Coronel v. CA [G.R. No. 103577. October 7, 1996.

] Third division, Melo (J): 3 concurring, 1 took no part Facts: On 19 January 1985, Romulo Coronel, et al. executed a document entitled Receipt of Down Payment in favor of Ramona Patricia Alcaraz for P50,000 downpayment of the total amount of P1.24M as purchase price for an inherited house and lot (TCT 119627, Registry of Deeds of Quezon City), promising to execute a deed of absolute sale of said property as soon as such has been transferred in their name. The balance of P1.19M is due upon the execution of said deed. On the same date, Concepcion D. Alcaraz, mother of Ramona, paid the down payment of P50,000.00. On 6 February 1985, the property originally registered in the name of the Coronels father was transferred in their names (TCT 327043). However, on 18 February 1985, the Coronels sold the property to Catalina B. Mabanag for P1,580,000.00 after the latter has paid P300,000.00. For this reason, Coronels canceled and rescinded the contract with Alcaraz by depositing the down payment in the bank in trust for Alcaraz. On 22 February 1985, Alcaraz filed a complaint for specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT 327403. On 2 April 1985, Mabanag caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City. On 25 April 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Mabanag. On 5 June 1985, a new title over the subject property was issued in the name of Mabanag under TCT 351582. In the course of the proceedings, the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Upon submission of their respective memoranda and the corresponding comment or reply thereto, and on 1 March 1989, judgment was handed down in favor of the plaintiffs, ordering the defendant to execute a deed of absolute sale of the land covered by TCT 327403 and canceling TCT 331582 and declaring the latter without force and effect. Claims for damages by plaintiffs and counterclaims by the defendants and intervenors were dismissed. A motion for reconsideration was thereafter filed, which was denied. Petitioners interposed an appeal, but on 16 December 1991, the CA rendered its decision fully agreeing with the trial court. Hence, the instant petition. The Supreme Court dismissed the petition and affirmed the appealed judgment. 1. Receipt of downpayment a binding contract; Meeting of the minds The document embodied the binding contract between Ramona Patricia Alcaraz and the heirs of
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Constancio P. Coronel, pertaining to a particular house and lot covered by TCT 119627, as defined in Article 1305 of the Civil Code of the Philippines. 2. Definition of contract of sale The Civil Code defines a contract of sale, in Article 1458, as one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. Sale, thus, by its very nature a consensual contract because it is perfected by mere consent. 3. Elements of contract of sale; Contract to sell not contract of sale due to the lack of first element; Distinction necessary when property is sold to a third person The essential elements of a contract of sale are (a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) Determinate subject matter; and (c) Price certain in money or its equivalent. A Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person. 4. Contract to sell: Seller agrees to sell property when purchase price is delivered to him; seller reserves transfer of title until fulfillment of suspensive condition (payment) In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes taken to be the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. 5. Contract to sell: failure to deliver payment is not a breach but event preventing vendor to convey title; obligation demandable upon full payment of price; promise binding if supported by payment distinct from the price When a contract is a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force (Roque v. Lapuz). Upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective sellers obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code (A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.) An accepted unilateral promise to buy or to sell a determinate thing for a price certain is

binding upon the promissor if the promise is supported by a consideration distinct from the price. 6. Contract to sell defined A contract to sell be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. 7. Contract to sell not a conditional contract of sale (existence of first element) A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because
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in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. 8. Conditional contract of sale: if suspensive condition not fulfilled, pefection abated; if fulfilled, contract of sale perfected and ownership automatically transfers to buyer If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. 9. Contract to sell: if suspensive condition fulfilled, seller has still to convey title even if property is previously delivered In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. 10. Contract to sell: there is no double sale; if property sold to another, the seller may be sued for damages In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-sellers title per se, but the latter, of course, may be sued for damages by the intending buyer. 11. Conditional contract of sale: sale becomes absolute upon fulfillment of condition; if property sold to another, first buyer may seek reconveyance In a conditional contract of sale, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the sellers title thereto. In fact, if there had been previous delivery of the subject property, the sellers ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the sellers title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyers title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale. 12. Interpretation of contracts, natural and meaning of words unless technical meaning was intended It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). 13. Document entitled Receipt of Down Payment indicates Conditional Contract of Sale and not contract to sell The agreement could not have been a contract to sell because the sellers made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, had the certificate of title been in the names of petitioners-sellers at that time, there
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would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then. Moreover, unlike in a contract to sell, petitioners did not merely promise to sell the property to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale. What is clearly established by the plain language of the subject document is that when the said Receipt of Down Payment was prepared and signed by petitioners, the parties had agreed to a conditional contract of sale, consummation of which is

subject only to the successful transfer of the certificate of title from the name of petitioners father to their names. The suspensive condition was fulfilled on 6 February 1985 and thus, the conditional contract of sale between the parties became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the Receipt of Down Payment. 14. Article 1475 and 1181 applies to present case; Perfection of a contract of sale and Conditional obligation based on the happening of the event Article 1475 of the New Civil Code provides that the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. Article 1181 of the same code provides that in conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. In the present case, since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners names was fulfilled on 6 February 1985, the respective obligations of the parties under the contract of sale became mutually demandable, i.e. the sellers were obliged to present the TCT already in their names to he buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00. 15. Condition deemed fulfilled when obligor voluntary prevents its fulfillment; Condition fulfilled, such fact controlling over hypothetical arguments Article 1186 provides that the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Thus, in the present case, the petitioners having recognized that they entered into a contract of sale subject to a suspensive condition, as evidenced in the first paragraph in page 9 of their petition, cannot now contend that there could have been no perfected contract of sale had the petitioners not complied with the condition of first transferring the title of the property under their names. It should be stressed and emphasized that the condition was fulfilled on 6 February 1985, when TCT 327403 was issued in petitioners name, and such fact is more controlling than mere hypothetical arguments. 16. Retroactivity of conditional obligation to day of constitution of obligation Article 1187 provides that the effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. In the present case, the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on 6 February 1985. As of that point in time, reciprocal obligations of both seller and buyer arose. 17. Succession as a mode of transferring ownership Article 774 of the Civil Code defines Succession as a mode of transferring ownership, providing succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law. In the present case, petitioners-sellers being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the
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instance of their fathers death, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]). 18. Estoppel, as to lack of capacity Article 1431 provides that through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. In the present case, the petitioners, having represented themselves as the true owners of the subject property at the time of sale, cannot claim now that they were not yet the absolute owners thereof at the time they entered into agreement. 19. Mere allegation is not evidence The supposed grounds for petitioners rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]). 20. No stipulation to authorize extrajudicial rescission of contract of sale Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on 6 February 1985, petitioners-sellers act of unilaterally and extrajudicially rescinding the contract of sale cannot be justified as there was no express stipulation authorizing the sellers to extrajudicially rescind the contract of sale. (cf Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984]) 21. Estoppel, acceptance of check from buyers mother; buyers absence not a ground for rescission Petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the

evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramonas mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. B; Exh. 2) for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcions authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale. 22. Buyer not in default as there is no proof that seller presented the TCT and signify their readiness to execute the deed of absolute sale Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default. Said article provides that those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. xxx In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfill his obligation, delay by the other begins. In the present case, there is no proof offered whatsoever to show that the seller actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramonas corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default. 23. Double sale; Article 1544, paragraph 2 applies in the present case
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Article 1544 of the Civil Code provides that If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should if be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith. In the present case, the record of the case shows that the Deed of Absolute Sale dated 25 April 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on 5 June 1985. Thus, the second paragraph of Article 1544 shall apply. 24. Double sale presumes title to pass to first buyer, exceptions Article 1544, the provision on double sale, presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer. 25. Prius tempore, potior jure (first in time, stronger in right); First to register in good faith The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyers rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). It was further held that it is essential, to merit the protection of Article 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (Cruz v. Cabana, 129 SCRA 656, citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992). 26. Double sale; good faith in recording of second sale, not in buying In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. In the present case, Mabanag could not have in good faith registered the sale entered into on 18 February 1985 because as early as 22 February 1985, a notice of lis pendens had been annotated on the TCT in the names of petitioners, whereas Mabanag registered the said sale sometime in April 1985. At the time of registration, therefore, petitioner knew that the same property had already been previously sold to Coronel, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Mabanag thus cannot close her eyes to the defect in petitioners title to the property at the time of the registration of the property. 27. Double sale; Bad faith in registration does not confer registrant any right If a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a previous sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1981];citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

28. Agency; The issue whether Concepcion, mother of Ramona, is an agent or a co-buyer is undisturbed Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the
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instant petition, nor in such assumption disputed between mother and daughter. The Court did not touch this issue and did not disturb the lower courts ruling on this point.

