WERE NO FACTUAL AND LEGAL BASES THEREFOR;
AND VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES
TO PLAINTIFF-APPELLEE.
V. THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN FAVOR OF VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY
DEFENDANTS-APPELLANTS.[27] DAMAGES TO PLAINTIFF-APPELLEE.

VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED


For its part, FGU interposed the following assignment of errors: DAMAGES TO PLAINTIFF-APPELLEE.

IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES TO


PLAINTIFF-APPELLEE.
I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANT-
APPELLANT RAMON GAITE VALIDLY TERMINATED THE CONTRACT X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-
BETWEEN HIM AND PLAINTIFF-APPELLEE. APPELLANT FGU INSURANCE CORPORATION LIABLE TO PLAINTIFF-
APPELLEE.[28]
II. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-
APPELLANT RAMON GAITE RESPONSIBLE FOR THE STOPPAGE OF THE
CONSTRUCTION. On June 27, 2006, the CA affirmed the Decision of the trial court but modified the
award of damages as follows:
III. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-
APPELLANT RAMON GAITE TO PAY THE AMOUNT OF P525,422.73 FOR
THE OWNER FURNISHED MATERIALS. WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial
Court of Makati City, Branch 63 in Civil Case Nos. 40755 and 1328
IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT- is AFFIRMED with the modification that: (a) the award for actual damages
APPELLANT RAMON GAITE TO PAY PLAINTIFF-APPELLEE THE AMOUNT representing the owner-furnished materials and the expenses for uprooting are
OF P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING THE WORK HE deleted, and in lieu thereof, the amount of P300,000.00 as temperate damages is
PERFORMED. awarded; and (b) the awards for moral, exemplary, liquidated and attorney's fees
are likewise deleted.
V. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-
APPELLANT RAMON GAITE TO REFUND THE DOWN PAYMENT OF SO ORDERED.[29]
P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM.
According to the CA, The Plaza cannot now be demanded to comply with its
obligation under the contract since Rhogen has already failed to comply with its
own contractual obligation. Thus, The Plaza had every reason not to pay the
progress billing as a result of Rhogen's inability to perform its obligations under
the contract. Further, the stoppage and revocation orders were issued on I.
account of Rhogen's own violations involving the construction as found by the
local building official. Clearly, Rhogen cannot blame The Plaza for its own failure Whether or not the Court of Appeals acted without or in excess of jurisdiction, or
to comply with its contractual obligations. The CA stressed that Rhogen obliged with grave abuse of discretion amounting to lack of or excess of jurisdiction,
itself to comply with "all the laws, city and municipal ordinances and all when it found that Petitioner Rhogen had no factual or legal basis to terminate
government regulations insofar as they are binding upon or affect the parties [to the General Construction Contract.
the contract] , the work or those engaged thereon."[30] As such, it was
responsible for the lifting of the stoppage and revocation orders. As to Rhogen's
act of challenging the validity of the stoppage and revocation orders, the CA held II.
that it cannot be done in the present case because under Section 307 of
the National Building Code, appeal to the Secretary of the Department of Public Whether or not the Court of Appeals acted without or in excess of jurisdiction, or
Works and Highways (DPWH) - whose decision is subject to review by the Office with grave abuse of discretion amounting to lack of or excess of jurisdiction,
of the President -- is available as remedy for Rhogen.[31] when, as a consequence of its finding that Petitioners did not have valid grounds
to terminate the Construction Contract, it directed Petitioners to return the
However, the CA modified the award of damages holding that the claim for actual downpayment paid by The Plaza, with legal interest.
damages of P525,422.73 representing the damaged owner-furnished materials
was not supported by any evidence. Instead, the CA granted temperate damages
in the amount of P300,000.00. As to moral damages, no specific finding for the III.
factual basis of said award was made by the trial court, and hence it should be
deleted. Likewise, liquidated damages is not proper considering that this is not a Whether or not the Court of Appeals acted without or in excess of jurisdiction, or
case of delay but non-completion of the project. The Plaza similarly failed to with grave abuse of discretion amounting to lack of or excess of jurisdiction,
establish that Rhogen and Gaite acted with malice or bad faith; consequently, the when, in addition thereto, it awarded temperate damages to The Plaza.
award of exemplary damages must be deleted. Finally, there being no bad faith
on the part of the defendants, the award of attorneys' fees cannot be
sustained.[32] IV.

The motion for reconsideration of the aforesaid Decision was denied in the Whether or not the Court of Appeals acted without or in excess of jurisdiction, or
Resolution dated April 20, 2007 for lack of merit. Hence, this appeal. with grave abuse of discretion amounting to lack of or excess of jurisdiction,
when it failed to award damages in favor of Petitioners.[33]
Before us, petitioners submit the following issues:
Petitioners contend that the CA gravely erred in not holding that there were valid
and legal grounds for Rhogen to terminate the contract pursuant to Article 1191 Plaza furnished materials and paid the agreed down payment. It also exercised
of the Civil Code and Article 123 of the General Conditions of the Construction the option of furnishing and delivering construction materials at the jobsite
Contract. Petitioners claim that Rhogen sent Progress Billing No. 1 dated pursuant to Article III of the Construction Contract. However, just two months
September 10, 1980 and demanded payment from The Plaza in the net amount after commencement of the project, construction works were ordered stopped
of P473,554.06 for the work it had accomplished from July 28, 1980 until by the local building official and the building permit subsequently revoked on
September 7, 1980. The Plaza, however, failed to pay the said amount. According account of several violations of the National Building Code and other regulations
to petitioners, Article 123 of the General Conditions of the Construction Contract of the municipal authorities.
gives The Plaza seven days from notice within which to pay the Progress Billing;
otherwise, Rhogen may terminate the contract. Petitioners also invoke Article Petitioners reiterate their position that the stoppage order was unlawful, citing
1191 of the Civil Code, which states that the power to rescind obligations is the fact that when the new contractor (ACK Construction, Inc.) took over the
implied in reciprocal ones, in case one of the obligors should not comply with project, the local government of Makati allowed the construction of the building
what is incumbent upon him. using the old building permit; moreover, the basement depth of only two meters
was retained, with no further excavation made. They cite the testimony of the
We deny the petition. late Ramon Gaite before the trial court that at the time, he had incurred the ire of
then Mayor of Makati because his (Gaite) brother was the Mayor's political
Reciprocal obligations are those which arise from the same cause, and in which opponent; hence, they sought to file whatever charge they could against him in
each party is a debtor and a creditor of the other, such that the obligation of one order to call the attention of his brother. This "political harassment" defense was
is dependent upon the obligation of the other. They are to be performed raised by petitioners in their Amended Answer. Gaite's testimony was intended
simultaneously such that the performance of one is conditioned upon the to explain the circumstances leading to his decision to terminate the construction
simultaneous fulfillment of the other. Respondent The Plaza predicated its action contract and not to question the revocation of the building permit. As the
on Article 1191[34] of the Civil Code, which provides for the remedy of "rescission" available remedy was already foreclosed, it was thus error for the CA to suggest
or more properly resolution, a principal action based on breach of faith by the that Rhogen should have appealed the stoppage and revocations orders issued by
other party who violates the reciprocity between them. The breach the municipal authorities to the DPWH and then to the OP.[36]
contemplated in the provision is the obligor's failure to comply with an existing
obligation. Thus, the power to rescind is given only to the injured party. The Article 123 of the Articles of General Conditions states the grounds for the
injured party is the party who has faithfully fulfilled his obligation or is ready and termination of the work or contract by the Contractor:
willing to perform his obligation.[35]

The construction contract between Rhogen and The Plaza provides for reciprocal 123. CONTRACTOR'S RIGHT TO STOP WORK OR TERMINATE CONTRACT
obligations whereby the latter's obligation to pay the contract price or progress
billing is conditioned on the former's performance of its undertaking to complete If work should be stopped under order of any court, or other public authority, for
the works within the stipulated period and in accordance with approved plans period of three (3) months through no act or fault of Contractor or of anyone
and other specifications by the owner. Pursuant to its contractual obligation, The employed by him, or if Owner's Representative should fail to issue any certificate
of payment within seven (7) days after its maturity and presentation of any sum approval of the Municipal Engineer before making the changes thereon. [39]
certified by Owner's Representative or awarded arbitrator, then contractor, may,
stop work or terminate Contract, recover from Owner payment for work Such non-observance of laws and regulations of the local authorities affecting the
executed, loss sustained upon any plant or materials, reasonable profit, construction project constitutes a substantial violation of the Construction
damages.[37] (Emphasis supplied.) Contract which entitles The Plaza to terminate the same, without obligation to
make further payment to Rhogen until the work is finished or subject to refund of
Petitioners may not justify Rhogen's termination of the contract upon grounds of payment exceeding the expenses of completing the works. This is evident from a
non-payment of progress billing and uncooperative attitude of respondent The reading of Article 122 which states:
Plaza and its employees in rectifying the violations which were the basis for
issuance of the stoppage order. Having breached the contractual obligation it had
expressly assumed, i.e., to comply with all laws, rules and regulations of the local 122. OWNER'S RIGHT TO TERMINATE CONTRACT
authorities, Rhogen was already at fault. Respondent The Plaza, on the other
hand, was justified in withholding payment on Rhogen's first progress billing, on
account of the stoppage order and additionally due to disappearance of owner-
furnished materials at the jobsite. In failing to have the stoppage and revocation A. If Contractor should be adjudged bankrupt, or if he should make general
orders lifted or recalled, Rhogen should take full responsibility in accordance with assignment for benefit of his creditors, or if receiver should be
its contractual undertaking, thus: appointed on account of his insolvency, or if he should persistently or
repeatedly refuse or should fail, except in cases for which extension of
time is provided, to supply enough properly skilled workmen or proper
In the performance of the works, services, and obligations subject of this materials, or if he should fail to make prompt payment to Sub-
Contract, the CONTRACTOR binds itself to observe all pertinent and applicable Contractors or for materials of labor, or persistently disregard laws,
laws, rules and regulations promulgated by duly constituted authorities and to be ordinances, or instructions of Owner's Representative or otherwise be
personally, fully and solely liable for any and all violations of the guilty of substantial violation of any provision of [the]
same.[38] (Emphasis supplied.) Contract, then Owner, upon certification by Owner's Representative
that sufficient cause exists to justify such action, may,without prejudice
Significantly, Rhogen did not mention in its communications to Reyes that Gaite to any right or remedy, after giving Contractor seven days written
was merely a victim of abuse by a local official and this was the primary reason notice, terminate contract with Contractor, take possession of
for the problems besetting the project. On the contrary, the site appraisal premises, materials, tools, appliances, thereon, finish work by
inspection conducted on February 12 and 13, 1981 in the presence of whatever method he may deem expedient. In such cases, Contractor
representatives from The Plaza, Rhogen, FGU and Municipal Engineer Victor shall not be entitled to receive any further payment until work is
Gregory, disclosed that in addition to the violations committed by Rhogen which finished.
resulted in the issuance of the stoppage order, Rhogen built the structure not in
accordance with government approved plans and/or without securing the
B. If unpaid balance of Contract sum shall exceed expense of finishing work that claimed by it under the first progress billing between July and September
including compensation for additional managerial and administrative 1980. Moreover, after it relinquished the project in January 1981, the site
services, such excess, paid to Contractor. Refund the difference to inspection appraisal jointly conducted by the Project Manager, Building Inspector
Owner if such expense shall exceed unpaid balance.[40] (Emphasis Engr. Gregory and representatives from FGU and Rhogen, Rhogen was found to
supplied.) have executed the works not in accordance with the approved plans or failed to
seek prior approval of the Municipal Engineer. Article 1167 of the Civil Code is
explicit on this point that if a person obliged to do something fails to do it, the
Upon the facts duly established, the CA therefore did not err in holding that same shall be executed at his cost.
Rhogen committed a serious breach of its contract with The Plaza, which justified
the latter in terminating the contract. Petitioners are thus liable for damages for
having breached their contract with respondent The Plaza. Article 1170 of Art. 1167. If a person obliged to do something fails to do it, the same shall be
the Civil Code provides that those who in the performance of their obligations are executed at his cost.
guilty of fraud, negligence or delay and those who in any manner contravene the
tenor thereof are liable for damages. This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be
Petitioners assail the order for the return of down payment, asserting that the undone.
principle of quantum meruit demands that Rhogen as contractor be paid for the
work already accomplished. In addition, Article 122 of the Articles of General Conditions provides that the
contractor shall not be entitled to receive further payment "until the work is
We disagree. finished." As the works completed by Rhogen were not in accordance with
approved plans, it should have been executed at its cost had it not relinquished
Under the principle of quantum meruit, a contractor is allowed to recover the the project in January 1981. The CA thus did not err in sustaining the trial court's
reasonable value of the thing or services rendered despite the lack of a written order for the return of the down payment given by The Plaza to Rhogen.
contract, in order to avoid unjust enrichment. Quantum meruit means that in an
action for work and labor, payment shall be made in such amount as the plaintiff As to temperate damages, Article 2224 of the Civil Code provides that temperate
reasonably deserves. To deny payment for a building almost completed and or moderate damages, which are more than nominal but less than compensatory
already occupied would be to permit unjust enrichment at the expense of the damages, may be recovered when the court finds that some pecuniary loss has
contractor.[41] been suffered but its amount cannot, from the nature of the case, be proved with
certainty. The rationale behind temperate damages is precisely that from the
Rhogen failed to finish even a substantial portion of the works due to the nature of the case, definite proof of pecuniary loss cannot be offered. When the
stoppage order issued just two months from the start of construction. Despite court is convinced that there has been such loss, the judge is empowered to
the down payment received from The Plaza, Rhogen, upon evaluation of the calculate moderate damages, rather than let the complainant suffer without
Project Manager, was able to complete a meager percentage much lower than redress from the defendant's wrongful act.[42]Petitioners' contention that such
award is improper because The Plaza could have presented receipts to support Facts:
the claim for actual damages, must fail considering that Rhogen never denied the
delivery of the owner-furnished materials which were under its custody at the
 Virgilio S. David was the owner or proprietor of VSD Electric Sales, a company
jobsite during the work stoppage and before it terminated the contract. Since
engaged in the business of supplying electrical hardware for rural electric
Rhogen failed to account either for those items which it had caused to be
cooperatives like respondent Misamis Occidental II Electric Cooperative, Inc.
withdrawn from the premises, or those considered damaged or lost due spoilage,
(MOELCI), with principal office located in Ozamis City.
or disappeared for whatever reason - there was no way of determining the exact
quantity and cost of those materials. Hence, The Plaza was correctly allowed to  MOELCI expressed its intention to purchase a 10 MVA power transformer
recover temperate damages. from David. Its General Manager, Engr. Reynaldo Rada went to meet David in
Quezon City. David agreed to supply the power transformer provided they
Upon the foregoing, we find petitioners' claim for actual, moral and exemplary would secure a board resolution because the item would still have to be
damages and attorney's fees lacking in legal basis and undeserving of further imported.
discussion.
 On June 8, 1992, Engr. Rada and Director Jose Jimenez, in-charge of
procurement, returned to Manila and presented to David the board
WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the
resolution. In turn, David presented his proposal.
Resolution dated April 20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790
are AFFIRMED.  After the reading of the proposal and the discussion of terms, David
instructed his secretary to type the names of Engr. Rada and Jimenez at the
With costs against petitioners. end of the proposal. Both signed the document under the word “conforme.”
The board resolution was thereafter attached to the proposal.
SO ORDERED.
 As stated in the proposal, the subject transformer, together with the basic
accessories, was valued at P5,200,000.00. It was also stipulated therein that
50% of the purchase price should be paid as down payment and the
remaining balance to be paid upon delivery. Freight handling, insurance,
customs duties, and incidental expenses were for the account of the buyer.

 The Board Resolution, on the other hand, stated that the purchase of the
3. Virgilio S. David vs Misamis Occidental II Electric
said transformer was to be financed through a loan from the National
Cooperative Inc. Electrification Administration (NEA).

 As there was no immediate action on the loan application, Engr. Rada


G.R. No. 194785, July 11, 2012
returned to Manila in early December 1992 and requested David to deliver
the transformer to them even without the required down payment.
 David granted the request provided that MOELCI would pay interest at 24% MOECLI’s contentions:
per annum. Engr. Rada acquiesced to the condition. On December 17, 1992,
 MOECLI moved for its dismissal on the ground that there was lack of cause of
the goods were shipped to Ozamiz City via William Lines. In the Bill of Lading,
action as there was no contract of sale, or in the alternative, the said contract
a sales invoice was included which stated the agreed interest rate of 24% per
was unenforceable under the Statute of Frauds.
annum.
 MOELCI argued that the quotation letter could not be considered a binding
 When nothing was heard from MOELCI after the shipment, Emanuel Medina
contract because there was nothing in the said document from which
(Medina), David’s Marketing Manager, went to Ozamiz City to check on the
consent, on its part, to the terms and conditions proposed by David could be
shipment. Medina was able to confer with Engr. Rada who told him that the
inferred. David knew that MOELCI s assent could only be obtained upon the
loan was not yet released and asked if it was possible to withdraw the
issuance of a purchase order in favor of the bidder chosen by the Canvass
shipped items. Medina agreed.
and Awards Committee.
 When no payment was made after several months, Medina sent the demand
letter which MOELCI duly received. Engr. Rada replied in writing that the
goods were still in the warehouse of William Lines again reiterating that the
RTC’s Ruling:
loan had not been approved.
 The RTC dismissed the complaint. It found that although a contract of sale
 This prompted Medina to head back to Ozamiz City where he found out that
was perfected, it was not consummated because David failed to prove that
the goods had already been released to MOELCI evidenced by the shipping
there was indeed a delivery of the subject item and that MOELCI received it.
company’s copy of the Bill of Lading which was stamped “Released,” and
with the notation that the arrastre charges in the amount of P5,095.60 had
been paid. This was supported by a receipt of payment with the
corresponding cargo delivery receipt issued by the Integrated Port Services of CA’s ruling:
Ozamiz, Inc.
 CA affirmed the ruling of the RTC.
 Subsequently, demand letters were sent to MOELCI demanding the payment
of the whole amount plus the balance of previous purchases of other  Although David was correct in saying that MOELCI was deemed to have
electrical hardware. Aside from the formal demand letters, David added that admitted the genuineness and due execution of the “quotation letter”, he
several statements of accounts were regularly sent through the mails by the failed to offer any textual support to his stand that it was a contract of sale
company and these were never disputed by MOELCI. instead of a mere price quotation agreed to by MOELCI representatives. On
this score,
 On February 17, 1994, David filed a complaint about specific performance
with damages with the RTC.

Issues:
1. Whether or not there was a perfected contract of sale 2. On the issue if there was a delivery that consummated the contract.
Yes. There were delivery and release.
2. Whether or not there was a delivery that consummated the contract.

MOELCI agreed that the power transformer would be delivered and that the
freight, handling, insurance, customs duties, and incidental expenses shall be
Supreme Court’s Ruling: shouldered by it.

On the basis of this express agreement, Article 1523 of the Civil Code becomes
David’s petition is GRANTED. CA’s decision is revered and respondent Misamis applicable. It provides:
Occidental II Electric Cooperative, Inc. is ordered to pay petitioner David the total
sum of P5,472,722.27 with interest at the rate of 12% per annum reckoned from “Where, in pursuance of a contract of sale, the seller is authorized or required to
the filing of the complaint until fully paid. send the goods to the buyer delivery of the goods to a carrier, whether named by
1. On the issue if there was a perfected contract of sale the buyer or not, for the purpose of transmission to the buyer is deemed to be a
There was a meeting of the minds, there was consent on the part of David to delivery of the goods to the buyer, except in the cases provided for in Article 1503,
transfer ownership of the power transformer to MOELCI in exchange for the price, first, second and third paragraphs, or unless a contrary intent appears.”
thereby complying with the first element. Thus, the said document cannot just be Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of
considered a contract to sell but rather a perfected contract of sale. Lading, was deemed to be a delivery to MOELCI. David was authorized to send
Explanations: the power transformer to the buyer pursuant to their agreement. When David
The elements of a contract of sale are, to wit: sent the item through the carrier, it amounted to a delivery to MOELCI.

1. Consent or meeting of the minds, that is, consent to transfer ownership in Principles:
exchange for the price;
So that, if the buyer is to pay the freight, as in this case, it is reasonable to
2. Determinate subject matter; and suppose that the subject of the sale is transferred to the buyer at the point of
3. Price certain in money or its equivalent. shipment. In other words, the title to the goods transfers to the buyer upon
It is the absence of the first element which distinguishes a contract of sale from shipment or delivery to the... carrier.
that of a contract to sell.