Romero v. CA [G.R. No. 103577. October 7, 1996.] Third division, Vitug (J): 4 concur Facts: Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of perlite filter aids, permalite insulation and process perlite ore. In 1988, Romero and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000 sq. m. The project was made known to several freelance real estate brokers. A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring 1,952 sq. m. Located in Barangay San Dionisio, Paraaque, Metro Manila, the lot was covered by TCT 361402 in the name of Enriqueta Chua Vda. de Ongsiong. Romero visited the property and, except for the presence of squatters in the area, he found the place suitable for a central warehouse. Later, the Flores spouses called on Romero with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an ejectment case against the squatters, Ongsiong would agree to sell the property for only P800.00 per sq. m. Romero expressed his concurrence. On 09 June 1988, a contract, denominated Deed of Conditional Sale, was executed between Romero and Ongsiong. Flores, in behalf of Ongsiong, forthwith received and acknowledge a check for P50,000.00 from Romero. ( 223 ) Pursuant to this agreement, Ongsiong filed a complaint for ejectment (Civil Case 7579) against Melchor Musa and 29 other squatter families with the MTC Paraaque. A few months later, or on 21 February 1989, judgment was rendered ordering the defendants to vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March 1989. In a letter, dated 07 April 1989, Ongsiong sought to return the P50,000.00 she received from Romero since, she said, she could not get rid of the squatters on the lot. Atty. Sergio A.F. Apostol, counsel for Romero, refused the tender, citing the favorable decision and the writ of execution issued pursuant thereto, and expressed Romeros willingness to underwrite the expenses for the execution of the judgment and ejectment of the occupants chargeable to the purchase price of the land. Meanwhile, the Presidential Commission for the Urban Poor (PCUD), through its Regional Director for Luzon (Viloria), asked the MTC Paraaque for a grace period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably on the request, the court suspended the enforcement of the writ of execution accordingly. On 08 June 1989, Atty. Apostol reminded Ongsiong on the expiry of the 45-day grace period and reiterated his clients willingness to underwrite the expenses for the execution of the judgment and ejectment of the occupants. On 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for Ongsion, advised Atty. Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his clients failure to evict the squatters from the premises within the agreed 60-day period. He added that private respondent had decided to retain the property. Meanwhile, on 25 August 1989, the MTC issued an alias writ of execution in Civil Case 7579 on motion of Ongsiong but the squatters apparently still stayed on. On 27 June 1989, Ongsiong prompted by Romeros continued refusal to accept the return of the P50,000.00 advance payment, filed with the RTC Makati (Branch 133, Civil Case 89-4394) for a rescission of the deed of conditional sale, plus damages, and for the consignation of P50,000.00 cash. On 26 June 1990, the RTC rendered decision holding that Ongsiong had no right to rescind the contract since it was she who violated her obligation to eject the squatters from the subject property and that Romero, being the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The lower court, thus dismissed the complaint and ordered Ongsiong to eject or cause the ejectment of the squatters from the property and to execute the absolute deed of conveyance upon payment of the full purchase price by Romero. Ongsiong appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision, reversed and set aside the decision appealed from and entered another declaring he contract of conditional sale of 9 June 1988 cancelled and ordering Romero to accept the return of the downpayment in the amount of P50,000 deposited with the trial court; without pronouncement as to cost. Failing to obtain a reconsideration, Romero filed his petition for review on certiorari before the Supreme Court. The Supreme Court reversed and set aside the questioned decision of the Court of Appeals, and entered another ordering Romero to pay Ongsiong the balance of the purchase price and the latter to execute the deed of absolute sale in favor of petitioner; without costs.

1. Perfected contract of sale, absolute or conditional A perfected contract of sale may either be absolute or conditional depending on whether the agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be

conveyed or on the obligation of party thereto. When ownership is retained until the fulfillment of a positive ( 224 ) condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence. 2. Real character of a contract, substance more significant than title given to it by parties In determining the real character of the contract, the title given to it by the parties is not as much as significant as its substance. For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 3. Condition in the context of a perfected contract of sale The term condition in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment of certain express warranties (which, in the present case is the timely eviction of the squatters on the property). 4. Perfection of a sale; Parties bound to fulfill what is expressly stipulated and all consequences in keeping with good faith, usage and law A sale is at once perfected where a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. In the present cas, under the agreement, Ongsiong is obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of compliance by Romero of his own obligation, i.e., to pay the balance of the purchase price. 5. Options available under Article 1545 belongs to injured party Ongsiongs failure to remove the squatters from the property within th e stipulated period gives Romero the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner (Romero) and not to private respondent (Ongsiong). In contracts of sale particularly, Article 1545 of the Civil Code allows the obligee to choose between proceeding with the agreement or waiving the performance of the condition. Evidently, Romero has waived the performance of the condition imposed on Ongsiong to free the property from squatters. 6. Potestative condition is mixed, and not dependent on the sole will of the debtor; If condition is imposed on the fulfillment of the obligation and not the birth thereof, only the condition is avoided and does not affect obligation itself The undertaking required of private respondent does not constitute a potestative condition dependent solely on his will that might, otherwise, be void in accordance with Article 1182 of the Civil Code but a mixed condition dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned. However, where the so -called potestative condition is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected obligation itself. 7. Rescission by non-injured party not warranted; Article 1191 The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated ( 225 ) on a breach of faith by the other party violates the reciprocity between them. In the present case, Ongsiongs action for rescission was not warranted as she was not the injured party. It was Ongsiong who has failed in her obligation under the contract. Romero did not breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to make arrangement with the sheriff to effect such execution. Parenthetically, this offer to pay, hiring been made prior to the demand for rescission, assuming for the sake of argument that such a demand is proper under Article 1592 of the Civil Code, would likewise suffice to defeat Ongsiongs prerogative to rescind thereunder. 8. Petitioner, opting to proceed with sale, may not demand the reimbursement of the advance paymentWhen petitioner having opted to proceed with the sale, neither may petitioner demand its reimbursement from private respondent. Further, private respondent may not subject it to forfeiture.

Fule v. CA [G.R. No. 112212. March 2, 1998.] Third division, Romero (J): 3 concur Facts: Fr. Antonio Jacobe initially mortgage a 10-hectare property in Tanay, Rizal (covered by TCT 320725) to the Rural Bank of Alaminos, Laguna to secure a loan in the amount of P10,000. Said mortgage was later foreclosed and the property offered for public auction upon his default. In June 1984, Gregorio Fule, as corporate secretary of the bank, asked Remelia Dichoso and Olivia Mendoza to look for a buyer who might be interested in the Tanay property. The two found one in the person of Ninevetch Cruz. It so happened that in January of said year, Gregorio Fule, also a jeweler, has shown interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz. Dr. Cruz has dec lined Fules offer to buy said jewelry for P100,000; and a subsequent bid by Fule to buy them for US$6,000 at $1 to P25 while making a sketch of said jewelry during an inspection at the lobby of Prudential Bank (the latter instance was declined, since the exchange rate appreciated to P19 per dollar). Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Atty. Belarmino was requested by Dr. Cruz to check the property and found out that no sale

or barter was feasible as the 1-year period of redemption has not expired. In an effort to cut through any legal impediment, Fule executed on 19 October 1984, a deed of redemption on behalf of Fr. Jacobe purportedly in ( 124 ) the amount of P15,987.78, and on even date, Fr. Jacobe sold the property to Fule for P75,000.00. The haste with which the two deeds were executed is shown by the fact that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had already agreed to the proposed barter, Fule went to Prudential Bank to take a look at the jewelry. On 23 October 1984, Fule met Atty. Belarmino at the latters residence to prepare the documents of sale. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while Fule and Dr. Cruz attended to the safekeeping of the jewelry. The following day, Fule, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally execute a deed of absolute sale. Fule signed the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary expenses in the transfer of title over the Tanay property; and issued a certification to the effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 as indicated in the deed of absolute sale (the disparity purportedly aimed at minimizing the amount of the capital gains tax that Fule would have to shoulder). Since the jewelry was appraised only at P160,000.00, the parties agreed that the balance of P40,000.00 would just be paid later in cash. Thereafter, at the bank, as pre-arranged, Dr. Cruz and the cashier opened the safety deposit box, and delivered the contents thereof to Fule. Fule inspected the jewelry, near the electric light at the banks lobby, for 10 -15 minutes. Fule expressed his satisfaction by nodding his head when asked by Dr. Cruz if the jewelry was okay. For services rendered, Fule paid the agents, Dichoso and Mendoza, the amount of US$300.00 and some pieces of jewelry. He did not, however, give them half of the pair of earrings in question, which he had earlier promised. Later in the evening, Fule arrived at the residence of Atty. Belarmino complaining that the jewelry given him was fake. Dichoso, who borrowed the car of Dr. Cruz, called up Atty. Belarmino. Informed that Fule was at the lawyers house, went there posthaste thinking that Fule had finally agreed to give them half of the pair of earrings, only to find Fule demonstrating with a tester that the earrings were fake. Fule then accused Dichoso and Mendoza of deceiving him which they, however, denied. They countered that Fule could not have been fooled because he had vast experience regarding jewelry. Fule nonetheless took back the US$300.00 and jewelry he had given them. Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one look at the earrings, immediately declared them counterfeit. At around 9:30 p.m., Fule went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San Pablo City, complaining about the fake jewelry. Upon being advised by the latter, Fule reported the matter to the police station where Dichoso and Mendoza likewise executed sworn statements. On 26 October 1984, Fule filed a complaint before the RTC San Pablo City against private respondents praying, among other things, that the contract of sale over the Tanay property be declared null and void on the ground of fraud and deceit. On 30 October 1984, the lower court issued a temporary restraining order directing the Register of Deeds of Rizal to refrain from acting on the pertinent documents involved in the transaction. On 20 November 1984, however, the same court lifted its previous order and denied the prayer for a writ of preliminary injunction. After trial, the lower court rendered its decision on 7 March 1989; holding that the genuine pair of earrings used as consideration for the sale was delivered by Dr. Cruz to Fule, that the contract was valid even if the agreement between the parties was principally a barter contract, that the agreement has been consummated at the time the principal parties parted ways at the bank, and that damages are due to the defendants. From the trial courts adverse decision, petitioner elevated the matter to the Court of Appeals. On 20 October 1992, the Court of Appeals, however, rendered a decision affirming in toto the lower courts decision. His motion for reconsideration having been denied on 19 October 1993. Hence, the petition for review on certiorari. The Supreme Court affirmed in toto the decision of the Court of Appeals, but ordered Dr. Cruz to pay Fule the balance of the purchase price of P40,000 within 10 days from the finality of the decision; with costs against petitioner. 1. New factual issues cannot be examined as it unduly transcends the limits of the Supreme Courts review power ( 125 ) The Supreme Court cannot entertain a factual issue, and thus examine and weigh anew the facts regarding the genuineness of the earrings bartered in exchange for the Tanay property, as this would unduly transcend the limits of the Courts review power in petitions of this nature which are confined merely to pure questions of law. As a general rule, the Supreme Court accords conclusiveness to a lower courts findings of fact unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd and impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admission of both parties. To reiterate, the Supreme Courts jurisdic tion is only limited to reviewing errors of law in the absence of any showing that the findings complained of are totally devoid of support in the record or that they are glaringly erroneous as to constitute serious abuse of discretion. 2. Immediate rendition of decision not anomalous No proof has been adduced that Judge Jaramillo was motivated by a malicious or sinister intent in disposing of the case with dispatch. Neither is there proof that someone else wrote the decision for him. The immediate rendition of the decision was no more than Judge Jaramillos compliance with his duty as a judge to dispose of the courts business promptly and decide cases within the required periods. The two -year period within which Judge Jaramillo handled the case provided him with all the time to study it and even write down its facts as soon as these were presented to court. In fact, the Supreme Court does not see anything wrong in the practice of writing a decision days before the scheduled promulgation of judgment and leaving the dispositive portion for typing at a time close to the date of promulgation, provided that no malice or any wrongful conduct attends its adoption. The practice serves the dual purposes of safeguarding the confidentiality of draft decisions and rendering decisions with promptness. Neither can Judge Jaramillo be

made administratively answerable for the immediate rendition of the decision. The acts of a judge which pertain to his judicial functions are not subject to disciplinary power unless they are committed with fraud, dishonesty, corruption or bad faith. Hence, in the absence of sufficient proof to the contrary, Judge Jaramillo is presumed to have performed his job in accordance with law and should instead be commended for his close attention to duty. 3. Contract perfected by mere consent, binds parties to stipulation and all the consequences; Contract of sale perfected upon meeting of minds upon the thing object of the contract and upon price; Embodiment of contract in public instrument only for convenience, and registration only to affect third parties; Lack of formal requirements does not invalidate the contract The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience, and registration of the instrument only adversely affects third parties. Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. 4. Voidable or annullable contracts Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. The contract can be voided in accordance with law so as to compel the parties to restore to each other the things that have been the subject of the contract with their fruits, and the price with interest. ( 126 ) 5. Fraud; No inducement made by the private respondents There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In the present case, the records, are bare of any evidence manifesting that private respondents employed such insidious words or machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially accede to petitioners proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry which was valued only at P160,000.00. If indeed petitioners property was truly worth that much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the Tanay property. 6. Mistake; Mistake caused by manifest negligence cannot invalidate a judicial act To invalidate a contract, mistake must refer to the substance of the thing that is the object of the contract, or to those conditions which have principally moved one or both parties to e nter into the contract. An example of mistake as to the object of the contract is the substitution of a specific thing contemplated by the parties with another. In the present case, the petitioner failed to prove the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution of an inferior one or one with Russian diamonds for the jewelry he wanted to exchange with his 10-hectare land. Further, on account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the intellectual capacity and the business acumen as a banker to take precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. A mistake caused by manifest negligence cannot invalidate a juridical act. As the Civil Code provides, (t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. 7. Contract of sale absolute if no stipulation that title to property is reserved to seller until full payment; Ownership transferred upon actual or constructive delivery A contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing sold since there was no stipulation in the contract that title to the property sold has been reserved in the seller until full payment of the price or that the vendor has the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Such stipulations are not manifest in the contract of sale. In the present case, both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the nullification of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz and Fule, respectively, upon the actual and constructive delivery thereof. 8. Contract silent when balance is due and demandable; non-payment does not invalidate the contract While it is true that the amount of P40,000.00 forming part of the consideration was still payable to Fule, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of ownership and possession of the things exchanged considering the fact that their contract is silent as to when it becomes due and demandable. 9. No interest due if it is not stipulated Failure to pay the balance of the purchase price does not result in the payment of interest thereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee for the period between the delivery of the thing and the payment of the price in cases (1) Should it have been so stipulated; (2) Should the thing sold and delivered produce fruits or income; (3) Should he be in default, from the time of judicial or ( 127 )

extrajudicial demand for the payment of the price. 10. Case distinguished from de la Cruz v Legaspi The present case should be distinguished from De la Cruz v. Legaspi, where the court held that failure to pay the consideration after the notarization of the contract as previously promised resulted in the vendees liability for payment of interest. In the present, there is no stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither did petitioner demand payment of the price as in fact he filed an action to nullify the contract of sale. 11. Award of moral and exemplary damages Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the court shall take into account the circumstances obtaining in the case and assess damages according to its discretion. To warrant the award of damages, it must be shown that the person to whom these are awarded has sustained injury. He must likewise establish sufficient data upon which the court can properly base its estimate of the amount of damages. Statements of facts should establish such data rather than mere conclusions or opinions of witnesses. Thus, for moral damages to be awarded, it is essential that the claimant must have satisfactorily proved during the trial the existence of the factual basis of the damages and its causal connection with the adverse partys acts. If the court has no proof or evidence upon which the claim for moral damages could be based, such indemnity could not be outrightly awarded. The same holds true with respect to the award of exemplary damages where it must be shown that the party acted in a wanton, oppressive or malevolent manner. 12. Rule that moral damages cannot be recovered from person who filed a complaint does not apply in present case While, as a rule, moral damages cannot be recovered from a person who has filed a complaint against another in good faith because it is not sound policy to place a penalty on the right to litigate, the same, however, cannot apply in the present case. This is not a situation where petitioners complaint was simply found later to be based on an erroneous ground which, under settled jurisprudence, would not have been a reason for awarding moral and exemplary damages. Instead, the cause of action of the instant case appears to have been contrived by petitioner himself. The factual findings of the courts a quo to the effect that petitioner filed this case because he was the victim of fraud; that he could not have been such a victim because he should have examined the jewelry in question before accepting delivery thereof, considering his exposure to the banking and jewelry businesses; and that he filed the action for the nullification of the contract of sale with unclean hands, all deserve full faith and credit to support the conclusion that petitioner was motivated more by ill will than a sincere attempt to protect his rights in commencing suit against respondents. It must be noted that before petitioner was able to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner took pains to thoroughly examine said jewelry, even going to the extent of sketching their appearance. Why at the precise moment when he was about to take physical possession thereof he failed to exert extra efforts to check their genuineness despite the large consideration involved has never been explained at all by petitioner. His acts thus failed to accord with what an ordinary prudent man would have done in the same situation.

Ong v. CA [G.R. No. 97347. July 6, 1999.] First division, Ynares-Santiago (J): 4 concur Facts: On 10 May 1983, Jaime Ong and spouses Miguel and Alejandra Robles execut ed an Agreement of Purchase and Sale respecting 2 parcels of land situated at Barrio Puri, San Antonio, Quezon (agricultural including rice mill, piggery) for P2M (initial payment of P600,000 broken into P103,499.91 directly paid to seller on 22 March 1983 and P496,500.09 directly paid to BPI to answer for part of sellers loan with the bank; and balance of 1.4M to be paid in 4 equal quarterly installments of P350,000 the first of which due and demandable on 15 June 1983); binding themselves that upon the payment of the total purchase price the seller delivers a good and sufficient deed of sale and conveyance for the parcels of land free and clear from liens and encumbrances, that seller delivers, surrenders and transfers the parcels of land including all improvements thereon and to transfer the operations of the piggery and rice mill to the buyer; and that all payments due and demandable under the contract effected in the residence of the seller unless otherwise designated by the parties in writing. On 15 May 1983, Ong took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon. Pursuant to the contract, Ong paid the spouses the sum of P103,499.91 2 by depositing it with the UUCPB. Subsequently, Ong deposited sums of money with the BPI, in accordance with their stipulation that petitioner pay the loan of the spouses with BPI. To answer for his balance of P 1.4M, Ong issued 4 post-dated Metro Bank checks payable to the spouses in the amount of P350,000.00 each (Check 137708-157711). When presented for payment, however, the checks were dishonored due to insufficient funds. Ong promised to replace the checks but failed to do so. To make matters worse, out of the P496,500.00 loan of the spouses with BPI, which ong, as per agreement, should have paid, Ong only managed to dole out no more than P393,679.60. When the bank threatened to foreclose the spouses mortgage, they sold 3 transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge and conformity of Ong. Ong, in return, voluntarily gave the spouses authority to operate the rice mill. He, however, continued to be in possession of the two parcels of land while the spouses were forced to use the rice mill for residential purposes. On 2 August 1985, the spouses, through counsel, sent Ong a demand letter asking for the return of the properties. Their demand was left unheeded, so, on 2 September 1985, they filed with the RTC Lucena City, Branch 60, a complaint for rescission of contract and recovery of properties with damages. Later, while the case was still pending with the trial court, Ong introduced major improvements on the subject properties by constructing a complete fence made of hollow blocks and expanding the piggery. These prompted the spouses to ask for a writ of preliminary injunction; which the trial court granted, and thus enjoined Ong from introducing improvements on the properties except for repairs. On 1 June 1989, the trial court rendered a decision in favor of the spouses: ordering the contract entered into by the parties set aside, ordering the delivery of the parcels of land and the improvements thereon to the spouses, ordering the return of the sum of

P497,179.51 to Ong by the spouses, ordering Ong to pay the spouses P100,000 for exemplary damages and P20,000 as attorneys fees and litigation expenses. From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC but deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the petition for review on certiorari. The Supreme Court affirmed the decision rendered by the Court of Appeals with the modification that the ( 186 ) spouses are ordered to return to Ong the sum P48,680.00 in addition to the amounts already awarded; with costs against petitioner Ong. 1. Reevaluation of evidence not the function of the Supreme Court It is not the function of the Supreme Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties to an appeal, particularly where the findings of both the trial court and the appellate court on the matter coincide. There is no cogent reason shown that would justify the court to discard the factual findings of the two courts below and to superimpose its own. 2. Rescission as a remedy to secure the reparation of damages caused by a contract; Article 1380 Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things to their condition at the moment prior to the celebration of the contract. It implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to someone. 3. Rescission applicable to reciprocal obligations under Article 1191 Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. 4. Rescission of reciprocal obligations under Article 1191 distinguished from rescission of contract under Article 1383 Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. Although both presuppose contracts validly entered into and subsisting and both require mutual restitution when proper, they are not entirely identical. While Article 1191 uses the term rescission, the original term which was used in the old Civil Code, from which the article was based, was resolution. Resolution is a principal action which is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code. 5. Rescissible contract under Article 1381 Article 1381 of the New Civil Code enumerates rescissible contr acts as (1) those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one fourth of the value of the things which are the object thereof; (2) those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them; (4) those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) all other contracts specially declared by law to be subject to rescission. In the present case, the contract entered into by the parties obviously does not fall under any of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable. 6. Contract to sell distinguished from contract of sale In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. ( 187 ) 7. Agreement of Purchase and Sale is in the nature of contract to sell A careful reading of the parties Agreement of Purchase and Sale shows that it is in the nature of a contract to sell. The spouses bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2M. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the Ong. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendors obligation to convey title from acquiring binding force. Hence, the agreement of the parties the present case may be set aside, but not because of a breach on the part of Ong for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of the spouses to convey title from acquiring an obligatory force. 8. Contract was not novated as to the manner and time of payment; Novation not presumed Article 1292 of the New Civil Code states that, In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation. In the present case, the parties never even intended to novate their previous agreement. It is true that Ong paid the spouses small sums of money