An examination of the alleged contract to sell, “Exhibit A,” despite its 4. KER VS. LINGAD G.R. No. L-20871 (April 30, 1971)
unconventional form, would show that said document, with all the stipulations
therein and with the attendant circumstances surrounding it, was actually a FACTS:
Contract of Sale. The rule is that it is not the title of the contract, but its express Melecio R. Domingo, then Commissioner of Internal Revenue assessed Ker & Co.
terms or stipulations that determine the kind of contract entered into by the and found the sum of P20,272.33 as the commercial broker’s percentage tax,
parties. surcharge, and compromise penalty for the period from July 1, 1949 to December
31, 1953. Ker & Co petitioned that the request be cancelled, but the petitioned stipulations were so worded as to lead to no other conclusion than that the
was turned down. Kr & Co. then filed a petition for review with the Court of Tax control by the United States Rubber International over the goods in question is, in
Appeals. Commissioner Domingo maintained his stand that the petitioner should the language of the Constantino opinion, “pervasive”.
be taxed in such amount as a commercial broker. The liability arose from a
contract that Ker & Co. had with the United States Rubber International, where
Ker & Co. was designated as the distributor and United States Rubber
International as the company. Ker & Co., as Distributor, is required to exert every
effort to have the shipment of the products in the maximum quantity and to
SC DECISION:
promote in every way the sale thereof. The prices, discounts, terms of payment,
terms of delivery and other conditions of sale were subject to change in the
discretion of United States Rubber International. All specifications for the goods Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax
ordered were subject to acceptance of United States Rubber International and Appeals, holding it liable as a commercial broker under Section 194 (t) of the
required to accept such goods shipped as well as to clear the same through National Internal Revenue Code. Its plea, notwithstanding the vigorous effort of
customs and to arrange for delivery in its warehouse in Cebu City. its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable,
stands in the way. The decision under review conforms to and is in accordance
with the controlling doctrine announced in the recent case of Commissioner of
ISSUE:
Internal Revenue v. Constantino.[1] The decisive test, as therein set forth, is the
Whether or not the relationship created between Ker & Co. and United States
retention of the ownership of the goods delivered to the possession of the
Rubber International is one of vendor and vendee or broker and principal.
dealer, like herein petitioner, for resale to customers, the price and terms
remaining subject to the control of the firm consigning such goods. The facts, as
RULING: found by respondent Court, to which we defer, unmistakably indicate that such a
The relationship between Ker & Co. is one of brokerage or agency. According to situation does exist. The juridical consequences must inevitably follow. We
the National Internal Revenue Code, a commercial broker “includes all persons, affirm.
other than importers, manufacturers, producers, or bona fide employees, who,
for compensation or profit, sell or bring about sales or purchases of merchandise It was shown that petitioner was assessed by the then Commissioner of Internal
for other persons or bring proposed buyers and sellers together, or negotiate Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial broker's
freights or other business for owners of vessels or other means of transportation, percentage tax, surcharge, and compromise penalty for the period from July 1,
or for the shippers, or consignors or consignees of freight carried by vessels or 1949 to December 31, 1953. There was a request on the part of petitioner for the
other means of transportation. The term includes commission merchants.” In the cancellation of such assessment, which request was turned down. As a result, it
language of Justice J. B. L. Reyes, who penned the opinion: “Since the company filed a petition for review with the Court of Tax Appeals. In its answer, the then
retained ownership of the goods, even as it delivered possession unto the dealer Commissioner Domingo maintained his stand that petitioner should be taxed in
for resale to customers, the price and terms of which were subject to the such amount as a commercial broker. In the decision now under review,
company’s control, the relationship between the company and the dealer is one promulgated on October 19, 1962, the Court of Tax Appeals held petitioner
of agency.” The relationship between Ker & Co. and United States Rubber taxable except as to the compromise penalty of P500.00, the amount due from it
International was not one of seller and purchaser, if that was the intention, then being fixed at P19,772.33.
it would not have included covenants which in their totality would negate the
concept of a firm acquiring as vendee goods from another. Instead, the
Such liability arose from a contract of petitioner with the United States Rubber All specifications for the goods ordered were subject to acceptance by the
International, the former being referred to as the Distributor and the latter Company with petitioner, as Distributor, required to accept such goods shipped
specifically designated as the Company. The contract was to apply to transactions as well as to clear the same through customs and to arrange for delivery in its
between the former and petitioner, as Distributor, from July 1, 1948 to continue warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from
in force until terminated by either party giving to the other sixty days' notice.[2] the stocks carried by the Company's neighboring branches, subsidiaries or other
The shipments would cover products "for consumption in Cebu, Bohol, Leyte, sources of company's brands.[7] Shipments were to be invoiced at prices to be
Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao," agreed upon, with the customs duties being paid by petitioner, as Distributor, for
petitioner, as Distributor, being precluded from disposing such products account of the Company.[8] Moreover, all resale prices, lists, discounts and
elsewhere than in the above places unless written consent would first be general terms and conditions of local resale were to be subject to the approval of
obtained from the Company.[3] Petitioner, as Distributor, is required to exert the Company and to change from time to time in its discretion.[9] The dealer, as
every effort to have the shipment of the products in the maximum quantity and Distributor, is allowed a discount of ten percent on the net amount of sales of
to promote in every way the sale thereof.[4] The prices, discounts, terms of merchandise made under such agreement.[10] On a date to be determined by
payment, terms of delivery and other conditions of sale were subject to change in the Company, the petitioner, as Distributor, was required to report to it data
the discretion of the Company.[5] showing in detail all sales during the month immediately preceding, specifying
therein the quantities, sizes and types together with such information as may be
required for accounting purposes, with the Company rendering an invoice on
sales as described to be dated as of the date of inventory and sales report. As
Then came this crucial stipulation: "The Company shall from time to time consign Distributor, petitioner had to make payment on such invoice or invoices on due
to the Distributor and the Distributor will receive, accept and/or hold upon date with the Company being privileged at its option to terminate and cancel the
consignment the products specified under the terms of this agreement in such agreement forthwith upon the failure to comply with this obligation.[11] The
quantities as in the judgment of the Company may be necessary for the Company, at its own expense, was to keep the consigned stock fully insured
successful solicitation and maintenance of business in the territory, and the against loss or damage by fire or as a result of fire, the policy of such insurance to
Distributor agrees that responsibility for the final sale of all goods delivered shall be payable to it in the event of loss. Petitioner, as Distributor, assumed full
rest with him. All goods on consignment shall remain the property of the responsibility with reference to the stock and its safety at all times; and upon
Company until sold by the Distributor to the purchaser or purchasers, but all sales request of the Company at any time, it was to render inventory of the existing
made by the Distributor shall be in his name, in which case the sale price of all stock which could be subject to change.[12] There was furthermore this equally
goods sold less the discount given to the Distributor by the Company in tell-tale covenant: "Upon the termination or any cancellation of this agreement
accordance with the provision of paragraph 13 of this agreement, whether or not all goods held on consignment shall be held by the Distributor for the account of
such sale price shall have been collected by the Distributor from the purchaser or the Company, without expense to the Company, until such time as provision can
purchasers, shall immediately be paid and remitted by the Distributor to the be made by the Company for disposition."[13]
Company. It is further agreed that this agreement does not constitute Distributor
the agent or legal representative of the Company for any purpose whatsoever.
Distributor is not granted any right or authority to assume or to create any
obligation or responsibility, express or implied, in behalf of or in the name of the The issue with the Court of Tax Appeals, as with us now, is whether the
Company, or to bind the Company in any manner or thing whatsoever."[6] relationship thus created is one of vendor and vendee or of broker and principal.
Not that there would have been the slightest doubt were it not for the categorical
denial in the contract that petitioner was not constituted as "the agent or legal
representative of the Company for any purpose whatsoever." It would be,
however, to impart to such an express disclaimer a meaning it should not possess freight carried by vessels or other means of transportation. The term includes
to ignore what is manifestly the role assigned to petitioner considering the commission merchants."[16] The controlling decision as to the test to be followed
instrument as a whole. That would be to lose sight altogether of what has been as to who falls within the above definition of a commercial broker is that of
agreed upon. The Court of Tax Appeals was not misled. In the language of the Commissioner of Internal Revenue v. Constantino.[17] In the language of Justice
decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual J.B.L. Reyes, who penned the opinion: "Since the company retained ownership of
stipulation, an agent of U.S. Rubber International is borne out by the facts that the goods, even as it delivered possession unto the dealer for resale to
petitioner can dispose of the products of the Company only to certain persons or customers, the price and terms of which were subject to the company's control,
entities and within stipulated limits, unless excepted by the contract or by the the relationship between the company and the dealer is one of agency, * *
Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon *."[18] An excerpt from Salisbury v. Brooks[19] cited in support of such a view
consignment the products, which remain properties of the latter company (Par. follows: '" The difficulty in distinguishing between contracts of sale and the
8); that every effort shall be made by petitioner to promote in every way the sale creation of an agency to sell has led to the establishment of rules by the
of the products (Par. 3); that sales made by petitioner are subject to approval by application of which this difficulty may be solved. The decisions say the transfer
the company (Par. 12); that on dates determined by the rubber company, of title or agreement to transfer it for a price paid or promised is the essence of
petitioner shall render a detailed report showing sales during the month (Par. 14); sale. If such transfer puts the transferee in the attitude or position of an owner
that the rubber company shall invoice the sales as of the dates of inventory and and makes him liable to the transferor as a debtor for the agreed price, and not
sales report (Par. 14); that the rubber company agrees to keep the consigned merely as an agent who must account for the proceeds of a resale, the
goods fully insured under insurance policies payable to it in case of loss (Par. 15); transaction is a sale; while the essence of an agency to sell is the delivery to an
that upon request of the rubber company at any time, petitioner shall render an agent, not as his property, but as the property of the principal, who remains the
inventory of the existing stock which may be checked by an authorized owner and has the right to control sales, fix the price, and terms, demand and
representative of the former (Par. 15); and that upon termination or cancellation receive the proceeds less the agent's commission upon sales made.'"[20] The
of the Agreement, all goods held on consignment shall be held by petitioner for opinion relied on the work of Mechem on Sales as well as Mechem on Agency.
the account of the rubber company until their disposition is provided for by the Williston and Tiedman, both of whom wrote treatises on Sales, were likewise
latter (Par. 19). All these circumstances are irreconcilably antagonistic to the idea referred to.
of an independent merchant."[14] Hence its conclusion: "However, upon analysis
of the contract, as a whole, together with the actual conduct of the parties in Equally relevant is this portion of the Salibury opinion: "It is difficult to
respect thereto, we have arrived at the conclusion that the relationship between understand or appreciate the necessity or presence of these mutual
them is one of brokerage or agency."[15] We find ourselves in agreement, requirements and obligations on any theory other, than that of a contract of
notwithstanding the able brief filed on behalf of petitioner by its counsel. As agency. Salisbury was to furnish the mill and put the timber owned by him into a
noted at the outset, we cannot heed petitioner's plea for reversal. marketable condition in the form of lumber; Brooks was to fumish the funds
necessary for that purpose, sell the manufactured product, and account therefor
to Salisbury upon the specific terms of the agreement, less the compensation
fixed by the parties in lieu of interest on the money advanced and for services as
According to the National Internal Revenue Code, a com-mercial broker "includes agent. These requirements and stipulations are inconsistent with any other
all persons, other than importers, manufacturers, producers, or bona fide conception of the contract. If it constitutes an agreement to sell, they are
employees, who, for compensation or profit, sell or bring about sales or meaningless. But they cannot be ignored. They were placed there for some
purchases of merchandise for other persons or bring proposed buyers and sellers purpose, doubtless as the result of definite antecedent negotiations therefore,
together, or negotiate freights or other business for owners of vessels or other consummated by the final written expression of the agreement.[21] Hence the
means of transportation, or for the shippers, or consignors or consignees of Constantino opinion could categorically affirm that the mere disclaimer in a
contract that an entity like petitioner is not "the agent or legal representative * * what cannot be denied is that the Court of Tax Appeals reached a result to which
* for any purpose whatsoever" does not suffice to yield the conclusion that it is the Court in the recent Constantino decision gave the imprimatur of its approval,
an independent merchant if the control over the goods for resale of the goods
consigned is pervasive in character. The Court of Tax Appeals decision now under
review pays fealty to such an applicable doctrine.
WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed.
With costs against petitioner.

No merit therefore attaches to the first error imputed by petitioner to the Court
of Tax Appeals. Neither did such Court fail to appreciate in its true significance
the act and conduct pursued in the implementation of the contract by both the
United States Rubber International and petitioner, as was contended in the
second assignment of error. Petitioner ought to have been aware that there was
5 [ G.R. No. 75198, October 18, 1988 ]
no need for,such an inquiry. The terms of the contract, as noted, speak quite
clearly. There is lacking that degree of ambiguity sufficient to give rise to serious SCHMID & OBERLY, INC., PETITIONER, VS. RJL MARTINEZ FISHING
doubt as to what was contemplated by the parties. A reading thereof discloses CORPORATION, RESPONDENT.
that the relationship arising therefrom was not one of seller and purchaser. If it
were thus intended, then it would not have included covenants which in their
totality would negate the concept of a firm acquiring as vendee goods from
another. Instead, the stipulations were so worded as to lead to no other
DECISION
conclusion than that the control by the United States Rubber International over
the goods in question is, in the language of the Constantino opinion, "pervasive."
The insistence on a relationship opposed to that apparent from the language CORTES, J.:
employed might even yield the impression that such a mode of construction was
resorted to in order that the applicability of a taxing statute might be rendered Petitioner seeks reversal of the decision and the resolution of the Court of
nugatory. Certainly, such a result is to be avoided. Appeals, ordering Schmid & Oberly, Inc. (hereafter to be referred to simply as
"SCHMID") to refund the purchase price paid by RJL Martinez Fishing Corporation
Nor is it to be lost sight of that on a matter left to the discretion of the Court of (hereafter to be referred to simply as "RJL MARTINEZ") to D. Nagata Co., Ltd. of
Tax Appeals which has developed an expertise in view of its function being Japan (hereafter to be referred to simply as "NAGATA CO.") for twelve (12)
limited solely to the interpretation of revenue laws, this Court is not prepared to defective "Nagata" -brand generators, plus consequential damages and
substitute its own judgment unless a grave abuse of discretion is manifest. It attorney's fees.
would be to frustrate the objective for which administrative tribunals are created
if the judiciary, absent such a showing, is to ignore their appraisal on a matter The facts as found by the Court of Appeals, are as follows:
that forms the staple of their specialized competence. While it is to be admitted
that counsel for petitioner did scrutinize with care the decision under review with The findings of facts by the trial court (Decision, pp. 21-28, Record on Appeal)
a view to exposing what was considered its flaws, it cannot be said that there was shows: that the plaintiff RJL Martinez Fishing Corporation is engaged in deep-sea
such a failure to apply what the law commands as to call for its reversal. Instead, fishing, and in the course of its business, needed electrical generators for the
operation of its business; that the defendant sells electrical generators with the
brand of "Nagata", a Japanese product; that the supplier is the manufacturer, the
D. Nagata Co., Ltd., of Japan; that the defendant Schmid & Oberly, Inc. advertised Considering the sketchiness of the respondent court's narration of facts, whether
the 12 Nagata generators for sale; that the plaintiff purchased 12 brand new or not the Court of Appeals indeed misapprehended the facts could not be
Nagata generators, as advertised by herein defendant; that through an determined without a thorough review of the records.
irrevocable line of credit, the D. Nagata Co., Ltd. shipped to the plaintiff 12
electric generators, and the latter paid the amount of the purchase price; that the Thus, after a careful scrutiny of the records, the Court has found the appellate
12 generators were found to be factory defective; that the plaintiff informed the court's narration of facts incomplete. It failed to include certain material facts.
defendant herein that it shall return the 12 generators as in fact three of the 12
were actually returned to the defendant; that the plaintiff sued the defendant on
The facts are actually as follows:
the warranty, asking for rescission of the contract that the defendant be ordered
to accept the generators and be ordered to pay back the purchase money; and
RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ
that the plaintiff asked for damages. (Record on Appeal, pp. 27-28) [CA Decision,
needed electric generators for some of its boats and SCHMID sold electric
pp. 3-4; Rollo, pp. 47-48.]
generators of different brands, negotiations between them for the acquisition
thereof took place. The parties had two separate transactions over "Nagata" -
On the basis thereof, the Court of Appeals affirmed the decision of the trial court
brand generators.
ordering petitioner to refund to private respondent the purchase price for the
twelve (12) generators and to accept delivery of the same and to pay damages
The first transaction was the sale of three (3) generators. In this transaction, it is
and attorney's fees, with a slight modification as to the amount to be refunded. In
not disputed that SCHMID was the vendor of the generators. The company
its resolution of the motion for reconsideration, the Court of Appeals further
supplied the generators from its stockroom; it was also SCHMID which invoiced
modified the trial court's decision as to the award of consequential damages.
the sale.

The second transaction, which gave rise to the present controversy, involves
twelve (12) "Nagata" -brand generators. These are the facts surrounding this
Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in
particular transaction:
petitions to review the latter's decisions under Rule 45 of the Revised Rules of
Court, the scope of the Court's inquiry being limited to a review of the imputed
As RJL Martinez was canvassing for generators, SCHMID gave RJL MARTINEZ its
errors of law [Chan v. Court of Appeals; G.R. No. L-727488, June 30, 1970, 33
Quotation dated August 19, 1975 [Exhibit "A"] for twelve (12) "Nagata"-brand
SCRA 77; Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89;
generators with the following specifications:
Corona v. Court of Appeals, G.R. No 62482, April 28, 1984, 121 SCRA 865;
Baniqued v. Court of Appeals, G.R. No. L-47531, January 30, 1984, 127 SCRA 596.]
However, when, as in this case, it is the petitioner's position that the appealed "NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity
judgment is premised on a misapprehension of facts,* the Court is compelled to power factor, rectifier type and radio suppressor, 5KVA (5KW) $546.75 @
review the Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil. 26
(1953); Castillo v. Court of Appeals, G.R. No. L-48290, September 39, 1983, 124 It was stipulated that payment would be made by confirmed and irrevocable
SCRA 808.]. letter of credit in favor of NAGATA CO. Furthermore, among the General
Conditions of Sale appearing on the dorsal side of the Quotation is the following:
Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of SCHMID replaced the three (3) generators subject of the first sale with generators
Seller, in the amount stated on the face of this memorandum, specifying of a different brand.
shipment from any Foreign port to Manila or any safe Philippine port, permitting
partial shipments and providing that in the event the shippers are unable to ship As for the twelve (12) generators subject of the second transaction, the Japanese
within the specified period due to strikes, lack of shipping space or other technicians advised RJL MARTINEZ to ship three (3) generators to Japan, which
circumstances beyond their reasonable control. Buyer agrees to extend the said the company did. These three (3) generators were repaired by NAGATA CO. itself
Letter of Credit for later shipment. The Letter of Credit shall otherwise be subject and thereafter returned to RJL MARTINEZ; the remaining nine (9) were neither
to the conditions stated in this memorandum of contract. [Underscoring repaired nor replaced. NAGATA CO., however, wrote SCHMID suggesting that the
supplied.] latter check the generators, request for spare parts for replacement free of
charge, and send to NAGATA CO. SCHMID's warranty claim including the labor
Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of cost for repairs [Exhibit "I".] In its reply letter, SCHMID indicated that it was not
credit in favor of NAGATA CO. Accordingly, on November 20, 1975, SCHMID agreeable to these terms [Exhibit,"10".]
transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve (12) generators
to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL As not all of the generators were replaced or repaired, RJL MARTINEZ formally
MARTINEZ the bill of lading and its own invoice (Exhibit "B") and, in accordance demanded that it be refunded the cost of the generators and paid damages.
with the order shipped the generators directly to RJL MARTINEZ. The invoice SCHMID in its reply maintained that it was not the seller of the twelve (12)
states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets generators and thus refused to refund the purchase price therefor. Hence, on
was bought by order and for account risk of Messrs. RJL Martinez Fishing February 14, 1977, RJL MARTINEZ brought suit against SCHMID on the theory that
Corporation. the latter was the vendor of the twelve (12) generators and, as such vendor, was
liable under its warranty against hidden defects.
For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.50 for
the sale of the twelve generators to RJL MARTINEZ. [Exhibits "9","9-A", "9-B" and Both the trial court and the Court of Appeals upheld the contention of RJL
"9-C".] MARTINEZ that SCHMID was the vendor in the second transaction and was liable
under its warranty. Accordingly, the courts a quo rendered judgment in favor of
All fifteen (15) generators subject of the two transactions burned out after RJL MARTINEZ. Hence, the instant recourse to this Court.
continuous use. RJL MARTINEZ informed SCHMID about this development. In
turn, SCHMID brought the matter to the attention of NAGATA CO. In July 1976 In this petition for review, SCHMID seeks reversal on the following grounds:
NAGATA CO. sent two technical representatives who made an ocular inspection
and conducted tests on some of the burned-out generators, which by then had (i)
been delivered to the premises of SCHMID.
Schmid was merely the indentor in the sale [of the twelve (12) generators]
The tests revealed that the generators were overrated. As indicated both in the between Nagata Co., the exporter and RJL Martinez, the importer;
quotation and in the invoice, the capacity of a generator was supposed to be 5
KVA (kilovolt amperes). However, it turned out that the actual capacity was only 4
(ii)
KVA.
as mere indentor, Schmid is not liable for the seller's implied warranty against
hidden defects, Schmid not having personally assumed any such warranty;
(iii) It has been said that the essence of the contract of sale is the transfer of title or
agreement to transfer it for a price paid or promised [Commissioner of Internal
in any event, conformably, with Article 1563 of the Civil Code, there was no Revenue v. Constantino, G.R. No. L-25926, February 27, 1970, 31 SCRA 779, 785,
implied warranty against hidden defects in the sale of these twelve (12) citing Salisbury v. Brooks, 94 SE 117, 118-19.] "If such transfer puts the transferee
generators because these were sold under their tradename "Nagata"; and in the attitude or position of an owner and makes him liable to the transferor as a
debtor for the agreed price, and not merely as an agent who must account for
the proceeds of a resale, the transaction is a sale." [Ibid.]

(iv)

Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez On the other hand, there is no statutory definition of "indent" in this jurisdiction.
nor for the latter's unsubstantiated claim of P110.33 operational losses a day nor However, the Rules and Regulations to Implement Presidential Decree No. 1789
for exemplary damages, attorney's fees and costs. [Petition, p.6.] (the Omnibus Investments Code) lumps "indentors" together with "commercial
brokers" and "commission merchants" in this manner:

. . . A foreign firm which does business through the middlemen acting in their
own names, such as indentors, commercial brokers or commission merchants,
As may be expected, the basic issue confronting this Court is whether the second
shall not be deemed doing business in the Philippines. But such indentors,
transaction between the parties was a sale or an indent transaction. SCHMID
commercial brokers or commission merchants shall be the ones deemed to be
maintains that it was the latter; RJL MARTINEZ claims that it was a sale.
doing business in the Philippines [Part I, Rule I, Section 1, par. g (1).]
At the outset, it must be understood that a contract is what the law defines it to
Therefore, an indentor is a middleman in the same class as commercial brokers
be, considering its essential elements, and not what it is called by the contracting
and commission merchants. To get an idea of what an indentor is a look at the
parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).]
definition of those in his class may prove helpful.

The Civil Code defines a contract of sale, thus:


A broker is generally defined as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of which he has no
concern; the negotiator between other parties, never acting in his own name but
in the name of those who employed him; he is strictly a middleman and for some
ART. 1458. By the contract of sale one of the contracting parties obligates himself purpose the agent of both parties. (19 Cyc., 186; Henderson vs. The State, 50 Ind.,
to transfer the ownership of and to deliver a determinate thing, and the other to 234; Black's Law Dictionary.) A broker is one whose occupation it is to bring
pay therefor a price certain in money or its equivalent. parties together to bargain, or to bargain for them, in matters of trade,
commerce or navigation. (Mechem on Agency, sec. 13; Wharton on Agency, sec.
695.) Judge Storey, in his work on Agency, defines a broker as an agent employed
to make bargains and contracts between other persons, in matters of trade,
commerce or navigation, for compensation commonly called brokerage. (Storey In its complaint, RJL MARTINEZ admitted that the generators were purchased
on Agency, sec. 28.) [Behn, Meyer and Co., Ltd. v. Nolting and Garcia, 35 Phil. 274, "through indent order" [Record on Appeal, p.6.] In the same vein, it admitted in
279-80 (1916).] its demand letter previously sent to SCHMID that twelve (12) of fifteen (15)
"Nagata"-brand generators "were purchased through your company (SCHMID),
by indent order and three (3) by direct purchase." [Exhibit "D".] The evidence also
show that RJL MARTINEZ paid directly NAGATA CO. for the generators, and that
A commission merchant is one engaged in the purchase or sale for another of the latter company itself invoiced the sale [Exhibit "B"], and shipped the
personal property which, for this purpose, is placed in his possession and at his generators directly to the former. The only participation of SCHMID was to act as
disposal. He maintains a relation not only with his principal and the purchasers or an intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by
vendors, but also with the property which is subject matter of the transaction. procuring an order from RJL MARTINEZ and forwarding the same to NAGATA CO.
[Pacific Commercial Co. v. Yatco, 68 Phil. 398, 401 (1939).] for which the company received a commission from NAGATA CO. [Exhibits "9",
"9-A", "9-B" and "9-C".]