amounting to P48,680.00, in contravention of the manner of payment stipulated in their contract. These installments were, however, objected to by the spouses, and ong replied that these represented the interest of the principal amount which he owed them. Records further show that Ong agreed to the sale of MERALCO transformers by the spousess to pay for the balance of their subsisting loan with BPI. Although the parties agreed to credit the proceeds from the sale of the transformers to petitioners obligation, he was supposed to reimburse the same later to respondent spouses. This can only mean that there was never an intention on the part of either of the parties to novate petitioners manner of payment. 9. Requisites of novation In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract. In the present case, the requisites are not found. The subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of the new one. Novation is never presumed, there must be an express intention to novate. 10. Builder in bad faith As regards the improvements introduced by Ong to the premises and for which he claims reimbursement, the Court found no reason to depart from the ruling of the trial court and the appellate court that petitioner is a builder in bad faith. He introduced the improvements on the premises knowing fully well that he has not paid the consideration of the contract in full and over the vigorous objections of respondent spouses. Moreover, Ong introduced major improvements on the premises even while the case against him was pending before the trial court. 11. Deletion of award of exemplary damages correct The award of exemplary damages was correctly deleted by the Court of Appeals inasmuch as no moral, temperate, liquidated or compensatory damages in addition to exemplary damages were awarded.

Gaite v. Fonacier [G.R. No. L-11827. July 31, 1961.] En Banc, Reyes JBL (J): 9 concur Facts: Isabelo Fonacier was the owner and/or holder of 11 iron lode mineral claims (Dawahan Group), situated in Jose Panganiban, Camarines Norte. By a Deed of Assignment dated 29 September 1952, Fonacier constituted and appointed Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims on a ( 128 ) royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On 19 March 1954, Gaite in turn executed a general assignment conveying the development and exploitation of said mining claims unto the Larap Iron Mines, owned solely by him. Thereafter Gaite embarked upon the development and exploitation of the mining claims, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claimed and estimated to be approximately 24,000 metric tons of iron ore. For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite, and Gaite assented thereto subject to certain conditions. As a result, a document entitled Revocation of Power of Attorney and Contract was executed on 8 December 1954, wherein Gaite transferred to Fonacier, for the consideration of P20,000, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name Larap Iron Mines and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests over the 24,000 tons of iron ore, more or less that the former had already extracted from the mineral claims, in consideration o f the sum of P75,000, P10,000, of which was paid upon the signing of the agreement, and the balance to be paid out of the first letter of credit covering the first shipment of iron ores or the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. To secure the payment of the balance, Fonacier promised to execute in favor of Gaite a surety bond; delivered on 8 December 1954 with Fonacier as principal and the Larap Mines and Smelting Co. and its stockholders as sureties. A second bond was executed by the parties to the first bond, on the same day, with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less than P65,000. Both bond were attached and made integral parts of the Revocation of Power of Attorney and Contract. On the same day that Fonacier revoked the power of attorney, Fonacier entered into a Contract of Mining Operation with Larap Mines and Smelting Co., Inc. to grant it the right to develop, exploit, and explore the mining claims, together with the improvements therein and the use of the name Larap Iron Mines and its goo dwill, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap Mines & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite. On 8 December 1955, the bond with respect to the Far Eastern Surety and Insurance Company expired with no sale of the approximately 24,000 tons of iron ore, nor had the 65,000 balance of the price of said ore been paid to Gaite by Fonacier and his sureties. Whereupon, Gaite demanded from Fonacier and his sureties payment of said amount. When Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed a complaint against them in the CFI Manila (Civil Case 29310) for the payment of the P65,000 balance of the price of the ore, consequential damages, and attorneys fees. Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000 with interest at 6% per annum from 9 December 1955 until full payment, plus costs. From this judgment, defendants jointly appealed to the Supreme Court as the claims involved aggregate to more than P200,000. The Supreme Court affirmed the decision appealed from, with costs against appellants. 1. Shipment or local sale of ore not a condition precedent but a suspensive period or term

The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. ( 129 ) 2. The words of the contract express no contingency in the buyers obligation to pay. The contract stipulates that the balance of Sixty-Five Thousand Pesos (P65,000) will be paid out of the first letter of credit covering the first shipment of iron ore . . . etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred. 3. Contract of sale commutative and onerous; Each party assume correlative obligation and anticipate performance from the other A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price), but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. In the present case, nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his rights over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. The fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000. 4. To consider sale as a condition precedent leaves the payment at the discretion o fthe debtor To subordinate the obligation to pay the remaining P65,000 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. Such construction of the contract should be avoided. 5. Interpretation incline in favor of the greatest reciprocity of interests Assuming that there could be doubt whether by the wording of the contract the parties intended a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000, the rules of interpretation would incline the scales in favor of the greatest reciprocity of interests, since sa le is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides if the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests and there can be no question that greater reciprocity obtains if the buyers obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, than if such obligation were viewed as non-existent or not binding until the ore was sold. 6. Sale of ore to Fonacier was a sale on credit, not an aleatory contract The sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment. 7. Non-renewal of bond impaired the securities given to the creditor Appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding comp anys undertaking on 8 December 1955 substantially reduced the security of the vendors rights as creditor for the unpaid P65,000, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier. The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines which provides (2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities ( 130 ) after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. Appellants failure to renew or extend the surety companys bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced. 8. No waiver intended by creditor Gaites acceptance of the surety companys bond with full knowledge that on its face it would automatically expire within one year was not a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain thereby; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety companys bond expired on 8 December 1955. But in the latter case the defendants - appellants obligation to pay became absolute after 1 year from the transfer of the ore to Fonacier by virtue of the deed. 9. No short-delivery made by Gaite This is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of 24,000 tons of iron ore, more or less, stated in the contract, being a mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties had actually measured or weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter. The sale between the parties is a sale of a specific mass of iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000 agreed upon by the parties based upon any such measurement (see Art. 1480,

second par., New Civil Code). The subject-matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Luisiana Civil Code). The contract expressly stated the amount to be 24,000 tons, more or less. Applying the tonnage factor provided by the chief of Mines and Metallurgical Division of the Bureau of Mines which was between 3 metric tons minimum to 5 metric tons maximum, which was near the 3.3 metric ton tonnage factor adopted by Engr. Gamatero (at the request of Krakower, a stockholder of Larap), and if appellants witness is correct in his estimate of 6,609 cubic meters of ore, the product is 21,809.7 tons which is not far from the 24,000 tons estimate. (cf. Pine River Logging & Improvement Co. vs. U. S., 186 U.S. 279, 46, L. Ed. 1164). Thus, there was no short-delivery as would entitle appellants to the payment of damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining claims in question since Gaites estimate appears to be substantially correct.

Acap v. CA [G.R. No. 118114. December 7, 1995.] First Division, Padilla (J): 4 concurring Facts: The title to Lot 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by OCT R-12179. The lot has an area of 13,720 sq. m. The title was issued and is registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly notarized document entitled Declaration of Heirship and Deed of Absolute Sale in favor of Cosme Pido. Since 1960, Teodoro Acap had been the tenant of a portion of the said land, covering an area of 9,500 sq. m. When ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap continued to be the registered tenant thereof and religiously paid his leasehold rentals to Pido and thereafter, upon Pidos death, to his widow Laurenciana. The controversy began when Pido died interstate and on 27 November 1981, his surviving heirs executed a notarized document denominated as Declaration of Heirship and Waiver of Rights of Lot 1130 Hinigaran Cadastre, wherein they declared to have adjudicated upon themselves the parcel of land in equal share, and that they waive, quitclaim all right, interests and participation over the parcel of land in favor of Edy de los Reyes. The document was signed by all of Pidos heirs. Edy de los Reyes did not sign said document. It will be noted that at the time of Cosme Pidos death, title to the property continued to be registered in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with Waiver of Rights in his favor, de los Reyes filed the same with the Registry of Deeds as part of a notice of an adverse claim against the original certificate of title. Thereafter, delos Reyes sought for Acap to personally inform him that he had become the new owner of the land and that the lease rentals thereon should be paid to him. Delos Reyes alleged that he and Acap entered into an oral lease agreement wherein Acap agreed to pay 10 cavans of palay per annum as lease rental. In 1982, Acap allegedly complied with said obligation. In 1983, however, Acap refused to pay any further lease rentals on the land, prompting delos Reyes to seek the assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited Acap, who sent his wife, to a conference scheduled on 13 October 1983. The wife stated that the she and her husba nd did not recognize delos Reyess claim of ownership over the land. On 28 April 1988, after the lapse of four (4) years, delos Reys field a complaint for recovery of possession and damages against Acap, alleging that as his leasehold tenant, Acap refused and failed to pay the agreed annual rental of 10 cavans of palay despite repeated demands. On 20 August 1991, the lower court rendered a decision in favor of delos Reyes, ordering the forfeiture of Acaps preferred right of a Certificae of Land Transfer under PD 27 and his farmholdings, the return of the farmland in Acaps possession to delos Reyes, and Acap to pay P5,000.00 as attorneys fees, the sum of P1,000.00 as expenses of litigation and the amount of P10,000.00 as actual damages. Aggrieved, petitioner appealed to the Court of Appeals. Subsequently, the CA affirmed the lower courts decision, holding that 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 Acap as leasehold tenant of the land for failure to pay rentals. Hence, the petition for review on certiorari. The Supreme Court granted the petition, set aside the decision of the RTC Negros Occidental, dismissed the complaint for recovery of possession and damages against Acap for failure to properly state a cause of action, without prejudice to private respondent taking the proper legal steps to establish the legal mode by which he claims to have acquired ownership of the land in question. 1. Asserted right or claim to ownership not sufficient per se to give rise to ownership over the res An asserted right or claim to ownership or a real right over a thing arising from a juridical act, however justified, is not per se sufficient to give rise to ownership over the res. That right or title must be (1) completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are acquired only pursuant to a legal mode or process. While title is the juridical justification, mode is the actual process of acquisition transfer of ownership over a thing in question. 2. Classes of modes of acquiring ownership 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 occupation, acquisitive prescription, law or intellectual creation) and the derivative mode (i.e., through succession mortis causa or tradition as a result of certain contracts, such as sale, barter, donation, assignment or mutuum). 3. Contract of Sale; Declaration of Heirship and Waiver of Rights an extrajudicial settlement between heirs under Rule 74 of the Rules of Court In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay a price certain in money or its equivalent. On the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed with the

Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. In the present case, the trial court erred in equating the nature and effect of the Declaration of Heirship and Waiver of Rights the same with a contract (deed) of sale. 4. Sale of hereditary rights and waiver of hereditary rights distinguished There is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes the existence of a contract or deed of sale between the parties. The second is, technically speaking, a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of other persons who are co-heirs in the succession. In the present case, de los Reyes, being then a stranger to the succession of 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 sale, or a donation, or any other derivative mode of acquiring ownership. 5. Summon of Ministry of Agrarian Reform does not conclude actuality of sale nor notice of such sale The conclusion, made by the trial and appellate courts, that a sale transpired between Cosme Pidos heirs and de los Reyes and that Acap acquired actual knowledge of said sale when he was summoned by the Ministry of Agrarian Reform to discuss de los Reyes claim over the lot in question, has no basis both in fact and in law. 6. A notice of adverse claim does not prove ownership over the lot; Adverse claim not sufficient to cancel the certificate of tile and for another to be issued in his name A notice of adverse claim, by its nature, does not however prove private respondents ownership over the tenanted lot. A notice of adverse claim is nothing but a notice of a claim adverse to the registered owner, the validity of which is yet to be established in court at some future date, and is no better than a notice of lis pendens which is a notice of a case already pending in court. In the present case, while the existenc e of said adverse claim was duly proven (thus being filed with the Registry of Deeds which contained the Declaration of Heirship with Waiver of rights an was annotated at the back of the Original Certificate of Title to the land in question), there is no evidence whatsoever that a deed of sale was executed between Cosme Pidos heirs and de los Reyes transferring the rights of the heirs to the land in favor of de los Reyes. De los Reyes right or interest therefore in the tenanted lot remains an adverse claim which cannot by itself be sufficient to cancel the OCT to the land and title to be issued in de los Reyes name. 7. Transaction between heirs and de los Reyes binding between parties, but cannot affect right of (2) Acap to tenanted land without corresponding proof thereof While the transaction between Pidos heirs and de los Reyes may be binding on both parties, the right of Acap as a registered tenant to the land cannot be perfunctorily forfeited on a mere allegation of de los Reyes ownership without the corresponding proof thereof. Acap had been a registered tenant in the subject land since 1960 and religiously paid lease rentals thereon. In his mind, he continued to be the registered tenant of Cosme Pido and his family (after Pidos death), even if in 1982, de los Reyes allegedly informed Acap that he had become the new owner of the land. 8. No unjustified or deliberate refusal to pay the lease rentals to the landowner / agricultural lessor De los Reyes never registered the Declaration of Heirship with Waiver of Rights with the Registry of Deeds or with the MAR, but instead, he filed a notice of adverse claim on the said lot to establish ownership thereof (which cannot be done). It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by Acap to pay the lease rentals or amortizations to the landowner/agricultural lessor which, in this case, de los Reyes failed to established in his favor by clear and convincing evidence. This notwithstanding the fact that initially, Acap may have, in good faith, assumed such statement of de los Reyes to be true and may have in fact delivered 10 cavans of palay as annual rental for 1982 to latter. For in 1983, it is clear that Acap had misgivings over de los Reyes claim of ownership over the said land because in the October 1983 MAR conference, his wife Laurenciana categorically denied all of de los Reyes allegations. In fact, Acap even secured a certificate from the MAR dated 9 May 1988 to the effect that he continued to be the registered tenant of Cosme Pido and not of delos Reyes. 9. Sanction of forfeiture of tenants preferred right and possession of farmholdings should not be applied The sanction of forfeiture of his preferred right to be issued a Certificate of Land Transfer under PD 27 and to the possession of his farmholdings should not be applied against Acap, since de los Reyes has not established a cause of action for recovery of possession against Acap.

Quijada v. CA [G.R. No. 126444. December 4, 1998.] Second Division, Martinez (J): 3 concur Facts: Petitioners (Alfonso, Cresente, Reynalda, Demetrio, Eliuteria, Eulalio, and Warlito) are the children of the late Trinidad Corvera Vda. de Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter the 2-hectare parcel of land subject of the case, situated in the barrio of San Agustin, Talacogon, Agusan del Sur. On 5 April 1956, Trinidad Quijada together with her sisters Leonila Corvera Vda. de Sequea and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a conditional deed of donation of the 2-hectare parcel of land in favor of the Municipality of Talacogon, the condition being that the parcel of land shall be used solely and exclusively as part of the campus of the proposed provincial high school in ( 208 ) Talacogon. Apparently, Trinidad remained in possession of the parcel of land despite the donation. On 29 July 1962, Trinidad sold 1 hectare of the subject parcel of land to Regalado Mondejar. Subsequently, Trinidad verbally sold the remaining 1 hectare to Mondejar without the benefit of a written deed of sale and evidenced

solely by receipts of payment. In 1980, the heirs of Trinidad, who at that time was already dead, filed a complaint for forcible entry against Mondejar, which complaint was, however, dismissed for failure to prosecute. In 1987, the proposed provincial high school having failed to materialize, the Sangguniang Bayan of the municipality of Talacogon enacted a resolution reverting the 2 hectares of land donated back to the donors. In the meantime, Mondejar sold portions of the land to Fernando Bautista, Rodolfo Goloran, Efren Guden, and Ernesto Goloran. On 5 July 1988, the petitioners filed a complaint against private respondents (Mondejar, Rodulfo and Ernesto Goloran, Asis, Ras, Abiso, Bautista, Macasero and Maguisay) for quieting of title, recovery of possession and ownership of parcels of land with claim for attorneys fees and damages. The trial court rendered judgment in favor of the petitioners, holding that Trinidad Quijada did not have legal title or right to sell the land to Mondejar as it belongs to the Municipality of Talacogon at that time, and that the deed of sale in favor of Mondejar did not carry the conformity and acquiescence of her children considering that Trinidad was already 63 years old and a widow. The trial court ordered the defendants (private respondents), and any person acting in defendants behalf to return and vacate the 2 hectares of land to the plaintiff, and to remove their improvements constructed on the lot; ordered the cancellation of the deed of sale executed by Trinidad to Mondejar, as well as the deeds of sale/relinquishments executed by Mondejar to the other defendants; and ordered the defendants to pay the plaintiffs, in solidum, the amount of P10,000, P8,000, and P30,000 as attorneys fees, expenses of litigation and moral damages, respectively. On appeal, the Court of Appeals reversed and set aside the judgment a quo ruling that the sale made by Trinidad Quijada to respondent Mondejar was valid as the former retained an inchoate interest on the lots by virtue of the automatic reversion clause in the deed of donation. Thereafter, petitioners filed a motion for reconsideration. When the CA denied their motion, petitioners instituted a petition for review to the Supreme Court. The Supreme Court affirmed the assailed decision of the Court of Appeals. 1. Condition valid in donation if not contrary to law, morals, good customs, public order or public policy The donation made on April 5, 1956 by Trinidad Quijada and her brother and sisters was subject to the condition that the donated property shall be used solely and exclusively as a part of the campus of the proposed Provincial High School in Talacogon. The donation further provides that should the proposed Provincial High School be discontinued or if the same shall be opened but for some reason or another, the same may in the future be closed the donated property shall automatically revert to the donor. Such condition, not being contrary to law, morals, good customs, public order or public policy was validly imposed in the donation. 2. Donation as mode of acquiring ownership When the Municipalitys acceptance of the donation was made known to the donor, the former became the new owner of the donated property, donation being a mode of acquiring and transmitting ownership, notwithstanding the condition imposed by the donee. The donation is perfected once the acceptance by the donee is made known to the donor. Accordingly, ownership is immediately transferred to the latter and that ownership will only revert to the donor if the resolutory condition is not fulfilled. 3. Condition to construct school is a resolutory condition The resolutory condition, in the present case, is the construction of the school. It has been ruled that when a person donates land to another on the condition that the latter would build upon the land a school, the ( 209 ) condition imposed is not a condition precedent or a suspensive condition but a resolutory one. So long as the resolutory condition subsists and is capable of fulfillment, the donation remains effective and the donee continues to be the owner subject only to the rights of the donor or his successors-in-interest under the deed of donation. Since no period was imposed by the donor on when must the donee comply with the condition, the latter remains the owner so long as he has tried to comply with the condition within a reasonable period. Such period, however, became irrelevant herein when the donee manifested that it cannot comply with the condition and the same was made known to the donor. Only then, when the non-fulfillment of the resolutory condition was brought to the donors knowledge, that ownership of the donated property reverted to the donor as provided in the automatic reversion clause of the deed of donation. 4. Inchoate interest may be subject of contract including a contract of sale; Interest over property under conditional deed of donation, not the land itself The donor may have an inchoate interest in the donated property during the time that ownership of the land has not reverted to her. Such inchoate interest may be the subject of contracts including a contract of sale. In the present case, however, what the donor sold was the land itself which she no longer owns. It would have been different if the donor-seller sold her interests over the property under the deed of donation which is subject to the possibility of reversion of ownership arising from the non-fulfillment of the resolutory condition. 5. Laches, elements Laches presupposes failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it. Its essential elements of (a) Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (b) Delay in asserting complainants right after he had knowledge of the defendants conduct and after he has an opportunity to sue; (c) Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and, (d) Injury or prejudice to the defendant in the event relief is accorded to the complainant are absent in this case. In the present case, petitioners cause of action to quiet title commenced only when the property reverted to the donor and/or his successors-in-interest in 1987, not in the 1960s when they had no interest over the property at that time except under the deed of donation to which private respondents were not privy. Moreover, petitioners had previously filed an ejectment suit against private respondents only that it did not prosper on a technicality.