Thus, the chief feature of a commercial broker and a commercial merchant is that
in effecting a sale, they are merely intermediaries or middlemen and act in a The above transaction is significantly different from the first transaction wherein
certain sense as the agent of both parties to the transaction. SCHMID delivered the goods from its own stock (which it had itself imported from
NAGATA CO.), issue its own invoice, and collected payment directly from the
purchaser.

Webster defines an indent as "a purchase order for goods especially when sent
from a foreign country." [Webster's Ninth New Collegiate Dictionary 612 (1986).]
It would appear that there are three parties to an indent transaction, namely, the These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor
buyer, the indentor, and the supplier who is usually a non-resident manufacturer of the twelve generators on the following grounds:
residing in the country where the goods are to be bought [Commissioner of
Internal Revenue v. Cadwallader Pacific Company, G.R. No. L-20343, September
29, 1976, 73 SCRA 59.] An indentor may therefore be best described as one who
for compensation, acts as a middleman in bringing about a purchase and sale of First, it is contended that the Quotation and the General Conditions of Sale on the
goods between a foreign supplier and a local purchaser. dorsal side thereof do not necessarily lead to the conclusion that NAGATA CO.,
and not SCHMID, was the real seller in the case of the twelve (12) generators in
that:

Coming now to the case at bar, the admissions of the parties and the facts (i)
appearing on record more than suffice to warrant the conclusion that SCHMID
was not a vendor, but was merely an indentor, in the second transaction. the signing of the quotation, which was under SCHMID's letterhead, perfected
the contract of sale (impliedly, as between the signatories thereto i.e., RJL
MARTINEZ and SCHMID);
or by a fine of not less than two hundred pesos nor more than one thousand
pesos or both such imprisonment and fine, in the discretion of the Court.
(ii)
The facts do not bear out these contentions.
the qualification that the letter of credit shall be in favor of NAGATA CO.
constituted simply the manner of payment requested by SCHMID (implying that
SCHMID, as seller, merely chose to waive direct payment, stipulating delivery of
payment instead to NAGATA CO. as suppler); The first contention disregards the circumstances surrounding the second
transaction as distinguished from those surrounding the first transaction, as
Second, it is asserted that the acts of SCHMID after was informed of the defect in noted above.
the generators were indicative of its awareness that it was the vendor and
acknowledgment of its liability as such vendor. Attention is called to these facts:
When RJL MARTINEZ complained to SCHMID that the generators were defective,
SCHMID immediately asked RJL MARTINEZ to send the defective generators to its Neither does the solicitous manner by which SCHMID responded to RJL
shop to determine what was wrong. SCHMID likewise informed NAGATA CO. MARTINEZ's complaint prove that the former was the seller of the generators. As
about the complaint of RJL MARTINEZ. When the Japanese technicians arrived, aptly stated by counsel, no indentor will just fold its hands when a client
SCHMID made available its technicians, its shop and its testing equipment. After complains about the goods it has bought upon the indentor's mediation. In its
the generators were found to have factory defects, SCHMID facilitated the desire to promote the product of the seller and to retain the goodwill of the
shipment of three (3) generators to Japan and, after their repair, back to the buyer, a prudent indentor desirous of maintaining his business would have to act
Philippines [Memorandum for the Respondent, p. 8.] considerately towards his clients.

Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID Note that in contrast to its act of replacing the three (3) generators subject of the
regarding the repair of the generators indicated that the latter was "within the first transaction, SCHMID did not replace any of the twelve (12) generators, but
purview of a seller." [Ibid.] merely rendered assistance to both RJL MARTINEZ and NAGATA CO. so that the
latter could repair the defective generators.

Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO.,


a foreign corporation not licensed to do business in the Philippines, then the The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the
officers and employees of the former may be penalized for violation of the old repair of the nine (9) other defective generators, with the former supplying the
Corporation Law which provided: replacement parts free of charge and subsequently reimbursing the latter for
labor costs [Exhibit "I"], cannot support the conclusion that SCHMID is vendor of
Sec. 69. . . . Any officer or agent of the corporation or any person transacting the generators subject of the second transaction or was acting "within the
business for any foreign corporation not having the license prescribed shall be purview of a seller."
punished by imprisonment for not less than six months nor more than two years
Finally, the afore-quoted penal provision in the Corporation Law finds no The Quotation [Exhibit "A"] is in writing. It is the repository of the contract
application to SCHMID and its officers and employees relative to the transactions between RJL MARTINEZ and SCHMID. Notably, nowhere is it stated therein that
in the instant case. What the law seeks to prevent, through said provision, is the SCHMID did bind itself to answer for the defects of the things sold. There being
circumvention by foreign corporations of licensing requirements through the no allegation nor any proof that the Quotation does not express the true intent
device of employing local representatives. An indentor, acting in his own name, is and agreement of the contracting parties, extrinsic parol evidence of warranty
not, however, covered by the above-quoted provision. In fact, the provision of will be to no avail [See Rule 123, Sec. 22.]
the Rules and Regulations implementing the Omnibus Investments Code quoted
above, which was copied from the Rules implementing Republic Act No. 5455,
recognizes the distinct role of an indentor, such that when a foreign corporation
does business through such indentor, the foreign corporation is not deemed The trial court, however, relied on the testimony of Patrocinio Balagtas, the head
doing business in the Philippines. of the Electrical Department of RJL MARTINEZ, to support the finding that
SCHMID did warrant the twelve (12) generators against defects.

In view of the above considerations, this Court rules that SCHMID was merely
acting as an indentor in the purchase and sale of the twelve (12) generators Upon careful examination of Balagtas' testimony, what is at once apparent is that
subject of the second transaction. Not being the vendor, SCHMID cannot be held Balagtas failed to disclose the nature or terms and conditions of the warranty
liable for the implied warranty for hidden defects under the Civil Code [Art. 1561, allegedly given by SCHMID. Was it a warranty that the generators would be fit for
et seq.]. the fishing business of the buyer? Was it a warranty that the generators to be
delivered would meet the specifications indicated in the Quotation? Considering
However, even as SCHMID was merely an indentor, there was nothing to prevent the different kinds of warranties that may be contracted, unless the nature or
it from voluntarily warranting that the twelve (12) generators subject of the terms and conditions of the warranty are known, it would not be possible to
second transaction are free from any hidden defects. In other words, SCHMID determine whether there has been a breach thereof.
may held answerable for some other contractual obligation, if indeed it had so
bound itself. As stated above, an indentor is to some extent an agent of both the
vendor and the vendee. As such agent, therefore, he may expressly obligate
himself to undertake the obligations of his principal [See Art. 1897, Civil Code.]
Moreover, a closer examination of the statements allegedly made by the
representative of SCHMID reveals that they merely constituted an expression of
The Court's inquiry, therefore, shifts to a determination of whether or not opinion which cannot by any means be construed as a warranty [See Art. 1546,
SCHMID expressly bound itself to warrant that the twelve (12) generators are Civil Code.]
free of any hidden defects.

We quote from Balagtas' testimony:


Again, we consider the facts.
ATTY. CATRAL: At any rate, when asked where SCHMID's warranty was contained, Balagtas
testified initially that it was in the receipts covering the sale. (At this point, it may
Q: be stated that the invoice [Exhibit "B"] was issued by NAGATA CO. and nowhere is
it stated therein that SCHMID warranted the generators against defects.) When
Did you not say at the start of your cross examination, Mr. Balagtas, that the only confronted with a copy of the invoice issued by NAGATA CO., he changed his
participation you had in the acquisition of those twelve (12) units [of] generators assertion and claimed that what he meant was that the date of the
was your having issued a purchase order to your own company for the purchase commencement of the period of SCHMID'S warranty would be based on the date
of the units? of the invoice. On further examination, he again changed his mind and asserted
that the warranty was given verbally. [TSN, October 14, 1977, pp. 19-22.] But
then again, as stated earlier, the witness failed to disclose the nature or terms
and conditions of the warranty allegedly given by SCHMID.
ATTY. AQUINO:

Misleading, your Honor.


On the other hand, Hernan Adad, SCHMID's General Manager, was categorical
that the company does not warrant goods bought on indent and that the
company warrants only the goods bought directly from it, like the three
generators earlier bought by RJL MARTINEZ itself [TSN, December 19, 1977, pp.
ATTY CATRAL: 63-64.] It must be recalled that SCHMID readily replaced the three generators
from its own stock.
I am asking the witness.

In the face of these conflicting testimonies, this Court is of the view that RJL
COURT: MARTINEZ has failed to prove that SCHMID had given a warranty on the twelve
(12) generators subject of the second transaction. Even assuming that a warranty
He has the right to ask that question because he is on cross. Moreover, if I was given, there is no way to determine whether there has been a breach
remember, he mentioned something like that. Witness may answer. thereof, considering that its nature or terms and conditions have not been
shown.
A:
In view of the foregoing, it becomes unnecessary to pass upon the other issues.
Yes, sir. Before I submitted that, we negotiated with Schmid and Oberly the best
generators they can recommend because we are looking for generators. The WHEREFORE, finding the Court of Appeals to have committed a reversible error,
representative of Schmid and Oberly said that Nagata is very good. That is why I the petition is GRANTED and the appealed Decision and Resolution of the Court
recommended that to the management. [t.s.n., October 14, 1977, pp. 23-25.] of Appeals are REVERSED. The complaint of RJL Martinez Fishing Corporation is
hereby DISMISSED. No costs.
6 FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS
G.R. No. 82508 September 29, 1989 Held:

Facts: The real intention of the parties should prevail. The nomenclature of the
agreement cannot change its true essence, i.e., a sale on installments. It is basic
Spouses Sy Bang were engaged in the sale of gravel produced from crushed rocks that a contract is what the law defines it and the parties intend it to be, not what
and used for construction purposes. In order to increase their production, they it is called by the parties. It is apparent here that the intent of the parties to the
looked for a rock crusher which Rizal Consolidated Corporation then had for sale. subject contract is for the so-called rentals to be the installment payments. Upon
A brother of Sy Bang, went to inspect the machine at the Rizal Consolidated’s the completion of the payments, then the rock crusher, subject matter of the
plant site. Apparently satisfied with the machine, the private respondents contract, would become the property of the private respondents. This form of
signified their intent to purchase the same. agreement has been criticized as a lease only in name.

Since he does not have the financing capability, Sy Bang applied for financial Sellers desirous of making conditional sales of their goods, but who do not wish
assistance from Filinvest Credit Corporation. Filinvest agreed to extend financial openly to make a bargain in that form, for one reason or another, have frequently
aid on the following conditions: (1) that the machinery be purchased in the resorted to the device of making contracts in the form of leases either with
petitioner’s name; (2) that it be leased with option to purchase upon the options to the buyer to purchase for a small consideration at the end of term,
termination of the lease period; and (3) that Sy Bang execute a real estate provided the so-called rent has been duly paid, or with stipulations that if the
mortgage as security for the amount advanced by Filinvest. A contract of lease of rent throughout the term is paid, title shall thereupon vest in the lessee. It is
machinery (with option to purchase) was entered into by the parties whereby obvious that such transactions are leases only in name. The so-called rent must
they to lease from the petitioner the rock crusher for two years. The contract necessarily be regarded as payment of the price in installments since the due
likewise stipulated that at the end of the two-year period, the machine would be payment of the agreed amount results, by the terms of bargain, in the transfer of
owned by Sy Bang. title to the lessee.

3 months from the date of delivery, Sy Bang claiming that they had only tested Indubitably, the device contract of lease with option to buy is at times resorted to
the machine that month, sent a letter-complaint to the petitioner, alleging that as a means to circumvent Article 1484, particularly paragraph (3) thereof.Through
contrary to the 20 to 40 tons per hour capacity of the machine as stated in the the set-up, the vendor, by retaining ownership over the property in the guise of
lease contract, the machine could only process 5 tons of rocks and stones per being the lessor, retains, likewise, the right to repossess the same, without going
hour. They then demanded that the petitioner make good the stipulation in the through the process of foreclosure, in the event the vendee-lessee defaults in the
lease contract. Sy Bang stopped payment on the remaining checks they had payment of the installments. There arises therefore no need to constitute a
issued to the petitioner. chattel mortgage over the movable sold. More important, the vendor, after
repossessing the property and, in effect, canceling the contract of sale, gets to
As a consequence of the non-payment, Filinvest extrajudicially foreclosed the real keep all the installments-cum-rentals already paid.
estate mortgage.
Even if there was a contract of sale, Filinvest is still not liable because Sy Bang is
Issue: presumed to be more knowledgeable, if not experts, on the machinery subject of
the contract, they should not therefore be heard now to complain of any alleged
WON the real transaction was lease or sale? SALE ON INSTALLMENTS. deficiency of the said machinery. It was Sy Bang who was negligent, not Filinvest.
Further, Sy Bang is precluded to complain because he signed a Waiver of GOOD RUNNING CONDITION[3]
Warranty.
Oscar Sy Bang a brother of private respondent Jose SY Bang, went to inspect the
machine at the Rizal Consolidated's plant site. Apparently satisfied with
SC Decision: the machine, the private respondents signified their intent to purchase the
same. They were however confronted with a problem -- the rock crusher
carried a cash price tag of P550,000.00. Bent on acquiring the machinery, the
258 Phil. 812 private respondents applied for financial assistance from the
petitioner. Filinvest Credit Corporation. The petitioner agreed to extend to the
private respondents financial aid on the following conditions: that the machinery
SARMIENTO, J.: be purchased in the petitioner's name; that it be leased (with option to purchase
This is a petition for review on certiorari of the decision[1] dated March 17, 1988, upon the termination of the lease period) to the private respondents; and
of the Court of Appeals which affirmed with modification the decision [2] of the that the private respondents execute a real estate mortgage in favor or the
Regional Trial Court of Quezon, Branch LIX, Lucena City. petitioner as security for the amount advanced by the latter.

The controversy stemmed from the following facts: Accordingly, on May 18, 1981, a contract of lease of machinery (with option to
purchase) was entered into by the parties whereby the private respondents
The private respondents, the spouses Jose Sy Bang and Iluminada Tan, were agreed to lease from the petitioner the rock crusher for two years starting from
engaged in the sale of gravel produced from crushed rocks and used for July 5, 1981 payable as follows:
construction purposes. In order to increase their production, they engaged the
services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales P10,000.00 - first 3 months
in Lucena City, to look for a rock crusher which they could
23,000.00 - next 6 months
buy. Mr. Mercurio referred the private respondents to the Rizal Consolidated
Corporation which then had for sale one such machinery described as: 24.800.00 - next 15 months[4]
ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT
The contract likewise stipulated that at the end of the two-year period, the
(RECONDITIONED) [sic] machine would be owned by the private respondents. Thus, the private
respondents issued in favor of the petitioner a check for P150,550.00, as initial
JAW CRUSHER - 10x16 rental (or guaranty deposit), and twenty-four (24) postdated checks
corresponding to the 24 monthly rentals. In addition, to guarantee their
DOUBLE ROLL CRUSHER 16x16 compliance with the lease contract, the private respondents executed a real
estate mortgage over two parcels of land in favor of the petitioner. The rock
3 UNITS PRODUCT CONVEYOR crusher was delivered to the private respondents on June 9, 1981.
75 HP ELECTRIC MOTOR Three months from the date of delivery, or on September 7, 1981, however, the
private respondents, claiming that they had only tested the machine that month,
8 PCS. BRAND NEW TIRES sent a letter-complaint to the petitioner, alleging that contrary to the 20
to 40 tons per hour capacity of the machine as stated in the lease contract, the
CHASSIS NO. 19696
machine could only process 5 tons of rocks and stones per hour. They then
demanded that the petitioner make good the stipulation in the lease 4. ordering the defendant corporation to pay plaintiffs P30,000.00 as attorney's
contract. They followed that up with similar written complaints to the petitioner, fees and the costs of the suit.
but the latter did not, however, act on them. Subsequently, the private
respondents stopped payment on the remaining checks they had issued to the SO ORDERED.[11]
petitioner.[5]
Dissatisfied with the trial court's decision, the petitioner elevated the case to the
As a consequence of the non-payment by the private respondents of the rentals respondent Court of Appeals.
on the rock crusher as they fell due despite the repeated written demands, the
petitioner extrajudicially foreclosed the real estate mortgage.[6] On April 18, 1983, On March 17, 1988, the appellate court, finding no error in the appealed
the private respondents received a Sheriff's Notice of Auction Sale informing judgment, affirmed the same in toto.[12] Hence, this petition.
them that their mortgaged properties were going to be sold at a public Before us, the petitioner reasserts that the private respondents' cause of action is
auction on May 25, 1983 at 10:00 o'clock in the morning at the Office of the not against it (the petitioner), but against either the RizalConsolidated
Provincial Sheriff in Lucena City to satisfy their indebtedness to the Corporation, the original owner-seller or the subject rock crusher, or Gemini
petitioner.[7]To thwart the impending auction of their properties, the private Motors Sales which served as a conduit-facilitator of the purchase of the said
respondents filed before the Regional Trial Court of Quezon, on May 4, 1983,[8] a machine. The petitioner argues that it is a financing institution engaged in quasi-
complaint against the petitioner, for the recission of the contract of lease, banking activities, primarily the lending of money to entrepreneurs such as the
annulment of the real estate mortgage, and for injunction and damages, with private respondents and the general public, but certainly not the leasing or selling
prayer for the issuance of a writ of preliminary injunction. [9] On May 23, 1983, of heavy machineries like the subject rock crusher. The petitioner denies being
three days before the scheduled auction sale, the trial court issued a temporary the seller of the rock crusher and only admits having financed its acquisition by
restraining order commanding the Provincial Sheriff of Quezon, and the the private respondents. Further, the petitioner absolves itself or any liability
petitioner, to refrain and desist from proceeding with the public auction. [10] Two arising out of the lease contract it signed with the private respondents due to the
years later, on September 4, 1985, the trial court rendered a decision in favor of waiver of warranty made by the latter. The petitioner likewise maintains that the
the private respondents, the dispositive portion of which reads: private respondents being presumed to be knowledgeable about machineries,
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: should be held responsible for the detection of detects in the machine they had
acquired, and on account of that, they are estopped from claiming any breach of
1. making the injunction permanent; warranty. Finally, the petitioner interposed the defense of prescription, invoking
Article 1571 of the Civil Code, which provides:
2. rescinding the contract of lease of the machinery and equipment and ordering
the plaintiffs to return to the defendant corporation the machinery subject of the Art. 1571. Actions arising from the provisions of the preceding ten articles shall
lease contract, and the defendant corporation to return to plaintiffs the sum of be barred after six months, from the delivery of the thing sold.
P470.950.00 it received from the latter as guaranty deposit and rentals with legal
We find the petitioner's first contention untenable. While it is accepted that the
interest thereon until the amount is fully restituted;
petitioner is a financing institution, it is not, however, immune from any recourse
3. anulling the real estate mortgage constituted over the properties of the by the private respondents. Notwithstanding the testimony of private
plaintiffs covered by Transfer Certificate of Title Nos. T-32480 and T-5779 of the respondent Jose Sy Bang that he did not purchase the rock crusher from the
Registry of Deeds or Lucena City; petitioner, the fact that the rock crusher was purchased from Rizal Consolidated
Corporation in the name and with the funds of the petitioner proves beyond
doubt that the ownership thereof was effectively transferred to it. It is precisely
this ownership which enabled the petitioner to enter into the "Contract of Lease Under the aforequoted provision, the seller of movables in installments, in case
of Machinery and Equipment" with the private respondents. the buyer fails to pay two or more installments, may elect to pursue either of the
following remedies: (1) exact fulfillment by the purchaser of the obligation; (2)
Be that as it may, the real intention of the parties should prevail. The cancel the sale; or (3) foreclose the mortgage on the purchased property if one
nomenclature of the agreement cannot change its true essence, i.e., a sale on was constituted thereon. It is now settled that the said remedies are alternative
installments. It is basic that a contract is what the law defines it and the parties and not cumulative and therefore, the exercise of one bars the exercise of the
intend it to be, not what it is called by the parties.[13] It is apparent here that the others.
intent of the parties to the subject contract is for the so-called rentals to be the
installment payments. Upon the completion of the payments, then the rock Indubitably, the device--contract of lease with option to buy--is at times resorted
crusher, subject matter of the contract, would become the property of the to as a means to circumvent Article 1484, particularly paragraph (3)
private respondents. This form of agreement has been criticized as a lease only in thereof. Through the set-up, the vendor, by retaining ownership over the
name. Thus in Vda. de Jose v. Barrueco,[14] we stated: property in the guise or being the lessor, retains, likewise, the right to repossess
the same, without going through the process of foreclosure, in the event the
Sellers desirous of making conditional sales of their goods, but who do not wish vendee-lessee defaults in the payment of the installments. There arises therefore
openly to make a bargain in that form, for one reason or another, have frequently no need to constitute a chattel mortgage over the movable sold. More
resorted to the device of making contracts in the form of leases either important, the vendor, after repossessing the property and, in effect, canceling
with options to the buyer to purchase for a small consideration at the end of the contract of sale, gets to keep all the installments-cum-rentals already paid. It
term, provided the so-called rent has been duly paid, or with stipulations that if is thus for these reasons that Article 1485 of the new Civil Code provides that:
the rent throughout the term is paid, title shall thereupon vest in the lessee. It is
obvious that such transactions are leases only in name. The so-called rent must Article 1485. The preceding article shall be applied to contracts purporting to be
necessarily be regarded as payment of the price in installments since the due leases of personal property with option to buy, when the lessor has deprived the
payment of the agreed amount results, by the terms of bargain, in the transfer of lessee of possession or enjoyment of the thing. (Emphasis ours.)
title to the lessee.[15]
Unfortunately, even with the foregoing findings, we however fail to find any
The importance of the criticism is heightened in the light of Article 1484 of the reason to hold the petitioner liable for the rock crusher's failure to produce in
new Civil Code which provides for the remedies of an unpaid seller of movables in accordance with its described capacity. According to the petitioner, it was the
installment basis. private respondents who chose, inspected, and tested the subject machinery. It
was only after they had inspected and tested the machine, and found it to their
Article 1484. In a contract of sale of personal property the price of which is satisfaction, that the private respondents sought financial aid from the
payable in installments, the vendor may exercise any of the following remedies: petitioner. These allegations of the petitioner had never been rebutted by the
private respondents. In fact, they were even admitted by the private
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
respondents in the contract they signed. Thus:
(2) Cancel the sale, should the vendee's failure to pay cover two or more LESSEE'S SELECTION, INSPECTION AND VERIFICATION. -
installments;
The LESSEE hereby confirms and acknowledges that he has independently
(3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, inspected and verified the leased property and has selected and received the
should the vendee's failure to pay cover two or more installments. In this case, same from the Dealer of his own choosing in good order and excellent running
he shall have no further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be void.
and operating condition and on the basis of such verification, etc. the LESSEE has contract or warranty. In the case at bar, to declare the waiver as non-effective, as
agreed to enter into this Contract."[16] the lower courts did, would impair the obligation of contracts. Certainly, the
waiver in question could not be considered a mere surplusage in the contract
Moreover, considering that between the parties, it is the private respondents, by between the parties. Moreover, nowhere is it shown in the records of the case
reason of their business, who are presumed to be more knowledgeable, if not that the private respondent has argued for its nullity or illegality. In any event,
experts, on the machinery subject of the contract, they should not therefore be we find no ambiguity in the language of the waiver or the release of
heard now to complain of any alleged deficiency of the said machinery. It is their warranty. There is therefore no room for any interpretation as to its effect or
failure or neglect to exercise the caution and prudence of an expert, or, at least, applicability vis-a-vis the deficient output of the rock crusher. Suffice it to say
of a prudent man, in the selection, testing, and inspection of the rock crusher that that the private respondents have validly excused the petitioner from any
gave rise to their difficulty and to this conflict. A well-established principle in law warranty on the rock crusher. Hence, they should bear the loss for any detect
is that between two parties, he, who by his negligence caused the loss, shall bear found therein.
the same.
WHEREFORE, the Petition is GRANTED; the Decision of the Court of Appeals
At any rate, even if the private respondents could not be adjudged as negligent, dated March 17, 1988 is hereby REVERSED AND SET ASIDE, and another one
they still are precluded from imputing any liability on the petitioner. One of the rendered DISMISSING the complaint. Costs against the private respondents.
stipulations in the contract they entered into with the petitioner is an express
waiver of warranties in favor of the latter. By so signing the agreement, the SO ORDERED.
private respondents absolved the petitioner from any liability arising from any
defect or deficiency of the machinery they bought. The stipulation on the
machine's production capacity being "typewritten" and that of the waiver being
"printed" does not militate against the latter's effectivity. As such, whether "a 7 Dignos v. CA
capacity of 20 to 40 tons per hour" is condition or a description is of no
moment. What stands is that the private respondents had expressly exempted G.R. No. L-59266; 29 February 1988
the petitioner from any warranty whatsoever. Their Contract Of Lease Of
Machinery And Equipment states: Bidin, J.

WARRANTY - LESSEE absolutely releases the lessor from any liability whatsoever CONTRACT OF SALE, CONCEPTS | Contract of Sale v. Contract to Sell
as to any and all matters in relation to warranty in accordance with the provisions
hereinafter stipulated.[17]

Taking into account that due to the nature of its business and its mode or FACTS:
providing financial assistance to clients, the petitioner deals in goods over which
it has no sufficient know-how or expertise, and the selection of a particular item Spouses Silvestre Dignos and Isabela Lumungsod de Dignos sold their parcel of
is left to the client concerned, the latter, therefore, shoulders the responsibility of
land in Opon, Lapu-Lapu to private respondent Antonio Jabil for the sum of
protecting himself against product defects. This is where the waiver of
warranties is of paramount importance. Common sense dictates that a buyer P28,000.00 payable for 2 installments, with an assumption of indebtedness with
inspects a product before purchasing it (under the principle of caveatemptor or the First Insular Bank of Cebu in the sum of P12,000.00 as was acknowledged by
"buyer beware") and does not return it for defects discovered later on, vendors in the Deed of Absolute Sale (Exh. C), and the next installment to be paid
particularly if the return of the product is not covered by or stipulated in a 3 months after. But the same land was also sold by Spouses Dignos (Exh. J) which
was registered in the Registry of Deeds. This prompted Jabil to file a civil suit 242 Phil. 114
against Spouses Dignos for the 2nd sale to Spouses Luciano Cabigas and Jovita de
Cabigas, who were then US citizens. CFI of Cebu rendered the 2nd sale to Spouses
BIDIN, J.:
Cabigas null and void, directing Spouses Dignos to return the P35,000.00 to
Spouses Cabigas and ordered Jabil to pay the remaining balance. Spouses Dignos This is a petition for review on certiorari seeking the reversal of the: (1)
contend that Exh. C is a contract to sell and as such, anchored their contention on Decision* of the 9th Division, Court of Appeals dated July 31, 1981, affirming with
the very terms of the contract as mentioned in ¶4, that said spouses have agreed modification the Decision** dated August 25, 1972 of the Court of First Instance
to sell the herein mentioned property to Alilano B. Jabil and condition in ¶5, in 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
which the spouses agreed to sign a final deed of absolute sale upon payment of
Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated December 16, 1981,
the remaining balance of P4,000.00. denying defendant-appellant's (Petitioner's) motion for reconsideration, for lack
of merit.

The undisputed facts as found by the Court of Appeals are as follows:


ISSUE: Is the contract between the parties a contract of sale or a contract to sell?
"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
HELD:
(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
The contract between the parties is a contract of sale. It has been held that a
Cebu in the sum of P12,000.00, which was paid and acknowledged by the vendors
deed of sale is absolute in nature although dominated as a “Deed of Conditional in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next
Sale” where nowhere in the contract in question is a proviso or stipulation to the installment in the sum of P4,000.00 to be paid on or before September 15, 1965.
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 "On November 25, 1965, the Dignos spouses sold the same land in favor of
unilaterally rescind the contract the moment the vendee fails to pay within a 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
fixed period. All the elements of a valid contract of sale are present in the
Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and
document and that Spouses Dignos never notified Jabil by notarial act that they which was registered in the Office of the Register of Deeds pursuant to the pro-
were rescinding the contract, and neither did they file a suit in court to rescind visions of Act No. 3344.
the sale. There is no showing that Jabil properly authorized a certain Cipriano
Amistad to tell petitioners that he was already waiving his rights to the land in "As the Dignos spouses refused to accept from plaintiff-appellant the balance of
question. 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)

SC Decision:
After due trial, the Court of First Instance of Cebu rendered its Decision on August
25, 1972, the decretal portion of which reads: "With costs against defendants-appellants.

"WHEREFORE, the Court hereby declares the deed of sale executed on November "SO ORDERED.
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 "Judgment MODIFIED."
sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos A motion for reconsideration of said decision was filed by the defendants-
not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay appellants (petitioners) Dignos spouses, but on December 16, 1981, a resolution
the sum of Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon was issued by the Court of Appeals denying the motion for lack of merit.
the execution of the Deed of Absolute Sale of Lot No. 3453, Opon Cadastre and
when the decision of this case becomes final and executory. Hence, this petition.

"The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano In the resolution of February 10, 1982, the Second Division of this Court denied
Cabigas and Jovita L. de Cabigas, through their attorney-in?fact, Panfilo Jabalde, the petition for lack of merit. A motion for reconsideration of said resolution was
reasonable amount corresponding to the expenses or costs of the hollow block filed on March 16, 1982. In the resolution dated April 26, 1982, respondents were
fence, so far constructed. required to comment thereon, which comment was filed on May 11, 1982 and a
reply thereto was filed on July 26, 1982 in compliance with the resolution of June
"It is further ordered that defendants?spouses Silvestre T. Dignos and Isabela 16, 1982. On August 9, 1982, acting on the motion for reconsideration and on all
Lumungsod de Dignos should return to defendants-spouses Luciano Cabigas and subsequent pleadings filed, this Court resolved to reconsider its resolution of
Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall February 10, 1982 and to give due course to the instant petition. On September
enrich himself at the expense of another. 6, 1982, respondents filed a rejoinder to reply of petitioners which was noted on
the resolution of September 20, 1982.
"The writ of preliminary injunction issued on September 23, 1966, automatically
becomes permanent in virtue of this decision. Petitioners raised the following assignment of errors:

"With costs against the defendants."


From the foregoing, the plaintiff (respondent herein) and defendants-spouses I
(petitioners herein) appealed to the Court of Appeals, which appeal was docketed THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY,
therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al." INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING
IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE
On July 31, 1981, the Court of Appeals affirmed the decision of the lower court PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT
except as to the portion ordering Jabil to pay for the expenses incurred by the TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE
Cabigas spouses for the building of a fence upon the land in question. The 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF
dispositive portion of said decision of the Court of Appeals reads: ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A
CONTRACT OF PROMISE TO SELL.
"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. II
There is no merit in this petition.
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY
APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS It is significant to note that this petition was denied by the Second Division of this
WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, Court in its Resolution dated February 10, 1982 for lack of merit, but on motion
EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR for reconsideration and on the basis of all subsequent pleadings filed, the petition
IS IT A NOTARIAL ACT. was given due course.

III I.

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE The contract in question (Exhibit C) is a Deed of Sale, with the following
APPLICABILITY OF ARTICLES 2208, 2217 and 2219 OF THE NEW CIVIL CODE AND conditions:
ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND
ATTORNEY'S FEES TO PETITIONERS. That Atilano G. Jabil is to pay the amount of Twelve Thousand Pesos
"1.
(P12,000. 00) Philippine Currency as advance payment;

IV That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos


"2.
(P12,000. 00) Loan from the First Insular Bank of Cebu;
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN
DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS. That Atilano G. Jabil is to pay the said spouses the balance of Four Thousand
"3.
Pesos (P4,000.00) on or before September 15, 1965;

V That the said spouses agrees to defend the said Atilano G. Jabil from other
"4.
claims on the said property;
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING
WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE That the spouses agrees to sign a final deed of absolute sale in favor of
MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS "5. Atilano G. Jabil over the above-mentioned property upon the payment of the
OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO. balance of Four Thousand Pesos." (Original Record, pp. 10-11).
In their motion for reconsideration, petitioners reiterated their contention that
The foregoing assignment of errors may be synthesized into two main issues, to the Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute sale;
wit: 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 the First Insular Bank
I. Whether or not subject contract is a deed of absolute sale or a contract of Cebu. It is further contended that in said contract, title or ownership over the
to sell. 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
II. Whether or not there was a valid rescission thereof. price shall have been met. So that there is no actual sale until full payment is
made (Rollo, pp. 51-52).
thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12
In bolstering their contention that Exhibit "C" is merely a contract to sell, SCRA 276), this Court held that in the absence of stipulation to the contrary, the
petitioners aver that there is absolutely nothing in Exhibit "C" that indicates that ownership of the thing sold passes to the vendee upon actual or constructive
the vendors thereby sell, convey or transfer their ownership to the alleged delivery thereof.
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 While it may be conceded that there was no constructive delivery of the land sold
parties did not intend "transfer of ownership and title but only a transfer after full in the case at bar, as subject Deed of Sale is a private instrument, it is beyond
payment1 (Rollo, p. 52). Moreover, petitioners anchored their contention on the question that there was actual delivery thereof. As found by the trial court, the
very terms and conditions of the contract, more particularly paragraph four which Dignos spouses delivered the possession of the land in question to Jabil as early
reads, "that said spouses has agreed to sell the herein mentioned property to as March 27, 1965 so that the latter constructed thereon Sally's Beach Resort also
Atilano G. Jabil x x x" and condition number five which reads, "that the spouses known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on
agrees to sign a final deed of absolute sale over the mentioned property upon the January 15, 1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts
payment of the balance of four thousand pesos." were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on
Appeal, p. 108).
Such contention is untenable.
Moreover, the Court of Appeals in its resolution dated December 16, 1981 found
By and large, the issues in this case have already been settled by this Court in that the acts of petitioners, contemporaneous with the contract, clearly show
analogous cases. that an absolute deed of sale was intended by the parties and not a contract to
sell.
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 Be that as it may, it is evident that when petitioners sold said land to the Cabigas
question is a proviso or stipulation to the effect that title to the property sold is spouses, they were no longer owners of the same and the sale is null and void.
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 II.
Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86
SCRA 305). Petitioners claim that when they sold the land to the Cabigas spouses, the
contract of sale was already rescinded.
A careful examination of the contract shows that there is no such stipulation
reserving the title of the property on the vendors nor does it give them the right Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on
to unilaterally rescind the contract upon non-payment of the balance thereof all fours with the case at bar, the contract of sale being absolute in nature is
within a fixed period. 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
On the contrary, all the elements of a valid contract of sale under Article 1458 of contract, and neither did they file a suit in court to rescind the sale. The most that
the Civil Code, are present, such as: (1) consent or meeting of the minds; (2) they were able to show is a letter of Cipriano Amistad who, claiming to be an
determinate subject matter; and (3) price certain in money or its equivalent. In emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil
addition, Article 1477 of the same Code provides that "The ownership of the because the latter had no money and further advised petitioners to sell the land
thing sold shall be transferred to the vendee upon actual or constructive delivery 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 REGALA, J.:
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 On September 10, 1959, herein petitioner Anastacio G. Duñgo and one Rodrigo S.
waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is Gonzales purchased 3 parcels of land from the respondents Adriano Lopena and
required that acts and contracts which have for their object the extinguishment Rosa Ramos for the total price of P269,804.00. Of this amount, P28,000.00 was
of real rights over immovable property must appear in a public document. given as down payment with the agreement that the balance of P241,804.00
would be paid in 6 monthly installments.
Petitioners laid considerable emphasis on the fact that private respondent Jabil To secure the payment of the balance Anastacio G. Duñgo and Rodrigo S.
had no money on the stipulated date of payment on September 15, 1965 and was Gonzales, the vendees, on September 11, 1958, executed over the same 3 parcels
able to raise the necessary amount only by mid-October, 1965. of land a Deed of Real Estate Mortgage in favor of the respondents Adriano
Lopena and Rosa Ramos. This deed was duly registered with the Office of the
It has been ruled, however, that "where time is not of the essence of the Register of Deeds of Rizal; with the condition that failure of the vendees to pay
agreement, a slight delay on the part of one party in the performance of his any of the installments on their maturity dates shall automatically cause the
obligation is not a sufficient ground for the rescission of the agreement" (Taguba entire unpaid balance to become due and demandable.
v. Vda. de Leon, supra). Considering that private respondent has only a balance of The vendees defaulted on the first installment. It resulted then that on November
P4,000.00 and was delayed in payment only for one month, equity and justice 7, 1959, the vendors, herein respondents Adriano Lopena and Rosa Ramos, filed a
mandate as in the aforecited case that Jabil be given an additional period within complaint for the foreclosure of the aforementioned real estate mortgage with
which to complete payment of the purchase price. the Court of First Instance of Rizal, the Hon. Judge Andres Reyes, presiding. This
complaint was answered by the herein petitioner and the other vendee, Rodrigo
WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the S. Gonzales, on December 7, 1959.
assailed decision of the Court of Appeals is Affirmed in toto.
Meanwhile, there were 2 other civil cases filed in the same lower court against
the same defendants Anastacio Duñgo and Rodrigo S. Gonzales. The plaintiff in
one was a certain Dionisio Lopena, and in the other case, the complainants were
Bernardo Lopena and Maria de la Cruz. Both complaints involved the same cause
of action as that of the herein respondents Adriano Lopena and Rosa Ramos. As a
8 [ GR No. L-18377, Dec 29, 1962 ] matter of fact, all three cases arose but of one transaction. In view of the
identical nature of the above three cases, they were consolidated by the lower
ANASTACIO G. DUÑGO v. ADRIANO LOPENA + court into just one proceeding.

It must be made clear, however, that this present decision refers solely to the
DECISION interests and claim of Adriano A Lopena against Anastacio Duñgo alone.

Before the cases could be tried, a compromise agreement dated January 15, 1960
was submitted to the lower court for approval. It was signed by the herein
respondents Adriano Lopena and Rosa Ramos on one hand, and, Rodrigo S.
116 Phil. 1305 Gonzales, on the other. It was not signed by the herein petitioner. However,
Rodrigo S. Gonzales represented that his signature was for both himself and the
herein petitioner. Moreover, Anastacio Duñgo's counsel of record, Atty. Manuel
O. Chan, the same lawyer who signed and submitted for him the answer to the (2) ANASTACIO C. DUÑGO, Filipino, of legal age, single, with residence and postal
complaint, was present at the preparation of the compromise agreement and this address at 137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of
counsel affixed his signature thereto. legal age, married to Magdalena Balatbat, with residence and postal address at
73 Maryland, Quezon City, hereinafteer referred to as the DEBTOR,
The text of this agreement is hereunder quoted:
and
COMPROMISE AGREEMENT
(3) DIONISIO LOPENA, married to Teofila Nofuente, Librada Lopena married to
COME NOW the parties in the above entitled cases and unto this Hon. Court Arellano Cawagas, BERNARDO LOPENA, married to Maria de la Cruz, and
respectfully set forth: ADRIANO LOPENA, married to Rosa Ramos, all of whom are Filipinos, legal ages,
That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to pay with residence and postal address at Sucat, Muntinlupa, Rizal, hereinafter
the mortgage indebtedness in each of the said cases; represented by their attorney of record, ANTONIO LOPENA, hereinafter referred
to as the CREDITOR,
That, should the defendants fail to pay the said mortgage indebtedness,
judgments of foreclosure shall thereafter be entered against the said defendants; WITNESSETH:

That, the defendants hereby waive the period of redemption provided by law WHEREAS, the DEBTOR is indebted to the Creditor as of this date in the aggregate
after entry of judgments; amount of P503,000.00 for the collection of which, the latter as party plaintiffs
have instituted foreclosure proceedings against the former as party defendants in
That, in the event of sale of the properties involved in these three cases, the Civil Cases Nos. 5872, 5873 and 5874 now pending in the Court of First Instance,
defendants agree that the said properties shall be sold at one time at public Pasig, Rizal;
auction, that is, one piece of property cannot be sold without the others."
WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of
This compromise agreement was approved by the lower court on the same day it the Order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal,
was submitted, January 15, 1960. Branch VI, which order is hereby made an integral part of this agreement as
ANNEX "A";
Subsequently, on May 3, 1960, a so called Tri-Party Agreement was drawn. The
signatories to it were Anastacio Duñgo (herein petitioner) and Rodrigo S. WHEREAS, the PAYOR, with due knowledge and consent of the Debtor, hereby
Gonzales as debtors, Adriano Lopena and Rosa Ramos (herein respondents) as proposes to pay the aforesaid indebtedness in the sum of P503,000.00 to the
creditors, and, one Emma R. Santos as payor. The stipulations of the Tri-Party Creditor for and in behalf of the DEBTOR under the following terms and
Agreement were as follows: conditions:

"A TRI-PARTY AGREEMENT To pay the said P503,000.00 in installments in the following schedule of
(a)
amounts and time:
KNOW ALL MEN BY THESE PRESENTS:

This contract entered into by and between P50,000.00 on or before May 31, 1960
70,000.00 on or before June 30, 1960
(1) EMMA R. SANTOS, Filipino, of legal age, single, with residence and postal 70,000.00 on or before July 31, 1960
address at ______, Rizal Avenue, Manila, hereinafter referred to as the PAYOR, 313,000.00 on or before Aug. 31, 1960
That the DEBTOR and the PAYOR hereby waive any right to object and Gonzales were notified of it by the lower court. Neither of them, however,
oblige themselves not to oppose the motion that the Creditor may file despite the notice, filed any opposition thereto. As a result, the lower court
during the first week of July 1960, or subsequently thereafter, informing granted the above motion on July 19, 1960, and ordered the sale of the
(b) the Court of the exact money obligation of the DEBTOR which shall be mortgaged property.
P503,000.00 minus whatever payments, if any, made before June 30,
1960 by the PAYOR, and praying for the issuance of an order to sell the On August 25, 1960, the 3 parcels of land above-mentioned were sold hy the
property covered by the mortgage. Sheriff at a public auction whereat herein petitioners, together with the plaintiffs
of the other two cases, won as the highest bidders. The said sheriff's sale was
That the CREDITOR, once he has the order referred to, should not later confirmed by the lower court on August 30, 1960. In this connection, it
execute the same by giving it to the sheriff if the PAYOR. is regular and should also be made of record that before confirming the sale, the lower court
punctual in the payment of all the installments stated above. PROVIDED, gave due notice of the motion for the confirmation to the herein petitioner who
however, if the PAYOR defaults or fails to pay anyone of the installments filed no opposition therefor.
(c) in the manner stated above, the PAYOR and the DEBTOR hereby permit, On August 31, 1960, Anastacio Duñgo filed a motion to set aside all the
the CREDITOR to execute the order of sale referred to above, and they proceedings on the ground that the compromise agreement dated January 15,
(PAYOR and DEBTOR) hereby waive any and all objections or oppositions 1960 was void ab initio with respect to him because he did not sign the same.
to the propriety of the public auction sale and to the confirmation of the Consequently, he argued, all subsequent proceedings under and by virtue of the
sale to be made by the court. compromise agreement, including foreclosure sale of August 25, 1960, were void
and null as regards him. This motion to set aside, however, was denied by the
That the CREDITOR, at his option, may execute the August installment lower court in its order of December 14, 1960.
stated in letter (a) of this paragraph if the PAYOR has paid regularly the
(d) May, June, and July installments, and provided further that one-half (1/2) Upon denial of the said motion to set aside, Anastacio Duñgo filed a Notice of
of the August installment in the amount of P156,500.00 is paid on the Appeal from the order of August 31, 1960 approving the foreclosure sale of
said date of August 31, 1960. August 25, 1960, as well as the order of December 14, 1960, denying his motion
NOW, THEREFORE, for and in consideration of the foregoing stipulations, the to set aside. The approval of the record on appeal, however, was opposed by the
DEBTOR and CREDITOR hereby accept, approve and ratify the above-mentioned herein respondent spouses, who claimed that the judgment was not appealable
propositions of the PAYOR, and all the parties herein bind and oblige themselves having been rendered by virtue of the compromise agreement. The opposition
to comply to the covenants and stipulations aforestated; was contained in a motion to dismiss the appeal. Anastacio Duñgo filed a reply to
the above motion. Soon thereafter, the lower court dismissed the appeal.
That by mutual agreements of all the parties herein, this Tri-party Agreement
may be submitted to Court to form integral parts of the records of the Civil Cases Two issues were raised to this Court for review, to wit:
mentioned above;
(1) Was the compromise agreement of January 15, 1960, the Order of the same
IN WITNESS WHEREOF, the parties hereunto affix their signatures on this 3rd day date approving the same, and, all the proceedings subsequent thereto, valid or
of May, 1960 in the City of Manila, Philippines. void insofar as the petitioner herein is concerned?