6. Sale, being a consensual contract, is perfected by mere consent; Seller need not own property when sold but when delivered Sale, being a consensual contract, is perfected by mere consent, which is manifested the moment there is a meeting of the minds as to the offer and acceptance thereof on three (3) elements: subject matter, price and terms of payment of the price. Ownership by the seller on the thing sold at the time of the perfection of the contract of sale is not an element for its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale is still valid. 7. Sellers title passes by operation of law to the buyer The consummation of the perfected contract is another matter. It occurs upon the constructive or actual delivery of the subject matter to the buyer when the seller or her successors-in-interest subsequently acquires ownership thereof. In the present case, such circumstance happened in this case when petitioners (Trinidads heirs) became the owners of the subject property upon the reversion of the ownership of the land to them. Consequently, ownership is transferred to Mondejar and those who claim their right from him. ( 210 ) Article 1434 of the New Civil Code supports the ruling that the sellers title passes by operation of law to the buyer. This rule applies not only when the subject matter of the contract of sale is goods, but also to other kinds of property, including real property. 8. Article 1409 (4) does not provide that the properties of a municipality are outside the commerce of man; Objects outside of the commerce of man are those which cannot be appropriated Nowhere in Article 1409 (4) is it provided that the properties of a municipality, whether it be those for public use or its patrimonial property, are outside the commerce of men; so as to render the contract involving the same inexistent and void from the beginning when sold. In the present case, the lots were conditionally owned by the municipality. To rule that the donated properties are outside the commerce of men would render nugatory the unchallenged reasonableness and justness of the condition which the donor has the right to impose as owner thereof. Moreover, the objects referred to as outside the commerce of man are those which cannot be appropriated, such as the open seas and the heavenly bodies. 9. No factual or legal basis for the award of fees and damages There is neither factual nor legal basis for the trial courts award of attorneys fees, litigation expenses and moral damages. Attorneys fees and expenses of litigation cannot, following the general rule in Article 2208 of the New Civil Code, be recovered in the present case, there being no stipulation to that effect and the case does not fall under any of the exceptions. It cannot be said that private respondents had compelled petitioners to litigate with third persons. Neither can it be ruled that the former acted in gross and evident bad faith in refusing to satisfy the latters claims considering that private respondents were under an honest belief that they have a legal right over the property by virtue of the deed of sale. Moral damages cannot likewise be justified as none of the circumstances enumerated under Articles 2219 27 and 2220 28 of the New Civil Code concur in this case.

Celestino Co v. Collector of Internal Revenue [G.R. No. L-8506. August 31, 1956.] First Division, Bengzon (J): 7 concurring Facts: Celestino Co & Company is a duly registered general copartnership doing business under the trade name of Oriental Sash Factory. From 1946 to 1951 it paid percentage taxes of 7% on the gross receipts of its sash, door and window factory, in accordance with section 186 of the National Revenue Code imposing taxes on sales of manufactured articles. However in 1952 it began to claim liability only to the contractors 3% tax (instead of 7%) under section 191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also failed. Hence, the appeal. The Supreme Court affirmed the appealed decision. 1. Business name and income militates against claim as ordinary contractor The company has taken all the trouble and expense of registering a special trade name for its sash business and has ordered company stationery carrying the bold print Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes, furnitures, etc. used season-dried and kiln-dried lumber, of the best quality workmanship. It is unlikely that these act were made solely for the purpose of supplying the needs for doors, windows and sash of its special and limited customers. Further, the Company has chosen for its tradename and has offered itself to the public as a Factory, which means it is out to do business, in its chosen lines on a big s cale. Moreover, as shown from the investigation of the Companys books of accounts (for transactions covering the period of 1 January 1952 to 30 September 1952), it sold sash, doors and windows worth P188,754.69. It will be difficult to believe that such amount that ran to six figures was derived entirely from its few customers who made special orders. Thus, Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public, and it has admitted by the appellant itself that the company manufactures. ( 50 ) 2. Construction work contractors defined Construction work contractors are those who alter or repair buildings, structures, streets, highways, sewers, street railways, railroads, logging roads, electric, steam or water plants telegraph and telephone plants and lines, electric lines or power lines, and includes any other work for the construction, altering or repairing for which machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68). 3. Nature of business does not fall in any of the occupation that may be classified as contractor within the purview of Section 191 of the National Internal Revenue Code

Even if it were to believe that the company does not manufacture ready-made sash, doors and windows for the public and that it makes these articles only upon special order of its customers, that does not make it a contractor within the purview of section 191 of the National Internal Revenue Code. There are no less than fifty occupations enumerated in the said section of the National Internal Revenue Code subject to percentage tax, not one under which the business enterprise of petitioner could appropriately fall. It would require a stretch of the law to make the business of manufacturing sash, doors and windows upon special order of customers fall under the category of road, building, navigation, artesian well, water works and other construction work contractors. 4. Percentage tax imposed under Section 191 of the Tax Code a tax on sales of service, while tax imposed by Section 186 a tax on original sales of articles The percentage tax imposed in section 191 of the Tax Code is generally a tax on the sales of services, in contradiction with the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. (Formillezas Commentaries and Jurisprudence on the National Internal Revenue Code, Vol II, p. 744). The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section 186 of the National Internal Revenue Code as a sale of articles. 5. Custom specifications required by customer does not alter character of business, the company does not become an employee or servant of the customer Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer, sizes not previously held in stock for sale to the public, it thereby becomes an employee or servant of the customer, not the seller of lumber. The same consideration applies to this sash manufacturer. The Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its customers may desire. 6. Installation of window panels not construction work in common parlance Petitioners idea of being a contractor doing construction jobs is untenable. Nobody would regard the doing of two window panels as construction work in common parlance. 7. Contract of sale distinguished from a contract for a piece of work Article 1467 of the New Civil Code provides that a contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is contract for a piece of work. In the present case, it is apparent that the Factory did not merely sell its services to Teodoro & Co. because it also sold the materials. When it sold materials ordinarily manufactured by it (sash, panels, mouldings), although in such form or combination as suited the fancy of the purchaser, such new form does not divest the Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 because although the Factory does not, in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had ( 51 ) in stock the sash, mouldings and panels it used therefor. 8. Contract for a piece of work in Factory happens if the use of extraordinary or additional equipment is required or if it involves services not generally performed by it When the Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it, it thereby contracts for a piece of work, i.e. filling special orders within the meaning of Article 1467. In the present case, however, the orders exhibited were not shown to be special. They were merely orders for work, regular work. 9. Transfers under Section 186 of the Tax Code If all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work; and supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. Still, as the doors and windows had been admittedly manufactured by the Sash Factory, such transactions could be, and should be taxed as transfers thereof under section 186 of the National Revenue Code.

CIR v. Engineering Equipment and Supply [G.R. No. L-27044. June 30, 1975.] Engineering Equipment and Supply v. CIR [G.R. No. L-27452. June 30, 1975.] First Division, Esguerra (J): 4 concurring Facts: Engineering Equipment and Supply Co. is an engineering and machinery firm; and being an operator of an integrated engineering ship, is engaged in the design and installation of central type air conditioning system, pumping plants and steel fabrications. On 27 July 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue denouncing the Company for tax evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers. The Company was likewise denounced to the Central Bank for alleged fraud in obtaining its dollar allocations. Acting on these denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on 27 September 1956, on which occasion voluminous records of the firm were seized and confiscated. On 30 September 1957, revenue examiners reported and recommended to the then Collector, now Commissioner, of Internal Revenue that the Company be assessed for P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its importation of air conditioning units and parts and accessories thereof which are subject to tax under Section 185(m) 1 of the Tax Code, instead of Section 186 of the same Code. This assessment was revised on 23 January 1959, in line with the observation of the Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive of the 25% and 50% surcharges. On 3 March 1959, the Commissioner assessed against, and demanded upon, the Company payment of the increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of the Companys penal liability for violation of the Tax Code. The

firm, however, contested the tax assessment and requested that it be furnished with the details and particulars of the Commissioners assessment. The Commissioner r eplied that the assessment was in accordance with law and the facts of the case. On 30 July 1959, the Company appealed the case to the Court of Tax Appeals (CTA) and during the pendency of the case the investigating revenue examiners reduced the Companys deficiency tax liabilities from P916,362.65 to P740,587.86, based on findings after conferences had with the Companys Accountant and Auditor. On 29 November 1966, the CTA rendered its decision, modifying the decision appealed from, declaring the Company as contractor exempt from the deficiency manufacturers sales tax covering the period from 1 June 1948 to 2 September 1956 but ordered said company to pay the Commissioner, or his collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the period from 1953 to September 1956; With costs against the Company. The Commissioner, not satisfied with the decision of the CTA, appealed to the Supreme Court on 18 January 1967, (GR L-27044). On the other hand, the Company, on 4 January 1967, filed with the CTA a motion for reconsideration; which was denied on 6 April 1967, prompting the Company to file also with the Supreme Court its appeal (GR L-27452). Since the two cases involve the same parties and issues, the Court decided to consolidate and jointly decide them. The Supreme Court affirmed the decision appealed from with modification that the Company is also made liable to pay the 50% fraud surcharge. 1. Manufacturer defined Section 194 of the Tax code provides that Manufacturer includes e very person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or ( 58 ) partially manufactured products in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such material or manufactured or partially manufactured product so as to reduce it to marketable shape, or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. 2. Test to distinguish contract of sale and contract for work, labor and materials The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendants request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. 3. Contract of sale distinguished from a contract for a piece of work The New Civil Code distinguishes a contract of sale from a contract for a piece of work. Article 1467 provides that a contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order and not for the general market, it is a contract for a piece of work. 4. Contractor defined; Test to determine contractor The word contractor has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. (Araas, Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191(2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring Co., vs. Trinidad 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad 43, Phil. 816, 819, would seem to be that he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished. 5. Engineering Equipment Co. is a contractor and not a manufacturer The Company did not manufacture air conditioning units for sale to the general public, but imported some items (as refrigeration compressors in complete set, heat exchangers or coils), which were used in executing contracts entered into by it. The Company fabricates, assembles, supplies and installs in the buildings of its various customers the central type air conditioning system; prepares the plans and specifications therefor which are distinct and different from each other; the air conditioning units and spare parts or accessories thereof used are not the window type of air conditioner which are manufactured, assembled and produced locally for sale to the general market; and the imported air conditioning units and spare parts or accessories thereof are supplied and installed upon previous orders of its customers conformably with their needs and requirements. The facts and circumstances sup port the theory that the Company is a contractor rather than a manufacturer. 6. Engineering Equipment Co. subject to contractors tax (Section 191); As it imports goods not subject to sales tax, it also liable to 30% compensation tax (Section 190 in relation to Section 18[m], but without the 50% mark up provided in Section 183[b] ( 59 ) The Company, being a contractor and not a manufacturer, is subject to the contractors tax prescribed by Section 191 of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194 of the same Code. Since it has been proved that the Company imported air conditioning units parts or

accessories thereof for use in its construction business and these items were never sold resold bartered or exchanged the Company should be held liable to pay taxes prescribed under Section 190 of the Code. This compensating tax is not a tax on the importation of goods but a tax on the use of imported goods not subject to sales tax. The Company, therefore, should be held liable to the payment of 30% compensating tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without the 50% mark up provided in Section 183(b). 7. Air conditioning equipment grouped into 2 classifications, unitary and central system There is a great variety of equipment in use to do air conditioning. Some devices are designed to serve a specific type of space; others to perform a specific function; and still others as components to be assembled into a tailor-made system to fit a particular building. Generally, however, they may be grouped into two classifications, unitary and central system. The unitary equipment classification includes those designs such as room air conditioner, where all of the functional components are included in one or two packages, and installation involves only making service connection such as electricity, water and drains. Central-station systems, often referred to as applied or built-up systems, require the installation of components at different points in a building and their interconnection. The room air conditioner is a unitary equipment designed specifically for a room or similar small space. It is unique among air conditioning equipment in two respects: It is in the electrical appliance classification, and it is made by a great number of manufacturers (Engineering handbook by LC Morrow). The central type air conditioning system is an engineering job that requires planning and meticulous layout due to the fact that usually architects assign definite space and usually the spaces they assign are very small and of various sizes, in buildings dissimilar to existing buildings. The window type air conditioner is a sort of compromise; it cannot control humidity to the desired level; rather the manufacturers, by hit and miss, were able to satisfy themselves that the desired comfort within a room could be made by a definite setting of the machine as it comes from the factory; whereas the central type system definitely requires an intelligent operator. 8. Celestino Co v. CIR, Advertising Associates v. Collector of customs, Manila Trading v. City of Manila not applicable The Company did not and was not engaged in the manufacture of air conditioning units but had its services contracted for the installation of a central system. The cases cited by the Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are they applicable because the facts in all the cases cited are entirely different. In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. From the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold print ORIENTAL SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All Kinds of Doors, Windows . . . Likewise, Celestino Co never put up a contractors bond as required by Article 1729 of the Civil Code. Also, as a general rule, sash factories receive orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which sales were reflected in their books of accounts totalling P118,754.69 for the period of only nine (9) months. The Court found said sum difficult to have been derived from its few customers who placed special orders for these items. In the present case, the Company advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction of central system. Similarly, ot did not have ready-made air conditioning units for sale. ( 60 ) 9. SM Lawrence Co. v. McFarland, CIR of the State of Tennessee and McCanless is on all fours with present case The case of S.M. Lawrence Co. vs. McFarland, Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355 SW 2d, 100, 101, is the one on all fours with the present case, where the cause presents the question of whether one engaged in the business of contracting for the establishment of air conditioning system in buildings, which work requires, in addition to the furnishing of a cooling unit, the connection of such unit with electrical and plumbing facilities and the installation of ducts within and through walls, ceilings and floors to convey cool air to various parts of the building, is liable for sale or use tax as a contractor rather than a retailer of tangible personal property. Appellee took the position that appellant was not engaged in the business of selling air conditioning equipment as such but in the furnishing to its customers of completed air conditioning systems pursuant to contract, was a contractor engaged in the construction or improvement of real property, and as such was liable for sales or use tax as the consumer of materials and equipment used in the consummation of contracts, irrespective of the tax status of its contractors. To transmit the warm or cool air over the buildings, the appellant installed system of ducts running from the basic units through walls, ceilings and floors to registers. The contract called for completed air conditioning systems which became permanent part of the buildings and improvements to the realty. The Court held the appellant a contractor which used the materials and the equipment upon the value of which the tax herein imposed war levied in the performance of its contracts with its customers, and that the customers did not purchase the equipment and have the same installed. 10. Engineering Equipment had intent to misdeclare its importation as evidenced by its communications; Company liable to 50% fraud surcharge The communications (between the Company and various suppliers such as Trane Co., Acme Industries Inc., and Owens-Corning Fiberglass Corp.) presented as exhibits in the case were strongly indicative of the fraudulent intent of the Company to misdeclare its importation of air conditioning units and spare parts or accessories thereof to evade payment of the 30% tax. Since the commission of fraud is altogether too glaring, the Court cannot agree with the CTA in absolving the Company from the 50% fraud surcharge, otherwise it will be tantamount to giving premium to a plainly intolerable act of tax evasion.

11. Company liable to 25% compensation tax; Section 190 as amended The original text of Section 190 of Commonwealth Act 466, otherwise know as the National Internal Revenue Code, as amended by CA 503, effective on 1 October 1939, does not provide for the filing of a compensating tax return and payment of the 25% surcharge for late payment thereof. Under the original text of Section 190 of the Tax Code, as amended by CA 503, the contention of the Company that it is not subject to the 25% surcharge appears to be legally tenable. However, Section 190 of the Tax Code was subsequently amended by RA 48, 253, 361, 1511 and 1612 effective 1 October 1946, 1 July 1948, 9 June 1949, 16 June 1956 and 24 August 1956 respectively, which invariably provides among others, that if any article withdrawn from the customhouse or the post office without payment of the compensating tax is subsequently used by the importer for other purposes corresponding entry should be made in the looks of accounts if any are kept or a written notice thereof sent to the Collector of Internal Revenue and payment of the corresponding compensating tax made within 30 days from the date of such entry or notice and if tax is not paid within such period the amount of the tax shall be increased by 25% the increment to be a part of the tax, and that since the imported air conditioning units and spare parts or accessories thereof are subject to the compensating tax of 30% as the same were used in the construction business of Engineering, it is incumbent upon the latter to comply with the aforequoted requirement of Section 190 of the Code, by posting in its books of accounts or notifying the Collector of Internal Revenue that the imported articles were used for other purposes within 30 days. . . . Consequently, as the 30% compensating tax was not paid by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it is therefore subject to the 25% surcharge for delinquency in the payment of the said tax. ( 61 ) 12. Prescription not yet set in; Prescription of tax assessment is 10 years if based on false or fraudulent return to evade tax A review of the record reveals that the Company filed a tax return or declaration with the Bureau of Customs before it paid the advance sales tax of 7%, and the declaration filed reveals that it did in fact misdeclare its importations. Section 332 (a) of the Tax Code therefore is applicable. Section 332 (a) provides for the exceptions as to period of limitation of assessment and collection of taxes, providing that (a) in the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment at any time within ten years after the discovery of the falsity, fraud or omission. Thus, consi dering the preponderance of evidence of fraud with the intent to evade the higher rate of percentage tax due from the Company, the tax assessment was made within the period prescribed by law and prescription had not set in against the Government.

Engineering and Machinery Corp. v. CA [G.R. No. 52267. January 24, 1996.] Third Division, Panganiban (J): 3 concur Facts: Pursuant to the contract dated 10 September 1962 between the Engineering and Machinery Corporation (the Corporation) and Almeda, the former undertook to fabricate, furnish and install the airconditioning system in the latters building along Buendia Avenue, Makati in consideration of P12,000.00. The Corporation was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by Almeda, who paid in full the contract price. On 2 September 1965, Almeda sold the building to the National Investment and Development Corporation (NIDC). The latter took possession of the building but on account of NIDCs noncompliance with the terms and conditions of the deed of sale, Almeda was able to secure judicial rescission thereof. The ownership of the building having been decreed back to Almeda, he re-acquired possession sometime in 1971. It was then that he learned from some NIDC employees of the defects of the air-conditioning system of the building. Acting on this information, Almeda commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with the Corporation. In his report, Sapico enumerated the defects of the system and concluded that it was not capable of maintaining the desired room temperature of 76F 2F. On the basis of this report, Almeda filed on 8 May 1971 an action for damages against the Corporation with the then CFI Rizal (Civil Case 14712). The complaint alleged that the air-conditioning system installed by the Corporation did not comply with the agreed plans and specifications, hence, Almeda prayed for the amount of P210,000.00 representing the rectification cost, P100,000.00 as damages and P15,000.00 as attorneys fees. ( 99 ) The Corporation moved to dismissed the case, alleging prescription, but which was denied by the Court. Thereafter, Almeda filed an ex-parte motion for preliminary attachment on the strength of the Corporations own statement to the effect that it had sold its business and was no longer doing business in Manila. The trial court granted the motion and, upon Almedas posting of a bond of P50,000.00, ordered the issuance of a writ of attachment. In due course, and on 15 April 1974, the trial court rendered a decision, which ordered the Corporation to pay Almeda the amount needed to rectify the faults and deficiencies of the air-conditioning system installed by the Corporation in Almedas building, plus damages, attorneys fees and costs). Petitioner appealed to the Court of Appeals, which affirmed on 28 November 1978 the decision of the trial court. Hence, it instituted a petition for review on certiorari under Rule 45 of the Rules of Court. The Supreme Court denied the petition and affirmed the decision assailed; without costs. 1. The Courts power to review The Supreme Court reviews only errors of law in petitions for review on certiorari under Rule 45. It is not the function of this Court to re-examine the findings of fact of the appellate court unless said findings are not supported by the evidence on record or the judgment is based on a misapprehension of facts. The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment

of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below. 2. Contract of a piece of work defined Article 1713 of the Civil Code defines a contract for a piece of work as by the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material. 3. Contract for a piece of work distinguished from a contract of sale A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it . In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made upon previous orders of customers will not argue against the imposition of the sales tax if such articles are ordinarily manufactured by the taxpayer for sale to the public. (Celestino Co. vs. Collector, 99 Phil. 8411). To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work. ( 100 ) 4. Contract in question is one for a piece of work The contract in question is one for a piece of work. It is not the Corporations line of business to manufacture air-conditioning systems to be sold off-the-shelf. Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. 5. Obligations of a contractor for a piece of work The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code. Article 1714 provides that if the contractor agrees to produce the work f rom material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. Article 1715 provides that the contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contractor fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractors cost. 6. Provisions on warranty against hidden defects The provisions on warranty against hidden defects, referred to in Article 1714, are found in Articles 1561 and 1566. Article 1561 provides that the vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. Article 1566 provides that the vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof, and provides further that the provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. 7. Remedy against violation of the warranty against hidden defects The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (rehibitory action) or to demand a proportionate reduction of the price (accion quanti minoris), with damages in either case. 8. Prescriptive period as specified in express warranty, or in the absence of which, 4 years; Prescriptive period of 6 months for rehibitory action is applicable only in implied warranties While it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a rehibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties; and where there is an express warranty in the contract, the prescriptive period is the one specified in the express warranty, and in the absence of such period, the general rule on rescission of contract, which is four years (Article 1389, Civil Code) shall apply. (Villostas v. CA) 9. Original complaint is one for arising from breach of a written contact and not a suit to enforce warranty against hidden defects; Article 1715 in relation to Article 1144 apply, prescription in 10 years; Action not prescribed The lower courts opined and so held that the failure of the defendant to follow the contract specifications and said omissions and deviations having resulted in the operational ineffectiveness of the

system installed makes the defendant liable to the plaintiff in the amount necessary to rectify to put the air ( 101 ) conditioning system in its proper operational condition to make it serve the purpose for which the plaintiff entered into the contract with the defendant. Thus, having concluded that the original complaint is one for damages arising from breach of a written contract, and not a suit to enforce warranties against hidden defects, the governing law therefore is Article 1715. However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions upon a written contract prescribe in 10 years. Since the governing contract was executed on 10 September 1962 and the complaint was filed on 8 May 1971, it is clear that the action has not prescribed. 10. Acceptance of the work by the employer does not relieve the contractor of liability for any defect in the work The mere fact that Almeda accepted the work does not, ipso facto, relieve the Corporation from liability for deviations from and violations of the written contract, as the law gives him 10 years within which to file an action based on breach thereof. As held by the Court of Appeals, as the breach of contract consisted in appellants omission to install the equipment [sic], parts and accessories not in accordance with the plan and specifications provided for in the contract and the deviations made in putting into the air-conditioning system parts and accessories not in accordance with the contract specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of the work, considering further that Almeda is not an expert to recognize the same. From the very nature of things, it is impossible to determine by the simple inspection of air conditioning system installed in an 8-floor building whether it has been furnished and installed as per agreed specifications.

Quiroga v. Parsons Hardware [G.R. No. 11491. August 23, 1918.] En Banc, Avancena (J): 5 concur Facts: On 24 January 1911, in Manila, a contract was entered into by and between the Quiroga and J. Parsons (to whose rights and obligations Parsons Hardware later subrogated itself) for the exclusive sale of Quiroga Beds in the Visayan Islands. Quiroga was to furnish the Parson with the beds (which the latter might order, at the price stipulated) and that Parson was to pay the price in the manner stipulated. The price agreed upon was the one determined by Quiroga for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at Quirogas request, or in cash, if Parson so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. ( 213 ) <The case facts are bereft of details regarding the event that led to the controversy of the case, the litigation in the lower courts, up to appeal> Quiroga alleges that Parson violated its obligation not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. None of these, except the obligation to order the beds by the dozen and in no other manner, are expressly set forth in the contract. Quiroga maintains that Parsons is his agent for the sale of his bed in Iloilo, and such obligations implied in a contract of commercial agency. The Supreme Court held that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. The Court thus affirmed the judgment appealed from, with costs against the appellant. 1. Essential clauses given due regard to classify a contract; Contract of purchase and sale In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, the clauses, constituting its cause and subject matter, are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of Quiroga to supply the beds, and, on the part of Parson, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between Quiroga and Parson, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. 2. Commission on sale merely a discount, other clauses are not incompatible with contract of purchase and sale The contract by and between the defendant and the plaintiff is one of purchase and sale. Besides the clause made in the basis of a commission on sales, none of the other clauses of the contract is found to substantially support Quirogas contention. None of these conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell Quirogas beds in the Visayan Islands. With regard to the remaining cl auses, the least that can be said is that they are not incompatible with the contract of purchase and sale. 3. Classification of a contract defined by law, and not one called by the parties The agreements contained in the document that has been drafted, constitute a contract of purchase and sale, and not one of commercial agency. In the classification of the contract, it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. 4. Acts subsequent to contract suppletory, not considered when essential agreements are set forth in the contract The acts of the parties merely show that, on the part of each of them, there was mutual tolerance in

the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. 5. Effect of breach, and effect of subsequent consent to such breach ( 214 ) In respect to the defendants obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will.

Puyat & Sons v. Arco Amusement [G.R. No. 47538. June 20, 1941.] First Division, Laurel (J): 4 concur Facts: In the year 1929, the Teatro Arco, was engaged in the business of operating cinematographs. In 1930, its name was changed to Arco Amusement Company. About the same time, Gonzalo Puyat & Sons, Inc., in addition to its other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, USA, which dealt in cinematograph equipment and machinery. Arco, desiring to equip its cinematograph with sound reproducing devices, approached Puyat. After some negotiations, it was agreed between the parties, Puyat would, on behalf of Arco Amusement, order sound reproducing equipment from the Star Piano Company and that Arco Amusement would pay Puyat, in addition to the price of the ( 206 ) equipment, 10% commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of the Arco, Puyat sent a cable to the Starr Piano Company, inquiring about the equipment desired and making the said company to quote its price of $1,700 FOB factory Richmond, Indiana. Puyat informed the plaintiff of the price of $1,700, and being agreeable to the price, Arco, in a letter dated 19 November 1929, formally authorized the order. The equipment arrived about the end of the year 1929, and upon delivery of the same to Arco and the presentation of necessary papers, the price of $1,700, plus the 10% commission agreed upon the plus all the expenses and charges, was duly paid by the Arco to Puyat. he following year, another order for sound reproducing equipment was placed by Arco with Puyat, on the same terms as the first order. The equipment under the second order arrived in due time, and the defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and charges. This amount of $160 does not represent actual out-of-pocket expenses paid by Puyat, but a mere flat charge and rough estimate made by Puyat equivalent to 10% of the price of $1,600 of the equipment. Three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against Puyat, the officials of the Arco discovered that the price quoted to them by Puyat with regard to their two orders was not the net price but rather the list price, and that the defendant had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of machinery and cinematograph equipment, said officials of Arco were convinced that the prices charged them by the defendant were much too high including the charges for out-of-pocket expenses. For these reasons, they sought to obtain a reduction from Puyat or rather a reimbursement. Failing in this they brought an action with the CFI Manila. The trial court held that the contract between the parties was one of the outright purchase and sale, and absolved Puyat from the complaint. The appellate court, however, held that the relation between the parties was that of agent and principal, Puyat acting as agent of Arco in the purchase of the equipment in question, and sentenced Puyat to pay Arco alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the filing of the complaint until said amount is fully paid, as well as to pay the costs of the suit in both instances. Hence, the petition for the issuance of a writ of certiorari to the Court of Appeals for the purposed of reviewing its decision in civil case GR 1023. The Supreme Court granted the writ of certiorari, reversed the decision of the appellate court, and absolved Puyat & Sons from the complaint in GR 1023, without pronouncement regarding costs. 1. Contract, and those agreed upon, is the law between the parties; What does not appear are regarded as dealers or traders not binding the parties The contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as dealers or traders talk, which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 Ill., 161; Bank v. Palmer, 47 Ill., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters which Arco accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject of its contract with Puyat, are clear in their terms and admit of no other interpretation than that Arco agreed to purchase from Puyat the equipment in question at the prices indicated which are fixed and determinate. 2. Agency; Agent exempt from all liability in discharge of commission if in accordance with instructions received from principal In agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code). The fact that whatever unforseen events might have taken place unfavorable to the defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill ( 207 ) the orders as per specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600 is incompatible with the pretended relation of agency between the

parties. 3. Commission does not necessarily make one the agent of the other While the letters state that Puyat was to receive 10% commission, this does not necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.) 4. Puyat & Sons already the agent of Starr Piano Company of Richmond, Indiana, in the Philippines To hold the petitioner an agent of Arco in the purchase of equipment and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that Puyat is the exclusive agent of Starr Piano in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and circumstances indicated to not point to anything but plain ordinary transaction where Arco enters into a contract transaction, a contract of purchase and sale, with Puyat, the latter as exclusive agent of the Starr Piano Company in the United States. 5. Vendor not bound to reimburse difference of cost and sales price A vendor is not bound to the vendee for any difference between the cost price and the sales price which represents the profit realized by the vendor out of the transaction. This is the very essence of commerce without which merchants or middleman would not exist. 6. Not every concealment is fraud, maybe business acumen; Buyer estopped when it agreed to conditions and price It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an exhorbitant additional price that Arco sought to limit it to 10%t. Arco is estopped from questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain. it alone must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground alone. The fact that Puyat obtained more or less profit than Arco calculated before entering into the contract of purchase and sale, is no ground for rescinding the contract of purchase and sale, is no ground for rescinding the contract or reducing the price agreed upon between the parties. Puyat was not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers. Not every concealment is fraud; and short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world.