When Anastacio Duñgo (herein petitioner) and Rodrigo S. Gonzales failed to pay (2) Did the lower court abuse its discretion when it dismissed the appeal of the
the balance of their indebtedness on June 30, 1960, herein respondents Lopena herein petitioner?
and Ramos filed on July 5, 1960, a Motion for the Sale of Mortgaged Property.
Although this last motion was filed ex parte, Anastacio Duñgo and Rodrigo S.
Petitioner Anastacio Duñgo insists that the Compromise Agreement was void ab The ratification of the compromise agreement was conclusively established by
initio and could have no effect whatsoever against him because he did not sign the tri-party agreement of May 3, 1960. It is to be noted that the compromise
the same. Purthermore, as it was void, all the proceedings subsequent to its agreement was submitted to and approved by the lower court on January 15,
execution, including the Order approving it were similarly void and could not 1960. Now, the Tri-Party Agreement referred itself to that order when it
result to anything adverse to his interest. stipulated thus:

The argument was not well taken. It is true that a compromise is, in itself, a "WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect
contract. It is as such that the Civil Code speaks of it. of the Order dated January 15, 1960, of the Court of First Instance, of Pasig, Rizal,
Branch IV, which order is hereby made an integral part of this agreement as
"ART. 2028. A compromise is a contract whereby the parties by making reciprocal Annex "A".
concessions, avoid a litigation or put an end to one already commenced.
Having so consented to making that court order approving the compromise
Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another agreement an integral part of the Tri-Party Agreement, how can the petitioner
to a compromise agreement unless he, the third person, has obtained a special herein now repudiate the compromise agreement and claim he has not
power of attorney for that purpose from the party intended to be bound. authorized it?
"ART. 1878. Special powers of attorney are necessary in the following cases: When it appears that the client, on becoming aware of the compromise and the
judgment thereon, fails to repudiate promptly the action of his attorney, he will
*******
not afterwards be heard to contest its validity (Rivero vs. Rivero, 59 Phil. 15).
(3) To compromise, to submit questions to arbitration, to renounce the right to
Besides, this Court has not overlooked the fact that while indeed Anastacio
appeal from a judgment, to waive objection to the venue of an action or to
Duñgo was not a signatory to the compromise agreement, the principal provision
abandon a prescription already acquired;"
of the said instrument was for his benefit. Originally, Anastacio Duñgo's
However, although the Civil Code expressly requires a special power of attorney obligation matured and became demandable on October 10, 1959. However, the
in order that one may compromise an interest of another, it is neither accurate compromise agreement extended the date of maturity to June 30, 1960. More
nor correct to conclude that its absence renders the compromise agreement void. than anything, therefore, the compromise agreement operated to benefit the
In such a case, the compromise is contract. It must be governed by the rules and herein petitioner because it afforded him more time and opportunity to fulfill his
the law merely unenforceable. This results from its nature as a on contracts. monetary obligations under the contract. If only for this reason, this Court
believes that the herein petitioner should not be heard to repudiate the said
"ART. 1403. The following contracts are unenforceable unless they are ratified: agreement.
(1) Those entered into in the name of another person by one who has been given Lastly, the compromise agreement stated "that, should the defendants fail to pay
no authority or legal representation, or who has acted beyond his powers." the said mortgage indebtedness, judgment of forecloure shall thereafter be
entered against the said defendants;" Beyond doubt, this was ratified by the Tri-
Logically, then, the next inquiry in this case should be whether the herein Party Agreement when it covenanted that
petitioner, Anastacio Duñgo, had or had not ratified the compromise agreement.
If he had, then the compromise agreement was legally enforced against him; "If the PAYOR defaults or fails to pay anyone of the installments in the manner
otherwise, he should be sustained in his contention that it never bound him, nor stated above, the PAYOR and the DEBTOR hereby permit the CREDITOR to
ever could it be made to bind him. execute the order of sale referred to above (the Judgment of Foreclosure), and
they (PAYOR and DEBTOR) hereby waive any and all objections or oppositions to
the propriety of the public auction sale and to the confirmation of the sale to be from a third person who has agreed to assume the obligation, when there is no
made by the Court." agreement that the first debtor shall be released from responsibility, does not
constitute a novation, and the creditor can still enforce the obligation against the
Petitioner Duñgo finally argued that even assuming that the compromise original debtor (Straight vs. Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto,
agreement was valid, it nevertheless could not be enforced against him because 34 Phil. 237; Estate of Mota vs. Serra, 47 Phil. 464).
it has been novated by the Tri-Party Agreement which brought in a third party,
namely, Emma R. Santos, who assumed the mortgaged obligation of the herein In view of the foregoing, We hold that the Tri-Party Agreement was an
petitioner. instrument intended to render effective the compromise agreement. It merely
complimented and ratified the same. That a third person was involved in it is
This Court cannot accept the argument. Novation by presumption has never been inconsequential. Nowhere in the new agreement may the release of the herein
favored. To be sustained, it need be established that the old and new contracts petitioner be even inferred.
are incompatible in all points, or that the will to novate appears by express
agreement of the parties or in acts of similar import. (Martinez vs. Cavives, 25 Having held that the compromise agreement was valid and enforceable against
Phil. 581; Tiu Sinco vs. Havana, 45 Phil. 707; Asia Banking Corporation vs. Lacson the herein petitioner, it follows that the lower court committed no abuse of
Co., 48 Phil., 482; Pascual vs. Lacsamana, 100 PhiL, 381; 53 Off. Gaz. 2467). discretion when it dismissed the appeal of the herein petitioner.

An obligation to pay a sum of money is not novated in a new instrument wherein WHEREFORE, the petition for certiorari and mandamus filed by the herein
the old is ratified, by changing only the term of payment and adding other petitioner is hereby dismissed. The order of the lower court dismissing the appeal
obligations not incompatible with the old one (Inchausti vs. Yulo, 34 Phil. 978; is hereby affirmed, with costs.
Pablo vs. Sapuiigan 71 Phil. 145) or wherein the old contract is merely
supplemented by the new one (Ramos vs. Gibbon, 67 Phil., 371).

Herein petitioner claims that when a third party, Emma R. Santos, came in and
assumed the mortgaged obligation novation resulted thereby inasmuch as a new
debtor was substituted in place of the original one. In this kind of novation, 9 [ GR No. 118114, Dec 07, 1995 ]
however, it is not enough that the juridical relation of the parties to the original
contract is extended to a third person; it is necessary that the old debtor be TEODORO ACAP v. CA +
released from the obligation, and the third person or new debtor takes his place
in the new relation. Without such release, there is no novation; the third person
who has assumed the obligation of the debtor merely becomes a co-debtor or
surety. If there is no agreement as to solidarity, the first and the new debtors are
321 Phil. 381
considered obligated jointly. (IV Tolentino, Civil Code, p. 360, citing Manresa).
There was no such release of the original debtor in the Tri-Party Agreement.
PADILLA, J.:
It is a very common thing in business affairs for a stranger to a contract to assume
its obligations; and, while this may have the effect of adding to the number of This is a petition for review on certiorari of the decision[1] of the Court of Appeals,
persons liable, it does not necessarily imply the extinguishment of the liability of 2nd Division, in CA-G.R. No. 36177, which affirmed the decision[2] of the Regional
the first debtor (Rios vs. Jacinto, etc. 49 Phil. 7; Garcia vs. Khu Yek Chiong, 65 Phil. Trial Court of Himamaylan, Negros Occidental holding that private respondent
466). The mere fact that the creditor receives a guaranty or accepts payments Edy de los Reyes had acquired ownership of Lot No. 1130 of the Cadastral Survey
of Hinigaran, Negros Occidental based on a document entitled "Declaration of
Heirship and Waiver of Rights", and ordering the dispossession of petitioner as Now, therefore, We LAURENCIANA[3], ELY, ELMER, ERVIN and ELECHOR all
leasehold tenant of the land for failure to pay rentals. surnamed PIDO, do hereby waive, quitclaim all our rights, interests and
participation over the said parcel of land in favor of EDY DE LOS REYES, of legal
The facts of the case are as follows: age, (f)ilipino, married to VIRGINIA DE LOS REYES, and resident of Hinigaran,
Negros Occidental, Philippines. x x x"[4] (Italics supplied)
The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental
was evidenced by OCT No. R-12179. The lot has an area of 13,720 sq. The document was signed by all of Pido's heirs. Private respondent Edy de los
meters. The title was issued and is registered in the name of spouses Santiago Reyes did not sign said document.
Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto
inherited the lot. In 1975, Felixberto executed a duly notarized document It will be noted that at the time of Cosme Pido's death, title to the property
entitled "Declaration of Heirship and Deed of Absolute Sale" in favor of Cosme continued to be registered in the name of the Vasquez spouses. Upon obtaining
Pido. the Declaration of Heirship with Waiver of Rights in his favor, private respondent
Edy de los Reyes filed the same with the Registry of Deeds as part of a notice of
The evidence before the court a quo established that since 1960, petitioner an adverse claim against the original certificate of title.
Teodoro Acap had been the tenant of a portion of the said land, covering an area
of nine thousand five hundred (9,500) square meters. When ownership was Thereafter, private respondent sought for petitioner (Acap) to personally inform
transferred in 1975 by Felixberto to Cosme Pido, Acap continued to be the him that he (Edy) had become the new owner of the land and that the lease
registered tenant thereof and religiously paid his leasehold rentals to Pido and rentals thereon should be paid to him. Private respondent further alleged that he
thereafter, upon Pido's death, to his widow Laurenciana. and petitioner entered into an oral lease agreement wherein petitioner agreed to
pay ten (10) cavans of palay per annum as lease rental. In 1982, petitioner
The controversy began when Pido died intestate and on 27 November 1981, his allegedly complied with said obligation. In 1983, however, petitioner refused to
surviving heirs executed a notarized document denominated as "Declaration of pay any further lease rentals on the land, prompting private respondent to seek
Heirship and Waiver of Rights of Lot No. 1130 Hinigaran Cadastre," wherein they the assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran,
declared, to quote its pertinent portions, that: Negros Occidental. The MAR invited petitioner to a conference scheduled on 13
October 1983. Petitioner did not attend the conference but sent his wife instead
to the conference. During the meeting, an officer of the Ministry informed Acap's
"x x x Cosme Pido died in the Municipality of Hinigaran, Negros Occidental, he wife about private respondent's ownership of the said land but she stated that
died intestate and without any known debts and obligations which the said parcel she and her husband (Teodoro) did not recognize private respondent's claim of
of land is (sic) held liable. ownership over the land.

That Cosme Pido was survived by his/her legitimate heirs, namely: LAURENCIANA On 28 April 1988, after the lapse of four (4) years, private respondent filed a
PIDO, wife, ELY, ERVIN, ELMER, and ELECHOR all surnamed PIDO; children; complaint for recovery of possession and damages against petitioner, alleging in
the main that as his leasehold tenant, petitioner refused and failed to pay the
That invoking the provision of Section 1, Rule 74 of the Rules of Court, the above- agreed annual rental of ten (10) cavans of palay despite repeated demands.
mentioned heirs do hereby declare unto [sic] ourselves the only heirs of the late
Cosme Pido and that we hereby adjudicate unto ourselves the above-mentioned During the trial before the court a quo, petitioner reiterated his refusal to
parcel of land in equal shares. recognize private respondent's ownership over the subject land. He averred that
he continues to recognize Cosme Pido as the owner of the said land, and having
been a registered tenant therein since 1960, he never reneged on his rental
obligations. When Pido died, he continued to pay rentals to Pido's widow. When "There is no doubt that defendant is a registered tenant of Cosme
the latter left for abroad, she instructed him to stay in the landholding and to pay Pido. However, when the latter died their tenancy relations changed since
the accumulated rentals upon her demand or return from abroad. ownership of said land was passed on to his heirs who, by executing a Deed of
Sale, which defendant admitted in his affidavit, likewise passed on their
Petitioner further claimed before the trial court that he had no knowledge about ownership of Lot 1130 to herein plaintiff (private respondent). As owner hereof,
any transfer or sale of the lot to private respondent in 1981 and even the plaintiff has the right to demand payment of rental and the tenant is obligated to
following year after Laurenciana's departure for abroad. He denied having pay rentals due from the time demand is made. x x x[6]
entered into a verbal lease tenancy contract with private respondent and that
assuming that the said lot was indeed sold to private respondent without his xxx xxx xxx
knowledge, R.A. 3844, as amended, grants him the right to redeem the same at a
reasonable price. Petitioner also bewailed private respondent's ejectment action Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does not of
as a violation of his right to security of tenure under P.D. 27. itself extinguish the relationship. There was only a change of the personality of
the lessor in the person of herein plaintiff Edy de los Reyes who being the
On 20 August 1991, the lower court rendered a decision in favor of private purchaser or transferee, assumes the rights and obligations of the former
respondent, the dispositive part of which reads: landowner to the tenant Teodoro Acap, herein defendant."[7]

Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the


"WHEREFORE, premises considered, the Court renders judgment in favor of the lower court when it ruled that private respondent acquired ownership of Lot No.
plaintiff, Edy de los Reyes, and against the defendant, Teodoro Acap, ordering the 1130 and that he, as tenant, should pay rentals to private respondent and that
following, to wit: failing to pay the same from 1983 to 1987, his right to a certificate of land
transfer under P.D. 27 was deemed forfeited.
1. Declaring forfeiture of defendant's preferred right to issuance of a Certificate
of Land Transfer under Presidential Decree No. 27 and his farmholdings; The Court of Appeals brushed aside petitioner's argument that the Declaration of
Heirship and Waiver of Rights (Exhibit "D"), the document relied upon by private
2. Ordering the defendant Teodoro Acap to deliver possession of said farm to respondent to prove his ownership to the lot, was excluded by the lower court in
plaintiff, and; its order dated 27 August 1990. The order indeed noted that the document was
not identified by Cosme Pido's heirs and was not registered with the Registry of
3. Ordering the defendant to pay P5,000.00 as attorney's fees, the sum of Deeds of Negros Occidental. According to respondent court, however, since the
P1,000.00 as expenses of litigation and the amount of P10,000.00 as actual Declaration of Heirship and Waiver of Rights appears to have been duly
damages."[5] notarized, no further proof of its due execution was necessary. Like the trial
court, respondent court was also convinced that the said document stands
In arriving at the above-mentioned judgment, the trial court stated that the as prima facie proof of appellee's (private respondent's) ownership of the land in
evidence had established that the subject land was "sold" by the heirs of Cosme dispute.
Pido to private respondent. This is clear from the following disquisitions
contained in the trial court's six (6) page decision: With respect to its non-registration, respondent court noted that petitioner had
actual knowledge of the subject sale of the land in dispute to private respondent
because as early as 1983, he (petitioner) already knew of private respondent's Private respondent defends the decision of respondent Court of Appeals as in
claim over the said land but which he thereafter denied, and that in 1982, he accord with the evidence and the law. He posits that while it may indeed be true
(petitioner) actually paid rent to private respondent. Otherwise stated, that the trial court excluded his Exhibit "D" which is the Declaration of Heirship
respondent court considered this fact of rental payment in 1982 as estoppel on and Waiver of Rights as part of his evidence, the trial court declared him
petitioner's part to thereafter refute private respondent's claim of ownership nonetheless owner of the subject lot based on other evidence adduced during
over the said land. Under these circumstances, respondent court ruled that the trial, namely, the notice of adverse claim (Exhibit "E") duly registered by him
indeed there was deliberate refusal by petitioner to pay rent for a continued with the Registry of Deeds, which contains the questioned Declaration of Heirship
period of five years that merited forfeiture of his otherwise preferred right to the and Waiver of Rights as an integral part thereof.
issuance of a certificate of land transfer.
We find the petition impressed with merit.
In the present petition, petitioner impugns the decision of the Court of Appeals as
not in accord with the law and evidence when it rules that private respondent In the first place, an asserted right or claim to ownership or a real right over a
acquired ownership of Lot No. 1130 through the aforementioned Declaration of thing arising from a juridical act, however justified, is not per se sufficient to give
Heirship and Waiver of Rights. rise to ownership over the res. That right or title must be completed by fulfilling
certain conditions imposed by law. Hence, ownership and real rights are acquired
Hence, the issues to be resolved presently are the following: only pursuant to a legal mode or process. While title is the juridical justification,
mode is the actual process of acquisition or transfer of ownership over a thing in
1. WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND WAIVER question.[8]
OF RIGHTS IS A RECOGNIZED MODE OF ACQUIRING OWNERSHIP BY PRIVATE
RESPONDENT OVER THE LOT IN QUESTION. Under Article 712 of the Civil Code, the modes of acquiring ownership are
generally classified into two (2) classes, namely, the original mode (i.e., through
2. WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED A DEED OF occupation, acquisitive prescription, law or intellectual creation) and the
SALE IN FAVOR OF PRIVATE RESPONDENT OF THE LOT IN QUESTION. derivative mode (i.e., through succession mortis causa or tradition as a result of
certain contracts, such as sale, barter, donation, assignment or mutuum).
Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990,
explicitly excluded the document marked as Exhibit "D" (Declaration of Heirship, In the case at bench, the trial court was obviously confused as to the nature and
etc.) as private respondent's evidence because it was not registered with the effect of the Declaration of Heirship and Waiver of Rights, equating the same
Registry of Deeds and was not identified by anyone of the heirs of Cosme with a contract (deed) of sale. They are not the same.
Pido. The Court of Appeals, however, held the same to be admissible, it being a
notarized document, hence, a prima facie proof of private respondents' In a Contract of Sale, one of the contracting parties obligates himself to transfer
ownership of the lot to which it refers. the ownership of and to deliver a determinate thing, and the other party to pay a
price certain in money or its equivalent.[9]
Petitioner points out that the Declaration of Heirship and Waiver of Rights is not
one of the recognized modes of acquiring ownership under Article 712 of the Civil Upon the other hand, a declaration of heirship and waiver of rights operates as a
Code. Neither can the same be considered a deed of sale so as to transfer public instrument when filed with the Registry of Deeds whereby the intestate
ownership of the land to private respondent because no consideration is stated in heirs adjudicate and divide the estate left by the decedent among themselves as
the contract (assuming it is a contract or deed of sale). they see fit. It is in effect an extrajudicial settlement between the heirs under
Rule 74 of the Rules of Court.[10]
therefore in the tenanted lot remains an adverse claim which cannot by itself be
Hence, there is a marked difference between a sale of hereditary rights and sufficient to cancel the OCT to the land and title the same in private respondent's
a waiver of hereditary rights. The first presumes the existence of a contract or name.
deed of sale between the parties.[11] The second is, technically speaking, a mode
of extinction of ownership where there is an abdication or intentional Consequently, while the transaction between Pido's heirs and private respondent
relinquishment of a known right with knowledge of its existence and intention to may be binding on both parties, the right of petitioner as a registered tenant to
relinquish it, in favor of other persons who are co-heirs in the the land cannot be perfunctorily forfeited on a mere allegation of private
succession.[12] Private respondent, being then a stranger to the succession of respondent's ownership without the corresponding proof thereof.
Cosme Pido, cannot conclusively claim ownership over the subject lot on the sole
basis of the waiver document which neither recites the elements of either a Petitioner had been a registered tenant in the subject land since 1960 and
sale,[13] or a donation,[14] or any other derivative mode of acquiring ownership. religiously paid lease rentals thereon. In his mind, he continued to be the
registered tenant of Cosme Pido and his family (after Pido's death), even if in
Quite surprisingly, both the trial court and public respondent Court of Appeals 1982, private respondent allegedly informed petitioner that he had become the
concluded that a "sale" transpired between Cosme Pido's heirs and private new owner of the land.
respondent and that petitioner acquired actual knowledge of said sale when he
was summoned by the Ministry of Agrarian Reform to discuss private Under the circumstances, petitioner may have, in good faith, assumed such
respondent's claim over the lot in question. This conclusion has no basis both in statement of private respondent to be true and may have in fact delivered 10
fact and in law. cavans of palay as annual rental for 1982 to private respondent. But in 1983, it is
clear that petitioner had misgivings over private respondent's claim of ownership
On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of over the said land because in the October 1983 MAR conference, his wife
Rights" was excluded by the trial court in its order dated 27 August 1990 because Laurenciana categorically denied all of private respondent's allegations. In fact,
the document was neither registered with the Registry of Deeds nor identified by petitioner even secured a certificate from the MAR dated 9 May 1988 to the
the heirs of Cosme Pido. There is no showing that private respondent had the effect that he continued to be the registered tenant of Cosme Pido and not of
same document attached to or made part of the record. What the trial court private respondent. The reason is that private respondent never registered the
admitted was Annex "E", a notice of adverse claim filed with the Registry of Declaration of Heirship with Waiver of Rights with the Registry of Deeds or with
Deeds which contained the Declaration of Heirship with Waiver of rights and was the MAR. Instead, he (private respondent) sought to do indirectly what could not
annotated at the back of the Original Certificate of Title to the land in question. be done directly, i.e., file a notice of adverse claim on the said lot to establish
ownership thereof.
A notice of adverse claim, by its nature, does not however prove private
respondent's ownership over the tenanted lot. "A notice of adverse claim is It stands to reason, therefore, to hold that there was no unjustified or deliberate
nothing but a notice of a claim adverse to the registered owner, the validity of refusal by petitioner to pay the lease rentals or amortizations to the
which is yet to be established in court at some future date, and is no better than landowner/agricultural lessor which, in this case, private respondent failed to
a notice of lis pendens which is a notice of a case already pending in court."[15] establish in his favor by clear and convincing evidence.[16]

It is to be noted that while the existence of said adverse claim was duly proven, Consequently, the sanction of forfeiture of his preferred right to be issued a
there is no evidence whatsoever that a deed of sale was executed between Certificate of Land Transfer under P.D. 27 and to the possession of his
Cosme Pido's heirs and private respondent transferring the rights of Pido's heirs farmholdings should not be applied against petitioners, since private respondent
to the land in favor of private respondent. Private respondent's right or interest has not established a cause of action for recovery of possession against
petitioner. Affidavit of Self-Adjudication dated December 4, 2001 and a Deed of Absolute
Sale dated February 6, 2002 before the court a quo. In it, petitioners alleged that
WHEREFORE, premises considered, the Court hereby GRANTS the petition and Avelina was one of the children of Eulalio Abarientos (Eulalio) and Victoria
the decision of the Court of Appeals dated 1 May 1994 which affirmed the Villareal (Victoria). Eulalio died intestate on July 3, 1964, survived by his wife
decision of the RTC of Himamaylan, Negros Occidental dated 20 August 1991 is Victoria, six legitimate children,and one illegitimate child, namely: (1) Avelina
hereby SET ASIDE. The private respondent's complaint for recovery of possession Abarientos-Rebusquillo, petitioner in this case; (2) Fortunata Abarientos-Orosco,
and damages against petitioner Acap is hereby DISMISSED for failure to properly the mother of petitioner Salvador; (3) Rosalino Abarientos; (4) Juan Abarientos;
state a cause of action, without prejudice to private respondent taking the proper (5) Feliciano Abarientos; (6) Abraham Abarientos; and (7) Carlos Abarientos. His
legal steps to establish the legal mode by which he claims to have acquired wife Victoria eventually died intestate on June 30, 1983.
ownership of the land in question.
On his death, Eulalio left behind an untitled parcel of land in Legazpi City
consisting of two thousand eight hundred sixty-nine (2,869) square meters, more
or less, which was covered by Tax Declaration ARP No. (TD) 0141.

In 2001, Avelina was supposedly made to sign two (2) documents by her daughter
Emelinda Rebusquillo-Gualvez (Emelinda) and her son-in-law Domingo Gualvez
10 [ G.R. No. 204029, June 04, 2014 ] (Domingo), respondents in this case, on the pretext that the documents were
needed to facilitate the titling of the lot. It was only in 2003, so petitioners claim,
that Avelina realized that what she signed was an Affidavit of Self-Adjudication
AVELINA ABARIENTOS REBUSQUILLO [SUBSTITUTED BY HER HEIRS, and a Deed of Absolute Sale in favor of respondents.
EXCEPT EMELINDA R. GUALVEZ] AND SALVADOR A. OROSCO,
PETITIONERS, VS. SPS. DOMINGO AND EMELINDA REBUSQUILLO As respondents purportedly ignored her when she tried to talk to them, Avelina
GUALVEZ, RESPONDENTS. sought the intervention of the RTC to declare null and void the two (2)
documents in order to reinstate TD 0141 and so correct the injustice done to the
DECISION other heirs of Eulalio.

In their answer, respondents admitted that the execution of the Affidavit of Self-
VELASCO JR., J.:
Adjudication and the Deed of Sale was intended to facilitate the titling of the
Before Us is a Petition for Review on Certiorari under Rule 45 assailing the subject property. Paragraph 9 of their Answer reads:
Decision[1] and Resolution[2] dated March 30, 2012 and September 25, 2012,
respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 93035, which
reversed and set aside the Decision dated January 20, 2009 of the Regional Trial Sometime in the year 2001, [petitioner] Avelina together with the other heirs of
Court (RTC), Branch 4 in Legazpi City, in Civil Case No. 10407. Eulalio Abarientos brought out the idea to [respondent] Emelinda Rebusquillo-
Gualvez to have the property described in paragraph 8 of the complaint
The antecedent facts may be summarized as follows: registered under the Torrens System of Registration. To facilitate the titling of
the property, so that the same could be attractive to prospective buyers, it was
On October 26, 2004, petitioners Avelina Abarientos Rebusquillo (Avelina) and agreed that the property's tax declaration could be transferred to [respondents]
Salvador Orosco (Salvador) filed a Complaint for annulment and revocation of an Spouses [Emelinda] R. Gualvez and Domingo Gualvez who will spend all the cost
of titling subject to reimbursement by all other heirs in case the property is
sold; That it was agreed that all the heirs will be given their corresponding shares Assailing the trial court's decision, respondents interposed an appeal with the CA
on the property; That pursuant to said purpose Avelina Abarientos-Rebusquillo arguing that the Deed of Sale cannot be annulled being a public document that
with the knowledge and consent of the other heirs signed and executed an has for its object the creation and transmission of real rights over the immovable
Affidavit of Self-Adjudication and a Deed of Absolute Sale in favor of subject property. The fact that Avelina's testimony was not offered in evidence,
[respondents] Gualvez. In fact, [petitioner] Avelina Rebusquillo was given an so respondents argued, the signature on the adverted deed remains as concrete
advance sum of FIFTY THOUSAND PESOS (P50,000.00) by [respondent] spouses proof of her agreement to its terms. Lastly, respondents contended that the
and all the delinquent taxes paid by [respondents].[3] Complaint filed by petitioners Avelina and Salvador before the RTC is not the
proper remedy provided by law for those compulsory heirs unlawfully deprived of
After trial, the RTC rendered its Decision dated January 20, 2009 annulling the their inheritance.
Affidavit of Self-Adjudication and the Deed of Absolute Sale executed by Avelina
on the grounds that (1) with regard to the Affidavit of Self-Adjudication, she was Pending the resolution of respondents' appeal, Avelina died intestate on
not the sole heir of her parents and was not therefore solely entitled to their September 1, 2009 leaving behind several living heirs[5]including respondent
estate; and (2) in the case of the Deed of Absolute Sale, Avelina did not really Emelinda.
intend to sell her share in the property as it was only executed to facilitate the
titling of such property. The dispositive portion of the RTC Decision reads: In its Decision dated March 30, 2012, the appellate court granted the appeal and
reversed and set aside the Decision of the RTC. The CA held that the RTC erred in
annulling the Affidavit of Self-Adjudication simply on petitioners' allegation of the
WHEREFORE, premises considered, judgment is hereby rendered, as follows: existence of the heirs of Eulalio, considering that issues on heirship must be made
in administration or intestate proceedings, not in an ordinary civil action. Further,
the appellate court observed that the Deed of Absolute Sale cannot be nullified as
1. The subject Affidavit of Self-Adjudication of the Estate of the Deceased it is a notarized document that has in its favor the presumption of regularity and
Spouses Eulalio Abarientos and Victoria Villareal, dated December 4, is entitled to full faith and credit upon its face.
2001 as well as the subject Deed of Absolute Sale, notarized on February
6, 2002, covering the property described in par. 8 of the Amended Aggrieved by the CA's Decision, petitioner Avelina, as substituted by her heirs
Complaint are hereby ordered ANNULLED; except respondent Emelinda, and petitioner Salvador are now before this Court
ascribing reversible error on the part of the appellate court.
2. That defendant City Assessor's Officer of Legazpi City is hereby ordered
to CANCEL the Tax Declaration in the name of private [respondents] We find merit in the instant petition.
spouses Gualvez under ARP No. 4143 and to REINSTATE the Tax
Declaration under ARP No. 0141 in the name of Eulalio Abarientos; It has indeed been ruled that the declaration of heirship must be made in a
special proceeding, not in an independent civil action. However, this Court had
3. By way of restitution, [petitioner] Avelina Abarientos Rebusquillo is likewise held that recourse to administration proceedings to determine who heirs
hereby ordered to return or refund to [respondents] spouses Domingo are is sanctioned only if there is a good and compelling reason for such
Gualvez and Emelinda Gualvez, the P50,000.00 given by the latter recourse.[6]Hence, the Court had allowed exceptions to the rule requiring
spouses to the former.[4] administration proceedings as when the parties in the civil case already
presented their evidence regarding the issue of heirship, and the RTC had
consequently rendered judgment upon the issues it defined during the pre-
trial.[7]In Portugal v. Portugal-Beltran,[8] this Court held: admitted in court that they knew for a fact that petitioner Avelina was not the
sole heir of Eulalio and that petitioner Salvador was one of the other living heirs
with rights over the subject land. As confirmed by the RTC in its
In the case at bar, respondent, believing rightly or wrongly that she was the sole Decision,respondents have stipulated and have thereby admitted the veracity of
heir to Portugal's estate, executed on February 15, 1988 the questioned Affidavit the following facts during the pre-trial:
of Adjudication under the second sentence of Rule 74, Section 1 of the Revised
Rules of Court. Said rule is an exception to the general rule that when a person
dies leaving a property, it should be judicially administered and the competent IV UNCONTROVERTED FACTS: (Based on the stipulation of facts in the Pre-Trial
court should appoint a qualified administrator, in the order established in Sec. 6, Order)
Rule 78 in case the deceased left no will, or in case he did, he failed to name an
executor therein.
A. x x x
Petitioners claim, however, to be the exclusive heirs of Portugal. A probate or
intestate court, no doubt, has jurisdiction to declare who are the heirs of a B. [Petitioners] and private [respondents] spouses Gualvez admitted the
deceased. following facts:

It appearing, however, that in the present case the only property of the
intestate estate of Portugal is the Caloocan parcel of land to still subject it, 1. Identity of the parties;
under the circumstances of the case, to a special proceeding which could be
long, hence, not expeditious, just to establish the status of petitioners as heirs is 2. Capacity of the [petitioners] and private [respondents] to sue
not only impractical; it is burdensome to the estate with the costs and expenses and be sued;
of an administration proceeding. And it is superfluous in light of the fact that the
parties to the civil case - subject of the present case, could and had already in 3. [Petitioner] Avelina Abarientos-Rebusquilllo is not the only
fact presented evidence before the trial court which assumed jurisdiction over surviving heir of deceased spouses Eulalio and Victoria
the case upon the issues it defined during pre-trial. Abarientos;

In fine, under the circumstances of the present case, there being no compelling 4. Petitioner Salvador Orosco is a co-owner/possessor of a
reason to still subject Portugal's estate to administration proceedings since a portion of the subject property;
determination of petitioners' status as heirs could be achieved in the civil case
filed by petitioners, the trial court should proceed to evaluate the evidence 5. Fortunata Abarientos-Orosco is the sister of Avelina
presented by the parties during the trial and render a decision thereon upon the Abarientos;
issues it defined during pre-trial x xx. (emphasis supplied)
6. [Respondent] Emelinda Rebusquillo-Gualves is a daughter of
Similar to Portugal, in the present case, there appears to be only one parcel of [petitioner] Avelina A. Rebusquillo;
land being claimed by the contending parties as the inheritance from Eulalio. It
would be more practical, as Portugal teaches, to dispense with a separate special 7. [Petitioner] Avelina Rebusquillo was born on Nov. 10, 1923;
proceeding for the determination of the status of petitioner Avelina as sole heir
of Eulalio, especially in light of the fact that respondents spouses Gualvez
8. The existence of Affidavit of Self-Adjudication of Estate of the the ownership, of whatever extent, over the property to respondents. Hence, the
Deceased and Deed of Absolute Sale executed by [petitioner] Deed of Absolute Sale is nothing more than a simulated contract.
Avelina A. Rebusquillo on the subject property.[9] (emphasis
supplied) The Civil Code provides:

In light of the admission of respondents spouses Gualvez, it is with more reason Art. 1345. Simulation of a contract may be absolute or relative. The former takes
that a resort to special proceeding will be but an unnecessary superfluity. place when the parties do not intend to be bound at all; the latter, when the
Accordingly, the court a quo had properly rendered judgment on the validity of parties conceal their true agreement. (emphasis supplied)
the Affidavit of Self-Adjudication executed by Avelina. As pointed out by the trial
court, an Affidavit of Self-Adjudication is only proper when the affiant is the Art. 1346. An absolutely simulated or fictitious contract is void. A relative
sole heir of the decedent. The second sentence of Section 1, Rule 74 of the Rules simulation, when it does not prejudice a third person and is not intended for any
of Court is patently clear that self-adjudication is only warranted when there is purpose contrary to law, morals, good customs, public order or public policy
only one heir: binds the parties to their real agreement.

In Heirs of Policronio Ureta Sr. v. Heirs of Liberato Ureta,[11] this Court explained
Section 1. Extrajudicial settlement by agreement between heirs. x x x If there is the concept of the simulation of contracts:
only one heir, he may adjudicate to himself the entire estate by means of an
affidavit filed in the office of the register of deeds. x x x(emphasis supplied)
In absolute simulation, there is a colorable contract but it has no substance as the
As admitted by respondents, Avelina was not the sole heir of Eulalio. In fact, as parties have no intention to be bound by it. The main characteristic of an
admitted by respondents, petitioner Salvador is one of the co-heirs by right of absolute simulation is that the apparent contract is not really desired or
representation of his mother. Without a doubt, Avelina had perjured herself intended to produce legal effect or in any way alter the juridical situation of the
when she declared in the affidavit that she is "the only daughter and sole heir of parties. As a result, an absolutely simulated or fictitious contract is void, and
spouses EULALIO ABARIENTOS AND VICTORIA VILLAREAL."[10] The falsity of this the parties may recover from each other what they may have given under the
claim renders her act of adjudicating to herself the inheritance left by her father contract. However, if the parties state a false cause in the contract to conceal
invalid. The RTC did not, therefore, err in granting Avelina's prayer to declare the their real agreement, the contract is relatively simulated and the parties are still
affidavit null and void and so correct the wrong she has committed. bound by their real agreement. Hence, where the essential requisites of a
contract are present and the simulation refers only to the content or terms of the
In like manner, the Deed of Absolute Sale executed by Avelina in favor of contract, the agreement is absolutely binding and enforceable between the
respondents was correctly nullified and voided by the RTC Avelina was not in the parties and their successors in interest. (emphasis supplied)
right position to sell and transfer the absolute ownership of the subject property
to respondents. As she was not the sole heir of Eulalio and her Affidavit of Self- In the present case, the true intention of the parties in the execution of the Deed
Adjudication is void, the subject property is still subject to partition. Avelina, in of Absolute Sale is immediately apparent from respondents' very own Answer to
fine, did not have the absolute ownership of the subject property but only an petitioners' Complaint. As respondents themselves acknowledge, the purpose of
aliquot portion. What she could have transferred to respondents was only the the Deed of Absolute Sale was simply to "facilitate the titling of the [subject]
ownership of such aliquot portion. It is apparent from the admissions of property," not to transfer the ownership of the lot to them. Furthermore,
respondents and the records of this case that Avelina had no intention to transfer respondents concede that petitioner Salvador remains in possession of the
property and that there is no indication that respondents ever took possession of considering that the Deed of Absolute Sale has been shown to be void for being
the subject property after its supposed purchase. Such failure to take exclusive absolutely simulated, petitioners are not precluded from presenting evidence to
possession of the subject property or, in the alternative, to collect rentals from its modify, explain or add to the terms of the written agreement. [13]
possessor, is contrary to the principle of ownership and is a clear badge of
simulation that renders the whole transaction void.[12] WHEREFORE, the instant petition is GRANTED. The Decision dated March 30,
2012 and the Resolution dated September 25, 2012 of the Court of Appeals in CA-
Contrary to the appellate court's opinion, the fact that the questioned Deed of G.R. CV No. 93035 are hereby REVERSED and SET ASIDE. The Decision dated
Absolute Sale was reduced to writing and notarized does not accord it the quality January 20, 2009 in Civil Case No. 10407 of the Regional Trial Court (RTC), Branch
of incontrovertibility otherwise provided by the parole evidence rule. The form of 4 in Legazpi City is REINSTATED.
a contract does not make an otherwise simulated and invalid act valid. The rule
on parole evidence is not, as it were, ironclad. Sec. 9, Rule 130 of the Rules of
Court provides the exceptions:

Section 9. Evidence of written agreements. x x x


11[ GR No. L-46892, Sep 30, 1981 ]

However, a party may present evidence to modify, explain or add to the terms of HEIRS OF AMPARO DEL ROSARIO v. AURORA O. SANTOS +
written agreement if he puts in issue in his pleading:
194 Phil. 670
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
GUERRERO, J.:
(b) The failure of the written agreement to express the true intent and
agreement of the parties thereto;

(c) The validity of the written agreement; or The Court of Appeals,[1] in accordance with Section 31 of the Judiciary Act of
1948, as amended, certified to Us the appeal docketed as CA-G.R. No. 56674-R
(d) The existence of other terms agreed to by the parties or their successors in
entitled "Amparo del Rosario, plaintiff-appellee, vs. Spouses Andres Santos and
interest after the execution of the written agreement.
Aurora Santos, defendants-appellants," as only questions of law are involved.
The term "agreement" includes wills.(emphasis supplied)

The failure of the Deed of Absolute Sale to express the true intent and agreement
On January 14, 1974, Amparo del Rosario filed a complaint against the spouses
of the contracting parties was clearly put in issue in the present case. Again,
respondents themselves admit in their Answer that the Affidavit of Self- Andres F. Santos and Aurora O. Santos, for specific performance and damages
Adjudication and the Deed of Absolute Sale were only executed to facilitate the allegedly for failure of the latter to execute the Deed of Confirmation of Sale of
titling of the property. The RTC is, therefore, justified to apply the exceptions an undivided 20,000 square meters of land, part of Lot I, Psu-206650, located at
provided in the second paragraph of Sec. 9, Rule 130 to ascertain the true intent Barrio Sampaloc, Tanay, Rizal, in malicious breach of a Deed of Sale (Exhibit A or
of the parties, which shall prevail over the letter of the document. That said, 1) dated September 28, 1964.
TWENTY (181,420) SQUARE METERS. All points referred to are indicated on the
plan and are marked on the ground as follows; x x x,'
Amparo del Rosario died on Sept. 21, 1980 so that she is now substituted by the
heirs named in her will still undergoing probate proceedings. Andres F. Santos
also died, on Sept. 5, 1980, and he is substituted by the following heirs: Jovita
Santos Gonzales, Arnulfo O. Santos, Archimedes O. Santos, Germelina Santos of which above-described property, I own one-half (1/2) interest thereof being
Ravida, and Andres O. Santos, Jr. my attorney's fee, and the said 20,000 square meters will be transferred unto the
VENDEE as soon as the title thereof has been released by the proper authority or
authorities concerned;

The Deed of Sale (Exh. A or 1) is herein repro-duced below: That the parties hereto hereby agree that the VENDOR shall execute a Deed of
Confirmation of Deed of Sale in favor of the herein VENDEE as soon as the title
has been released and the subdivision plan of said Lot 1 has been approved by
the Land Registration Commissioner.
"DEED OF SALE
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of September,
KNOW ALL MEN BY THESE PRESENTS:
1964, in the City of Manila, Philippines.
I, ANDRES F. SANTOS, of legal age, married to Aurora O. Santos, Filipino and
s/ ANDRES F. SANTOS
resident of San Dionisio, Parañaque, Rizal, Philippines, for and in consideration of
the sum of TWO THOUSAND (P2,000.00) PESOS, Philippine Currency, the receipt t/ ANDRES F. SANTOS
whereof is hereby acknowledged, do hereby SELLS, CON-VEYS, and TRANSFERS
(sic) unto Amparo del Rosario, of legal age, married to Fidel del Rosario but with With My Marital Consent:
legal separation, Filipino and resident of San Dionisio, Paranaque, Rizal,
Philippines that certain 20,000 square meters to be segregated from Lot 1 of plan s/ Aurora O. Santos (Wife)
Psu-206650 along the southeastern portion of said lot, which property is more
t/ Aurora O. Santos (Wife)
particularly described as follows:
SIGNED IN THE PRESENCE OF:
'A parcel of land (Lot 1 as shown on plan Psu-206650, situated in the Barrio of
Sampaloc, Municipality of Tanay, Pro-vince of Rizal. Bounded on the SW., along s/ Felicitas C. Moro s/ Corona C. Venal
lines 1-2-3, by Lot 80 of Tanay Public Land Subdivision, Pls-39; on the NW., along
lines 3-4-5, by Lot 2; and along lines 5-6-7-8-9-10-11, by Lot 6; on the NE., along REPUBLIC OF THE PHILIPPINES)
lines 11-12-13, by Lot 3; and along lines 13-14-15, by Lot 4, all of plan Psu-
) SS.
206650; and on the SE., along line 15-1, by Lot 5 of plan Psu-206650 x x x;
containing an area of ONE HUNDRED EIGHTY ONE THOUSAND FOUR HUNDRED
BEFORE ME, a Notary Public for and in Rizal, Philippines, personally appeared (a )TCT 203580 - 30,205 sq. meters
Andres F. Santos, with Res. Cert. No. 4500027 issued at Parañaque, Rizal, on Jan.
9, 1964, B-0935184 issued at Parañaque, Rizal on April 15, 1964, and Aurora O. (b) TCT 203581 - 19,790 sq. meters
Santos, with Res. Cert. No. A-4500028 issued at Parañaque, Rizal, on Jan. 9, 1964,
(c) TCT 167568 - 40,775 sq. meters
giving her marital consent to this instru-ment, both of whom are known to me
and to me known to be the same persons who exe-cuted the foregoing In a motion to dismiss, defendants pleaded, inter alia, the defenses of lack of
instruments and they acknowledged to me that the same is their free act and jurisdiction of the court a quo over the subject of the action and lack of cause of
voluntary deed. action allegedly because there was no allegation as to the date of the approval of
the subdivision plan, no specific statement that the titles therein mentioned were
IN WITNESS WHEREOF, I have hereunto signed this instrument and affixed my
curved out of Lot I and no clear showing when the demands were made on the
notarial seal this 1st day of October, 1964, in Pasig, Rizal, Philippines.
defendants. They likewise set up the defense of prescription allegedly because
Doc. No. 1792; the deed of sale was dated September 28, 1964 and supposedly ratified October
1, 1964 but the complaint was filed only on January 14, 1974, a lapse of more
Page No. 85; than nine years when it should have been filed within five years from 1964 in
accordance with Article 1149, New Civil Code.
Book No. 19;

Series of 1964.
Defendants also claimed that the demand set forth in the complaint has been
s/ FLORENCIO LANDRITO waived, abandoned or otherwise extinguished. It is alleged that the deed of sale
was "only an accommodation graciously extended, out of close friendship
t/ FLORENCIO LANDRITO
between the defendants and the plaintiff and her casual business partner in the
NOTARY PUBLIC buy and sell of real estate, one Erlinda Cortez;"[3] that in order to allay the fears
of plaintiff over the non-collection of the debt of Erlinda Cortez to plaintiff in
Until December 31, 1965"[2] various sums exceeding P2,000.00, defendants, who were in turn indebted to
Erlinda Cortez in the amount of P2,000.00, voluntarily offered to transfer to
Plaintiff claimed fulfillment of the conditions for the execution of the Deed of
plaintiff their inexistent but expectant right over the lot in question, the same to
Confirmation of Sale, namely: the release of the title of the lot and the approval
be considered as part payment of Erlinda Cortez' indebtedness; that as Erlinda
of the subdivision plan of said lot by the Land Registration Commission. She even
Cortez later on paid her creditor what was then due, the deed of sale had in
enumerated the titles with their corresponding land areas derived by defendants
effect been extinguished. Defendants thereby characterized the said deed of sale
from the aforesaid lot, to wit:
as a mere tentative agreement which was never intended nor meant to be
ratified by and acknowledged before a notary public. In fact, they claimed that
they never appeared before Notary Public Florencio Landrito.
With all these pleadings filed by the parties in support of their respective
positions, the Court a quo still held in abeyance plaintiff's motion for summary
Finally, defendants alleged that the claim on which the action or suit is founded is judgment or judgment on the pleadings pending the pre-trial of the case. At the
unenforceable under the statute of frauds and that the cause or object of the pre-trial, defendants offered by way of compromise to pay plaintiff the sum of
contract did not exist at the time of the transaction. P2,000.00, the consideration stated in the deed of sale. But the latter rejected
the bid and insisted on the delivery of the land to her. Thus, the pre-trial
pro-ceeded with the presentation by plaintiff of Exhibits A to Q which defendants
After an opposition and a reply were filed by the respective parties, the Court a practically admitted, adopted as their own and marked as Exhibits 1 to 17. In
quo resolved to deny the motion to dismiss of defendants. Defendants filed their addition, the latter offered Exhibit 18, which was their reply to plaintiff's letter of
answer with counterclaim interposing more or less the same defenses but demand dated December 21, 1973.
expounding on them further. In addi-tion, they claimed that the titles allegedly
derived by them from Lot I of Annex A or I were cancelled and/or different from
said Lot I and that the deed of sale was simulated and fictitious, plaintiff having From the various pleadings filed in this case by plaintiff, together with the
paid no amount to defendants; and that the deed was entrusted to plaintiff's care annexes and affidavits as well as the exhibits offered in evidence at the pre-trial,
and custody on the condition that the latter: (a) would secure the written the Court a quo found the following facts as having been duly established since
consent of Erlinda Cortez to Annex A or I as part payment of what she owed to defendant failed to meet them with countervailing evidence:
plaintiff; (b) would render to defendants true accounting of collections made
from Erlinda showing in particular the consideration of P2,000.00 of Annex A or I
duly cre-dited to Erlinda's account.[4]
"In February, 1964, Teofilo Custodio, owner of a parcel of unregistered land with
an area of approximately 220,000 square meters in Barrio Sampaloc, Tanay, Rizal,
hired Attorney Andres F. Santos "to cause the survey of the above-mentioned
Plaintiff filed a reply and answer to counterclaim and thereafter a motion for property, to file registration proceedings in court, to appear and represent him in
summary judgment and/or judgment on the pleadings on the ground that the all government office relative thereto, to advance all expenses for surveys, taxes
defenses of defendants "either fail to tender an issue or the same do not present to the government, court fees, registration fees x x x up to the issuance of title in
issues that are serious enough to deserve a trial on the merits,"[5] submitting on the name" of Custodio. They agreed that after the registration of the title in
a later date the affidavit of merits. Defendants filed their corresponding Custodio's name, and "after deducting all expenses from the total area of the
opposition to the motion for summary judgment and/or judgment on the property," Custodio would assign and deliver to Santos "one-half (1/2) share of
pleadings. Not content with the pleadings already submitted to the Court, the whole property as appearing in the certificate of title so issued." (Exh. B or 2).
plaintiff filed a reply while defendants filed a supplemental opposition.
On March 22, 1964, Custodio's land was surveyed under plan Psu-226650 (Exh. D
or 4). It was divided into six (6) lots, one of which was a road lot. The total area
of the property as surveyed was 211,083 square meters. The respective areas of April to May, 1966, a consolidation-subdivision survey (LRC) Pcs-5273 (Exh. E or 5)
the lots were as follows: was made on the above lots converting them into six (6) new lots as follows:

Lot 1 -181,420 square meters Lot 1 -20,000 square meters

Lot 2 - 7,238 " " Lot 2 -40,775 " "

Lot 3 - 7,305 " " Lot 3 -50,000 " "

Lot 4 - 5,655 " " Lot 4 -40,775 " "

Lot 5 - 5,235 " " Lot 5 -50,000 " "

Road Lot 6 - 4,230 " " Road Lot 6 - 5,303 " "

TOTAL -211,083 square meters TOTAL - 206,853 " "

xxx On June 22, 1966, the consolidation-subdivision plan (LRC) Pcs-5273 (Exh. E or 5)
was approved by the Land Registration Commission and by the Court of First
On December 27, 1965, a decree of registration No. N-108022 was issued in Land Instance of Rizal in an order dated July 2, 1966 (Entry No. 61037 T-167561, Exh.
Registration Case No. N-5023, of the Court of First Instance of Rizal, LRC Record Q). Upon its registration, Custodio's O.C.T. No. 5134 (Exh. Q) was cancelled and
No. N-27513, in favor of Teofilo Custodio, mar-ried to Miguela Perrando, resident TCT Nos. 167561, 167562, 167563, 167564 (Exh. G), 167565 (Exh. H), and 167566
of Tanay, Rizal. On March 23, 1966, Original Certificate of Title No. 5134 (Exh. Q were issued for the six lots in the name of Custodio (Entry No. 61035, Exh. Q).
or 17) was issued to Custodio for Lots 1, 2, 3, 4 and 5, Psu-206650, with a total
area of 206,853 square meters. The areas of the five (5) lots were as follows: On June 23, 1966, Custodio conveyed to Santos Lots 4 and 5, Pcs-5273 with a
total area of 90,775 square meters (Exh. B or 2) described in Custodio's TCT No.
Lot 1 -181,420 square meters 167564 (Exh. G or 7) and TCT No. 167565 (Exh. H or 8), plus a one-half interest in
the Road Lot No. 6, as payment of Santos' attorney's fees and advances for the
Lot 2 - 7,238 " "
registration of Custodio's land.
Lot 3 - 7,305 " "
Upon registration of the deed of conveyance on July 6, 1966, Custodio's TCT Nos.
Lot 4 - 5,655 " " 167564 and 167565 (Exhs. G and H) were cancelled. TCT No. 167568 (Exh. I or 9)
for Lot 4 and TCT No. 167585 (Exh. J or 10) for Lot 5 were issued to Santos.
Lot 5 - 5,235 " "
On September 2, 1967, Santos' Lot 5, with an area of 50,000 square meters was There-after, it proceeded to dispose of the legal issues raised by defendants and
subdivided into two (2) lots, designated as Lots 5-A and 5-B in the plan Psd-78008 rendered judgment in favor of plaintiff. The dispositive portion of the decision
(Exh. F or 6), with the following areas: states as follows:

Lot 5-A - 30,205 square meters

Lot 5-B - 19,795 square meters "WHEREFORE, defendants Andres F. Santos and Aurora O. Santos are ordered to
execute and convey to plaintiff Amparo del Rosario, within ten (10) days from the
TOTAL - 50,000 square meters finality of this decision, 20,000 square meters of land to be taken from the
southeastern portion of either Lot 4, Pcs-5273, which has an area of 40,775
Upon registration of Psd-78008 on October 3, 1967, Santos' TCT No. 167585 (Exh.
square meters, described in TCT No. 167568 (Exh. I or 9) of from their Lot 5-A,
J) was cancelled and TCT No. 203578 for Lot 5-A and TCT No. 203579 for Lot 5-B
with an area of 30,205 square meters, described in TCT No. 203580 (Exh. K or 11).
were supposed to have been issued to Santos (See Entry 6311 in Exh. J or 10).
The expenses of segregating the 20,000 square meters portion shall be borne
Actually, TCT No. 203580 was issued for Lot 5-A (Exh. K or 11), and TCT No.
equally by the parties. The expenses for the execution and registration of the
203581 for Lot 5-B (Exh. L or 12), both in the name of Andres F. Santos.
sale shall be borne by the defendants (Art. 1487, Civil Code). Since the
Out of Custodio's original Lot 1, Psu-206650, with an area of 181,420 square de-fendants compelled the plaintiff to litigate and they failed to heed plaintiff's
meters, Santos was given a total of 90,775 square meters, registered in his name just demand, they are further ordered to pay the plaintiff the sum of P2,000.00 as
as of October 3, 1967 under three (3) titles, namely: attorney's fees and the costs of this action.

TCT No. 167585 for Lot 4 Pcs-5273 . . . . . .40,775 sq.m. (Exh. J or 10) SO ORDERED."[7]

TCT No. 203580 for Lot 5-A Psd-78008 . . . 30,205 sq.m. (Exh. K or 11) Aggrieved by the aforesaid decision, the defendants filed an appeal to the Court
of Appeals submitting for resolution seven assignments of errors, to wit:
TCT No. 203581 for Lot 5-B Psd-78008 . . . .19,795 sq.m. (Exh. L or 12)

__________
"I. The lower court erred in depriving the appellants of their right to the
90,775 sq.m. procedural due process.

plus one-half of the road lot, Lot 6, Pcs-5273, with an area of 5,303 square II. The lower court erred in holding that the appellee's claim has not been
meters, which is registered jointly in the name of Santos and Custodio (Exh. B & extinguished.
E)"[6]
III. The lower court erred in sustaining appellee's contention that there are no
The court a quo thereupon concluded that there are no serious factual issues other unwritten conditions between the appellants and the appellee except those
involved so the motion for summary judgment may be properly granted.
expressed in Exh. "1" or "A", and that Erlinda Cortez' conformity is not required to
validate the appellants' obligation.
Appellants in their opposition to the motion for summary judgment and/or
IV. The lower court erred in holding that Exh. "1" or "A" is not infirmed and judgment on the pleadings, how-ever, do not deny the genuineness of their
expressed the true intent of the parties. signatures on the deed of sale. (Par. 3 of said Motion, p. 101, Record on Appeal).
They do not contest the words and figures in said deed except in the
V. The lower court erred in declaring that the appellants are co-owners of the acknowledgment portion thereof where certain words were allegedly cancelled
lone registered owner Teofilo Custodio. and changed without their knowledge and consent and where, apparently, they
appeared before Notary Public Florencio Landrito when, in fact, they claimed that
VI. The lower court erred in ordering the appellants to execute and convey to
they did not. In effect, there is an admission of the due execution and
the appellee 20,000 sq. m. of land to be taken from the southeastern portion of
genuineness of the document because by the admission of the due execution of a
either their lot 4, Pcs-5273, which has an area of 40,775 sq. m., described in T.C.T.
document is meant that the party whose signature it bears admits that
No. 167568 (Exh. 9 or I), or from their lot No. 5-A, with an area of 30,205 sq. m.
voluntarily he signed it or that it was signed by another for him and with his
described in T.C.T. No. 203580 (Exh. 11 or K), the expenses of segregation to be
authority; and by the admission of the genuineness of the document is meant
borne equally by the appellants and the appellee and the expenses of execution
that the party whose signature it bears admits that at the time it was signed it
and registration to be borne by the appellants.
was in the words and figures exactly as set out in the pleading of the party relying
VII. The lower court erred in ordering the appellants to pay to the appellee the upon it; and that any formal requisites required by law, such as swearing and
sum of P2,000.00 as attorney's fee and costs."[8] acknowledgment, or revenue stamps which it requires, are waived by him.[9]

The first four revolve on the issue of the propriety of the rendition of summary
judgment by the court a quo, which concededly is a question of law. The last
As correctly pointed out by the court a quo, the alleged false notarization of the
three assail the summary judgment itself. Accordingly, the Court of Appeals, with
deed of sale is of no consequence. For a sale of real property or of an interest
whom the appeal was filed, certified the records of the case to this Court for final
therein to be enforceable under the Statute of Frauds, it is enough that it be in
determination.
writing.[10] It need not be notarized. But the vendee may avail of the right under
Article 1357 of the New Civil Code to compel the vendor to observe the form
required by law in order that the instrument may be registered in the Registry of
For appellants herein, the rendition of summary judgment has deprived them of Deeds.[11] Hence, the due execution and genuineness of the deed of sale are not
their right to procedural due process. They claim that a trial on the merits is really in issue in this case. Accordingly, assigned error I is without merit.
indispensable in this case inasmuch as they have denied under oath all the
material allegations in appellee's complaint which is based on a written
instrument entitled "Deed of Sale", thereby putting in issue the due execution of
What appellants really intended to prove through the alleged false notarization of
said deed.
the deed of sale is the true import of the matter, which according to them, is a
mere tentative agreement with appellee. As such, it was not intended to be (a) Where a mistake or imperfection of the writing, or its failure to express the
notarized and was merely entrusted to appellee's care and custody in order that: true intent and agreement of the parties, or the validity of the agreement is put
first, the latter may secure the approval of one Erlinda Cortez to their in issue by the pleadings;
(appellants') offer to pay a debt owing to her in the amount of P2,000.00 to
appellee instead of paying directly to her as she was indebted to appellee in (b) When there is an intrinsic ambiguity in the writing.
various amounts exceeding P2,000.00; and second, once the approval is secured,
The term "agreement" includes wills."
appellee would render an accounting of collections made from Erlinda showing in
particular the consideration of P2,000.00 of the deed of sale duly cre-dited to The parol evidence rule forbids any addition to or contradiction of the terms of a
Erlinda's account. written instrument by testimony purporting to show that, at or before the signing
of the document, other or different terms were orally agreed upon by the
parties.[12]
According to appellants, they intended to prove at a full dress trial the material
facts: (1) that the aforesaid conditions were not fulfilled; (2) that Erlinda Cortez
paid her total indebtedness to appellee in the amount of P14,160.00, the While it is true, as appellants argue, that Article 1306 of the New Civil Code
P2,000.00 intended to be paid by appellant included; and (3) that said Erlinda provides that "the contracting parties may establish such stipulations, clauses,
decided to forego, renounce and refrain from collecting the P2,000.00 the terms and conditions as they may deem convenient, provided that they are not
appellants owed her as a counter-vailing reciprocity of the countless favors she contrary to law, morals, good customs, pub-lic order, or public policy" and that
also owes them. consequently, appel-lants and appellee could freely enter into an agreement
imposing as conditions thereof the following: that appel-lee secure the written
conformity of Erlinda Cortez and that she render an accounting of all collections
Being conditions which alter and vary the terms of the deed of sale, such from her, said conditions may not be proved as they are not embodied in the
conditions cannot, however, be proved by parol evidence in view of the provision deed of sale.
of Section 7, Rule 130 of the Rules of Court, which states as follows:

The only conditions imposed for the execution of the Deed of Confirmation of
"Sec. 7. Evidence of written agreements. - When the terms of an agreement have Sale by appellants in favor of appellee are the release of the title and the
been reduced to writing, it is to be considered as containing all such terms, and, approval of the subdivision plan. Thus, appellants may not now introduce other
therefore, there can be, between the parties and their successors in interest, no conditions allegedly agreed upon by them because when they reduced their
evidence of the terms of the agreement other than the con-tents of the writing, agreement to writing, it is presumed that "they have made the writing the only
except in the following cases: repository and memorial of truth, and whatever is not found in the writing must
be understood to have been waived and abandoned."[13]
Examining the pleadings, affidavits and exhibits in the records, We find that
appellants have not submit-ted any categorical proof that Erlinda Cortez had paid
Neither can appellants invoke any of the exceptions to the parol evidence rule, the P2,000.00 to appellee, hence, appellants failed to substantiate the claim that
more particularly, the alleged failure of the writing to express the true intent and the cause of action of appellee has been extinguished. And while it is true that
agreement of the parties. Such an exception obtains where the written contract appellants submitted a receipt for P14,160.00 signed by appellee, appellants,
is so ambiguous or obscure in terms that the contractual intention of the parties however, have stated in their answer with counterclaim that the P2,000.00 value
cannot be understood from a mere reading of the instrument. In such a case, of the property covered by the Deed of Sale, instead of being credited to Erlinda
extrinsic evidence of the subject matter of the contract, of the relations of the Cortez, was conspicuously excluded from the accounting or receipt signed by
parties to each other, and of the facts and circumstances surrounding them when appellee totalling P14,160.00. The aforesaid receipt is no proof that Erlinda
they entered into the contract may be received to enable the court to make a Cortez subsequently paid her P2,000.00 debt to appellee. As correctly observed
proper interpretation of the instrument.[14] In the case at bar, the Deed of Sale by the court a quo, it is improbable that Cortez would still pay her debt to
(Exh. A or 1) is clear, without any ambiguity, mistake or imperfection, much less appellee since Santos had already paid it.
obscurity or doubt in the terms thereof. We, therefore, hold and rule that
assigned errors III and IV are untenable.

Appellants' claim that their P2,000.00 debt to Erlinda Cortez had been waived or
abandoned is not also supported by any affidavit, document or writing
According to the court a quo, "(s)ince Santos, in his Opposition to the Motion for sub-mitted to the court. As to their allegation that the appellee's claim is barred
Summary Judgment failed to meet the plaintiff's evidence with counter-vailing by prescription, the ruling of the trial court that only seven years and six months
evidence, a circumstance indicating that there are no serious factual issues of the ten-year prescription period provided under Arts. 1144 and 1155 in cases
involved, the motion for summary judgment may properly be granted." We affirm of actions for specific perfor-mance of the written contract of sale had elapsed
and sustain the action of the trial court. and that the action had not yet prescribed, is in accordance with law and,
therefore, We affirm the same.

Indeed, where a motion for summary judgment and/or judgment on the


pleadings has been filed, as in this case, supporting and opposing affidavits shall The action of the court a quo in rendering a summary judgment has been taken in
be made on personal knowledge, shall set forth such facts as may be admissible faithful compliance and conformity with Rule 34, Section 3, Rules of Court, which
in evidence, and shall show affirmatively that the affiant is competent to testify provides that "the judgment sought shall be rendered forth-with if the pleadings,
as to the matters stated therein. Sworn or certified copies of all papers or parts depositions, and admissions on file together with the affidavits, show that, except
thereof referred to in the affidavit shall be attached thereto or served as to the amount of damages, there is no genuine issue as to any material fact
therewith.[15] and that the moving party is entitled to a judgment as a matter of law."
Resolving assignments of errors V, VI, and VII which directly assail the summary
judgment, not the pro-priety of the rendition thereof which We have already
resolved to be proper and correct, it is Our considered opinion that the judgment We further reject the contention of the appellants that the lower court erred in
of the court a quo is but a logical consequence of the failure of appellants to ordering the appellants to execute and convey to the appellee 20,000 sq.m. of
present any bona fide defense to appellee's claim. Said judgment is simply the land to be taken from the southeastern portion of either their Lot 4, Pcs-5273,
application of the law to the undisputed facts of the case, one of which is the which has an area of 40,775 sq.m., described in T.C.T. No. 167568 (Exh. 9 or I), or
finding of the court a quo, to which We agree, that appellants are owners of one- from their Lot No. 5-A, with an area of 30,205 sq.m. described in T.C.T. No.
half (1/2) interest of Lot 1 and, therefore, the fifth assignment of error of 203580 (Exh. 11 or K), the expenses of segregation to be borne equally by the
appellants is without merit. appellants and the appellee and the expenses of execution and registration to be
borne by the appellants. Their argument that the southeastern portion of Lot 4
or Lot 5-A is no longer the southeastern portion of the bigger Lot I, the latter
portion belonging to the lone registered owner, Teofilo Custodio, is not
By the terms of the Deed of Sale itself, which We find genuine and not infirmed, impressed with merit. The subdivision of Lot I between the appellants and
appellants declared them-selves to be owners of one-half (1/2) interest thereof. Teofilo Custodio was made between themselves alone, without the intervention,
But in order to avoid appellee's claim, they now contend that Plan Psu-206650 knowledge and consent of the appellee, and therefore, not binding upon the
where said Lot I appears is in the exclusive name of Teofilo Custodio as the sole latter. Appellants may not violate nor escape their obligation under the Deed of
and exclusive owner thereof and that the deed of assignment of one-half (1/2) Sale they have agreed and signed with the appellee by simply subdividing Lot I,
interest thereof executed by said Teofilo Cus-todio in their favor is strictly bisecting the same and segregating portions to change their sides in relation to
personal between them. Notwithstanding the lack of any title to the said lot by the original Lot I.
appellants at the time of the execution of the deed of sale in favor of appellee,
the said sale may be valid as there can be a sale of an expected thing, in
accordance with Art. 1461, New Civil Code, which states:
Finally, considering the trial court's finding that the appellants compelled the
appellee to litigate and they failed to heed appellee's just demand, the order of
the court awarding the sum of P2,000.00 as attorney's fees is just and lawful, and
"Art. 1461. Things having a potential existence may be the object of the contract We affirm the same.
of sale.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the
con-dition that the thing will come into existence. WHEREFORE, IN VIEW OF ALL THE FOREGOING, the judgment appealed from is
hereby AFFIRMED in toto, with costs against the appellants.
The sale of a vain hope or expectancy is void."

In the case at bar, the expectant right came into existence or materialized for the
appellants actually derived titles from Lot I.
13. 11 Phil. 272 aforesaid agreement constituted a contract for services, although the price was
to be measured by the cost of the maintenance of the plaintiff. This ruling has
been assigned as error by the appellant in his brief.

[ G.R. No. 4348, September 12, 1908 ]


The objection made by the latter to the holding of the court below on the
MAURICIA MAJARABAS ET AL., PLAINTIFFS AND APPELLEES, VS.
contract set out in the complaint, is that the fixed price for the services required
INOCENCIO LEONARDO, DEFENDANT AND APPELLANT. of the plaintiff is not stipulated therein, and that without a specified price no
lease of services can exist, said requirement being essential to such a contract.
Article 1544 of the Civil Code provides as follows:
DECISION
"In a lease of works or services, one of the parties binds himself to execute a
MAPA, J.: work or to render a service to the other for a specified price."

According to this definition, a fixed price is a requisite in a contract for services,


and, as is justly maintained by the appellant, is therefore an essential part
The defendant arid appellant in this case set up a question by means of a thereof. The question is reduced to determining what, in a legal sense, is
demurrer relative to the legal nature of the contract upon which the complaint understood by a fixed price.
was based; It is alleged therein that the plaintiff had rendered services as wet
nurse and governess to an infant daughter of the defendant by virtue of a verbal
agreement entered into with the now deceased parents of the defendant, who,
In the matter of contracts of purchase and sale wherein the said requisite is also a
to use the language of the complaint, "promised to liberally compensate the
necessary and indispensable condition, article 1447 of the .said code provides:
services of the plaintiff, providing for the maintenance of herself, her husband,
and their child, during all the time that the services of the plaintiff were required "In order that the price may be considered fixed, it shall be sufficient that it be
as such wet nurse and governess." fixed with regard to another determinate thing also specific, or that the
determination of the same be left to the judgment of a specified person."

According to this it is not necessary that the certainty Of the price be actual or
It is maintained in the demurrer that the obligation contracted by the parents of
determined at the time of executing the contract, but that it is a sufficient
the defendant was to support the plaintiff and her family, and that by reason of
compliance with the law if the same can be determined by the stipulations of the
the death of the former, as stated in the complaint, under the provisions of
contract made by the parties thereto. In the present case the contracting parties
article 150 of the Civil Code, the said obligation has been extinguished in fact
fixed the maintenance of the plaintiff and her family as the price for the services
and in law, and the plaintiff can not, therefore, bring suit for compliance
required of her. Said maintenance is the specific and determinate thing that in its
therewith. The demurrer was overruled by the court below on the ground that
turn fixes the price, inasmuch as its cost determines the price according to the the witnesses of the plaintiff, does not in any manner appear to be contrary to
agreement of the parties to the contract. There might be a question as,to the the weight of the evidence.
actual cost of the plaintiff's maintenance, but this is a matter of fact which in
such a case would have to be proven. Be it as it may, whatever might be the cost
of said subsistence, it would constitute the price for the services rendered by the
Neither does the other finding in the judgment, that the daughter of the
plaintiff; said price is unquestionably the specified one since it refers to a
defendant was nursed by the plaintiff from January, 1901, to the end of June,
specified thing designated by the parties as the rate regulating the amount
1903, that is, during a period of two years and a half; the pretension of the
thereof. Therefore, the appellant's allegation is unfounded, and the order of the
appellant so far as it sustains the contrary is therefore unfounded. It is true that
court below overruling the demurrer must be affirmed.
the testimony of the witnesses of the plaintiff and those of the defendant conflict
on this point, but the judge below, taking into consideration all the
circumstances of the case, gave more credit to the former than to the latter, and
The second error assigned by the appellant refers to the fact, duly considered by we can hardly say that in so doing he acted against the weight of the evidence.
the court below, that the defendant and his father had entered with the plaintiff
into the agreement alleged in the complaint. The finding of the court below is
supported by the testimony of several witnesses, who attest that the said
Finally, the appellant assigns as error the declaration made by the judge below to
agreement was made in their presence, and that it was made on the morning of
the effect that the defendant is obliged to refund the plaintiffs for the expense
the 8th of January, 1901, at the house of the plaintiff, in the barrio of Santo
they have been put to in caring for the defendant's daughter, at the rate of P15
Angel, municipality of Santa Cruz, Province of La Laguna. The appellant
per month, or P0.50 a day. The appellant states that the record contains no data
endeavored to show that as vice-president of the municipality of Santa Cruz,
whereby the amount of the expenditure incurred by the plaintiff in nursing the
during the insurrection, a town already occupied by the American forces, it was
child may be reckoned, and that in any case the rate of P0.50 per day is
absolutely impossible for him at that time to reach the aforesaid barrio of Santo
manifestly excessive. According to the statement of the defendant, the
Angel, because, as were all revolutionists, he was the subject of active pursuit on
remuneration agreed upon for the services of the plaintiff was the cost of her
the part of said forces. It appears, however, from the testimony of a witness,
maintenance and that of her family, and it was alleged in the complaint that she
that in those days the defendant used to visit his family, who resided in the
spent P0.50 a day for this purpose. This was the point disputed in the matter of
barrio of Calios, also within the jurisdiction of Santa Cruz; that he paid his visits in
the amount that the defendant should pay for the care of his child, and the one
the afternoons and also very early in the mornings. According to the testimony
that should in consequence have been proven by the plaintiff. And, as a matter
of the appellant on folio 18 of the record, the barrio of Calios is the nearest to
of fact, the latter testified that she spent the said sum every day as living
the town of Santa Cruz. If he was able to enter Calios, it is difficult to understand
expenses for herself and her family; her testimony was confirmed by another
why it was impossible for him to reach the barrio of Santo Angel, which is farther
witness, and the testimony of both has not been weakened or contradicted by
away from the town of Santa Cruz where the American forces were encamped.
any proof to the contrary. Inasmuch as the defendant bound himself to bear the
This being the case, and as the impossibility alleged by the appellant did not exist,
cost of the plaintiff's maintenance, in exchange for the care of his child, and since
the finding of the court below, supported as has been stated by the testimony of
such maintenance cost P0.50 per day, it may well be said that the expense
occasioned by the care of the child amounted to the aforesaid sum. In our in bales. The amount depends under the denomination of “prensaje” or the baled
opinion, the judgment appealed from should thus be understood in so far as it hemp. CIR made demand in writing upon Inchausti for the payment of the sum of
refers to this point. At all events, the diversity of expression or the more or less P1,370.68 as a tax of one third of one per cent on the sums of money mentioned
precision thereof does not affect, nor can it affect in any manner the existence of as aggreagate sum collected as prensaje or the baled hemp. Inchausti paid upon
the facts discussed and proven, nor the essential rights of the contending parties. protest, contending that the collected amount is illegal upon the ground that the
said charge does not constitute a part of the selling price of the hemp, but is a
charge made for the service of baling the hemp.

The judgment appealed from is hereby affirmed with the costs of this instance
against the appellant. So ordered.
Issue:

Whether or not the baled hemp constitutes a contract of sale


12 Inchausti vs Cromwell

[ GR No. 6584, Oct 16, 1911 ] Ruling:

INCHAUSTI v. ELLIS CROMWELL Yes, the baled hemp constitutes a contract of sale. In the case at bar, the baled
form before the agreement of sale were made and would have been in existence
even if none of the individual sales in question had been consummated. The
hemp, even if sold to someone else, will be sold in bales. When a person
20 Phil. 345 October 16, 1911 stipulates for the future sale of articles which he is habitually making, and which
at the time are not made or finished, it is essentially a contract of sale and not a
contract for piece of work. It is otherwise when the article is made pursuant to
agreement. If the article ordered by the purchaser is exactly such as the plaintiff
Facts:
makes and keeps on hand for sale to anyone, and no change or modification of it
Inchausti is engaged in the business of buying and selling wholesale hemp on is made at the defendant’s request, it is a contract of sale, even though it may be
commission. It is customary to sell hemp in bales which are made by compressing entirely made after, and in consequence of, the defendant’s order for it.
the loose fiber by means of presses, covering two sides of the bale with matting,
and fastening it by means of strips of rattan; that the operation of bailing hemp is
designated among merchants by the word “prensaje.” In all sales of hemp by
Inchausti, the price is quoted to the buyer at so much per picul, no mention being
made of bailing. It is with the tacit understanding that the hemp will be delivered SC DECISION
This is an appeal by the plaintiff from a judgment of the Court of First Instance of "VI. That the amount of the charge made against hemp buyers by the plaintiff
the city of Manila, the Hon. Simplicio del Rosario presiding, dismissing the firm and other sellers of hemp under the denomination of 'prensaje' during the
complaint upon the merits after trial, without costs. period involved in this litigation was P1.75 per bale; that the average cost of the
rattan and matting used on each bale of hemp is fifteen (15) centavos and that
The facts presented to this court are agreed upon by both parties, consisting, in the average total cost of baling hemp is one (1) peso per bale.
so far as they are material to a decision of the case, in the following:

"VII. That insurance companies in the Philippine Islands, in estimating the


"III. That the plaintiff firm for many years past has been and now is engaged in insurable value of hemp always add to the quoted price of same the charge
the business of buying and selling at wholesale hemp, both for its own account made by the seller under the denomination of 'prensaje.'
and on commission.

"IV. That, it is customary to sell hemp in bales which are made by compressing
the loose fiber by means of presses, covering two sides of the bale with matting, "VIII. That the average weight of a bale of hemp is two (2) piculs (126.5
and fastening it by means of strips of rattan; that the operation of baling hemp is kilograms).
designated among merchants by the word 'prensaje.'

"IX. That between the first day of January, 1905, and the 31st day of March, 1910,
"V. That in all sales of hemp by the plaintiff firm, whether for its own account the plaintiff firm, in accordance with the custom mentioned in paragraph V
or on commission for others, the price is quoted to the buyer at so much per hereof, collected and received, under the denomination of 'prensaje,' from
picul, no mention being made of baling; but with the tacit understanding, unless purchasers of hemp sold by the said firm for its own account, in addition to the
otherwise expressly agreed, that the hemp will be delivered in bales and that, price expressly agreed upon for the said hemp, sums aggregating P380,124.35;
according to the custom prevailing among hemp merchants and dealers in the and between the 1st day of October, 1908, and the 1st day of March, 1910,
Philippine Islands, a charge, the amount of which depends upon the then collected for the account of the owners of hemp sold by the plaintiff firm in
prevailing rate, is to be made against the buyer under the denomination of Manila on commission, and under the said denomination of 'prensaje' in addition
'prensaje' That this charge is made in the same manner in all cases, even when to the price expressly agreed upon for said hemp, sums aggregating P31,080.
the operation of baling was performed by the plaintiff or by its principal Jong
before the contract of sale was made. Two specimens of the ordinary form of
account used in these operations are hereunto appended, marked Exhibits A and
"X. That the plaintiff firm in estimating the amount due it as commissions on
B, respectively, and made a part hereof.
sales of hemp made by it for its principals has always based the said amount on
the total sum collected from the purchasers of the hemp, including the charge "XIV, Upon the facts above set forth it is contended by the plaintiff that the tax of
made in each case under the denomination of 'prensaje.' Pl,370.68 assessed by the defendant upon the aggregate sum of said charges
made against said purchasers of hemp by the plaintiff during the period in
question, under the denomination of 'prensaje' as aforesaid, namely,
P411,204.35, is illegal upon the ground that the said charge does not constitute a
"XI. That the plaintiff has always paid to the defendant or to his predecessor in
part of the selling price of the hemp, but is a charge made for the service of
the office of the Collector of Internal Revenue the tax collectible under the
baling the hemp, and that the plaintiff firm is therefore entitled to recover of the
provisions of section 139 of Act No. 1189 upon the selling price expressly agreed
defendant the said sum of P1,370.68 paid to him under protest, together with all
upon for all hemp sold by the plaintiff firm both for its own account and on
interest thereon at the legal rate since its payment, and the costs of this action.
commission, but has not, until compelled to do so as hereinafter stated, paid the
said tax upon sums received from the purchaser of such hemp under the
denomination of 'prensaje.'
"Upon the facts above stated it is the contention of the defendant that the said
charge made under the denomination of 'prensaje' is in truth and in fact a part
of the gross value of the hemp sold and of its actual selling price, and that
"XII. That on the 29th day of April, 1910, the defendant, acting in his official
therefore the tax imposed by section 139 of Act No. 1189 lawfully accrued on said
capacity as Collector of Internal Revenue of the Philippine Islands, made demand
sums, that the collection thereof was lawfully and properly made and that
in writing upon the plaintiff firm for the payment within the period of five (5)
therefore the plaintiff is not entitled to recover back said sum or any part
days of the sum of P1,370.68 as a tax of one-third of one per cent on the sums
thereof; and that the defendant should have judgment against plaintiff for his
of money mentioned in Paragraph IX hereof, and which the said defendant
costs."
claimed to be entitled to receive, under the provisions of the said section 139 of
Act No. 1189, upon the said sums of money so collected from purchasers of hemp Under these facts we are of the opinion that the judgment of the court below
under the denomination of 'prensaje.' was right. It is one of the stipulations in the statement of facts that it is
customary to sell hemp in bales, and that the price quoted in the market for
hemp per picul is the price for the hemp baled. The fact is that among large
"XIII. That on the 4th day of May, 1910, the plaintiff firm paid to the defendant dealers like the plaintiff in this case it is practically impossible to handle hemp
under protest the said sum of P1,370.69, and on the same date appealed to the without its being baled, and it is admitted by the statement of facts, as well as
defendant as Collector of Internal Revenue, against the ruling by which the demonstrated by the documentary proof introduced in the case, that if the
plaintiff firm was required to. make said payment, but defendant overruled plaintiff sold a quantity of hemp it would be the understanding, without words,
said protest and adversely decided said appeal, and refused and still refuses to that such hemp would be delivered in bales, and that the purchase price would
return to plaintiff the said sum of P1,370.68 or any part thereof. include the cost and expense of baling. In other words, it is the fact as
stipulated, as well as it would be the fact of necessity, that in all dealings in hemp
in the general market the selling price consists of the value of the hemp loose
plus the cost and expense of putting it into marketable form. In the sales made
by the plaintiff, which are the basis of the controversy here, there were no if none of the individual sales here in question had been consummated. It
services performed by him for his vendee. There was agreement that services would have been baled, nevertheless, for sale to someone else, since, according
should be performed. Indeed, at the time of such sales it was not known by the to the agreed statement of facts, it is customary to sell hemp in bales. When a
vendee whether the hemp was then actually baled or not. All that he knew and person stipulates for the future sale of articles which he is habitually making,
all that concerned him was that the hemp should be delivered to him baled. He and which at the time are not made or finished, it is essentially a contract of sale
did not ask the plaintiff to perform services for him, nor did the plaintiff agree to and not a contract for labor. It is otherwise when the article is made pursuant to
do so. The contract was single and consisted solely in the sale and purchase of agreement. (Lamb vs. Crafts, 12 Met., 353; Smith vs. N. Y. C. Ry. Co., 4 Keyes,
hemp. The purchaser contracted for nothing else and the vendor agreed to 180; Benjamin on Sales, 98.) Where labor is employed on the materials of the
deliver nothing else. seller he can not maintain an action for work and labor. (Atkinson vs. Bell, 8
Barn, & C, 277; Lee vs. Griffm, 30 L. J. N. S. Q. B., 252; Prescott vs. Locke, 51 N.
H., 94.) If the article ordered by the purchaser is exactly such as the plaintiff
makes and keeps on hand for sale to anyone, and no change or modification of
The word "price" signifies the sum stipulated as the equivalent of the thing sold
it is made at the defendant's request, it is a contract of sale, even though it may
and also every incident taken into consideration for the fixing of the price, put to
be entirely made after, and in consequence of, the defendant's order for it.
the debit of the vendee and agreed to by him. It is quite possible that the
(Garbutt vs. Watson, 5 Barn. & Aid., 613; Gardner vs. Joy, 9 Met., 177; Lamb vs.
plaintiff, in this case in connection with the hemp which he sold, had himself
Crafts, 12 Met., 353; Waterman vs. Meigs, 4 Cush., 497; Clark vs. Nichols, 107
already paid the additional expense of baling as a part of the purchase price
Mass., 547; May vs. Ward, 134 Mass., 127; Abbott vs. Gilchrist, 38 Me., 260;
which he paid and that he himself had received the hemp baled from his vendor.
Crocket vs. Scribner, 64 Me., 105; Pitkin vs. Noyes, 48 N. H., 294; Prescott vs.
It is quite possible also that such vendor of the plaintiff may have rect&ved the
Locke, 51 N. H., 94; Ellison vs. Brigham, 38 Vt, 64.) It has been held in
same hemp from his vendor in baled form, that he paid the additional cost of
Massachusetts that a contract to make is a contract of sale if the article ordered
baling as a part of the purchase price which he paid. In such case the plaintiff
is already substantially in existence at the time of the order and merely requires
performed no service whatever for his vendee, nor did, the plaintiff's vendor
some alteration, modification, or adaptation to the buyer's wishes or purposes.
perform any service for him.
(Mixer vs. Howarth, 21 Pick., 205.) It is also held in that state that a contract
for the sale of an article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same is on hand at
The distinction between a contract of sale and one for work, labor, and materials the time or not, is a contract for the sale of goods to which the statute of frauds
is tested by the inquiry whether the thing transferred is one not in existence and applies. But if the goods are to be manufactured especially for the purchaser
which never would have existed but for the order of the party desiring to and upon his special order, and not for the general market, the case is not
acquire it, or a thing which would have existed and been the subject of sale to within the statute. (Goddard vs. Binney, 115 Mass., 450.)
some other person, even if the order had not been given. (Groves vs. Buck, 3
Maule & S., 178; Towers vs. Osborne, 1 Strange, 506; Benjamin on Sales, 90.) It is
clear that in the case at bar the hemp was in existence in baled form before the
It is clear to our minds that in the case at bar the baling was performed for the
agreements of sale were made, or, at least, would have been in existence even
general market and was not something done by plaintiff which was a result of
any peculiar wording of the particular contract between him and his vendee. It
is undoubted that the plaintiff prepared his hemp for the general market. This
would be necessary. One who exposes goods for sale in the market must have The operation of baling undoubtedly augments the value of the goods. We
them in marketable form. The hemp in question would not have been in that agree that there can be no question that, if the value of the hemp were not
condition if it had not been baled. The baling, therefore, was nothing peculiar to augmented to the amount of P1.75 per bale by said operation, the purchaser
the contract between the plaintiff and his vendee. It was precisely the same would not pay that sum. If one buys a bale of hemp at a stipulated price of P20,
contract that was made by every other seller of hemp, engaged as was the well knowing that there is an agreement on his part, express or implied, to pay
plaintiff, and resulted simply in the transfer of title to goods already prepared an additional amount of P1.75 for that bale, he considers the bale of hemp
for the general market. The method of bookkeeping and form of the account worth P21.75. It is agreed, as we have before stated, that hemp is. sold in bales.
rendered is not controlling as to the nature of the contract made. It is Therefore, baling is performed before the sale. The purchaser of hemp owes to
conceded in the case that a separate entry and charge would have been made the seller nothing whatever by reason of their contract except the value of the
for the baling even if the plaintiff had not been the one who bated the hemp hemp delivered. That value, that sum which the purchaser pays to the vendee,
but, instead, had received it already baled from his vendor. This indicates of is the true selling price of the hemp, and every item which enters into such price
necessity that the mere fact of entering a separate item for the baling of the is a part of such selling price. By force of the custom prevailing among hemp
hemp is formal rather than essential and in no sefise indicates in this case the dealers in the Philippine Islands, a purchaser of hemp in the market, unless he
real transaction between the parties. It is indisputable that, if the plaintiff had expressly stipulates that it shall be delivered to him in loose form, obligates
bought the hemp in question already baled, and that that was the hemp the sale himself to purchase and pay for baled hemp. Whether or not such agreement
of which formed the subject of this controversy, then the plaintiff would have is express or implied, whether it is actual or tacit, it has the same force. After
performed no service for his vendee and could not, therefore, lawfully charge such an agreement has once been made by the purchaser, he has no right to
for the rendition of such service. It is, nevertheless, admitted that in spite of that insist thereafter that the seller shall furnish him with unbaled hemp. It is
fact he would still have made the double entry in his invoice of sale to such undoubted that the vendees, in the sales referred to in the case at bar, would
vendee. This demonstrates the nature of the transaction and discloses, as we have had no right, after having made their contracts, to insist on the delivery of
have already said, that the entry of a separate charge for baling does not loose hemp with the purpose in view themselves to perform the baling and thus
accurately describe the transaction between the parties. save 75 centavoa per bale. It is unquestioned that the seller, the plaintiff,
would have stood upon his original contract of sale, that is, the obligation to
deliver baled hemp, and would have forced his vendees to accept baled hemp,
he himself retaining among his own profits those which accrued from the process
Section 139 [Act No. 1189] of the Internal Revenue Law provides that: of baling.

"There shall be paid by each merchant and manufacturer a tax at the rate of one-
third of one per centum on the gross value in money of all goods, wares and
merchandise sold, bartered or exchanged in the Philippine Islands, and that this We are of the opinion that the judgment appealed from must be affirmed,
tax shall be assessed on the actual selling price at which every such merchant or without special finding as to costs, and it is so ordered.
manufacturer disposes of his commodities."
13. 11 Phil. 272 aforesaid agreement constituted a contract for services, although the price was
to be measured by the cost of the maintenance of the plaintiff. This ruling has
been assigned as error by the appellant in his brief.

[ G.R. No. 4348, September 12, 1908 ]


The objection made by the latter to the holding of the court below on the
MAURICIA MAJARABAS ET AL., PLAINTIFFS AND APPELLEES, VS.
contract set out in the complaint, is that the fixed price for the services required
INOCENCIO LEONARDO, DEFENDANT AND APPELLANT. of the plaintiff is not stipulated therein, and that without a specified price no
lease of services can exist, said requirement being essential to such a contract.
Article 1544 of the Civil Code provides as follows:
DECISION
"In a lease of works or services, one of the parties binds himself to execute a
MAPA, J.: work or to render a service to the other for a specified price."

According to this definition, a fixed price is a requisite in a contract for services,


and, as is justly maintained by the appellant, is therefore an essential part
The defendant arid appellant in this case set up a question by means of a thereof. The question is reduced to determining what, in a legal sense, is
demurrer relative to the legal nature of the contract upon which the complaint understood by a fixed price.
was based; It is alleged therein that the plaintiff had rendered services as wet
nurse and governess to an infant daughter of the defendant by virtue of a verbal
agreement entered into with the now deceased parents of the defendant, who,
In the matter of contracts of purchase and sale wherein the said requisite is also a
to use the language of the complaint, "promised to liberally compensate the
necessary and indispensable condition, article 1447 of the .said code provides:
services of the plaintiff, providing for the maintenance of herself, her husband,
and their child, during all the time that the services of the plaintiff were required "In order that the price may be considered fixed, it shall be sufficient that it be
as such wet nurse and governess." fixed with regard to another determinate thing also specific, or that the
determination of the same be left to the judgment of a specified person."

According to this it is not necessary that the certainty Of the price be actual or
It is maintained in the demurrer that the obligation contracted by the parents of
determined at the time of executing the contract, but that it is a sufficient
the defendant was to support the plaintiff and her family, and that by reason of
compliance with the law if the same can be determined by the stipulations of the
the death of the former, as stated in the complaint, under the provisions of
contract made by the parties thereto. In the present case the contracting parties
article 150 of the Civil Code, the said obligation has been extinguished in fact
fixed the maintenance of the plaintiff and her family as the price for the services
and in law, and the plaintiff can not, therefore, bring suit for compliance
required of her. Said maintenance is the specific and determinate thing that in its
therewith. The demurrer was overruled by the court below on the ground that
turn fixes the price, inasmuch as its cost determines the price according to the the witnesses of the plaintiff, does not in any manner appear to be contrary to
agreement of the parties to the contract. There might be a question as,to the the weight of the evidence.
actual cost of the plaintiff's maintenance, but this is a matter of fact which in
such a case would have to be proven. Be it as it may, whatever might be the cost
of said subsistence, it would constitute the price for the services rendered by the
Neither does the other finding in the judgment, that the daughter of the
plaintiff; said price is unquestionably the specified one since it refers to a
defendant was nursed by the plaintiff from January, 1901, to the end of June,
specified thing designated by the parties as the rate regulating the amount
1903, that is, during a period of two years and a half; the pretension of the
thereof. Therefore, the appellant's allegation is unfounded, and the order of the
appellant so far as it sustains the contrary is therefore unfounded. It is true that
court below overruling the demurrer must be affirmed.
the testimony of the witnesses of the plaintiff and those of the defendant conflict
on this point, but the judge below, taking into consideration all the
circumstances of the case, gave more credit to the former than to the latter, and
The second error assigned by the appellant refers to the fact, duly considered by we can hardly say that in so doing he acted against the weight of the evidence.
the court below, that the defendant and his father had entered with the plaintiff
into the agreement alleged in the complaint. The finding of the court below is
supported by the testimony of several witnesses, who attest that the said
Finally, the appellant assigns as error the declaration made by the judge below to
agreement was made in their presence, and that it was made on the morning of
the effect that the defendant is obliged to refund the plaintiffs for the expense
the 8th of January, 1901, at the house of the plaintiff, in the barrio of Santo
they have been put to in caring for the defendant's daughter, at the rate of P15
Angel, municipality of Santa Cruz, Province of La Laguna. The appellant
per month, or P0.50 a day. The appellant states that the record contains no data
endeavored to show that as vice-president of the municipality of Santa Cruz,
whereby the amount of the expenditure incurred by the plaintiff in nursing the
during the insurrection, a town already occupied by the American forces, it was
child may be reckoned, and that in any case the rate of P0.50 per day is
absolutely impossible for him at that time to reach the aforesaid barrio of Santo
manifestly excessive. According to the statement of the defendant, the
Angel, because, as were all revolutionists, he was the subject of active pursuit on
remuneration agreed upon for the services of the plaintiff was the cost of her
the part of said forces. It appears, however, from the testimony of a witness,
maintenance and that of her family, and it was alleged in the complaint that she
that in those days the defendant used to visit his family, who resided in the
spent P0.50 a day for this purpose. This was the point disputed in the matter of
barrio of Calios, also within the jurisdiction of Santa Cruz; that he paid his visits in
the amount that the defendant should pay for the care of his child, and the one
the afternoons and also very early in the mornings. According to the testimony
that should in consequence have been proven by the plaintiff. And, as a matter
of the appellant on folio 18 of the record, the barrio of Calios is the nearest to
of fact, the latter testified that she spent the said sum every day as living
the town of Santa Cruz. If he was able to enter Calios, it is difficult to understand
expenses for herself and her family; her testimony was confirmed by another
why it was impossible for him to reach the barrio of Santo Angel, which is farther
witness, and the testimony of both has not been weakened or contradicted by
away from the town of Santa Cruz where the American forces were encamped.
any proof to the contrary. Inasmuch as the defendant bound himself to bear the
This being the case, and as the impossibility alleged by the appellant did not exist,
cost of the plaintiff's maintenance, in exchange for the care of his child, and since
the finding of the court below, supported as has been stated by the testimony of
such maintenance cost P0.50 per day, it may well be said that the expense
occasioned by the care of the child amounted to the aforesaid sum. In our
opinion, the judgment appealed from should thus be understood in so far as it
refers to this point. At all events, the diversity of expression or the more or less
precision thereof does not affect, nor can it affect in any manner the existence of
the facts discussed and proven, nor the essential rights of the contending parties.

The judgment appealed from is hereby affirmed with the costs of this instance
against the appellant. So ordered.