1) Power Commercial vs.

Court of Appeals | CDCP or PNCC

274 scra 597

follows:
1.

Ponente: Panganiban, J.:

ARTICLE I SCOPE OF SERVICES

Doctrine: Obligations; Unilateral rescission of a contract is

subject to judicial determination. Contractual stipulations should
be interpreted together. Ambiguous ones should be construed to
conform to the sense that would result when all the provisions are
comprehended jointly. Moreover, doubts should be settled in favor
of the greatest reciprocity of interests.

'The FIRST PARTY [respondent] shall supply

approximately SEVENTY THOUSAND (70,000)
cubic meters of concrete aggregates consisting of
the following:

Facts:

On July 2, 1982, [Mars Construction Enterprises, Inc.,

[respondent herein] entered into a subcontract/Agreement
with x x x Construction & Development Corporation of the
Philippines (CDCP) now PNCC [petitioner herein], for the
supply of approximately seventy thousand (70,000) cubic
meters of aggregates consisting of: micks
1.

washed sand,

2.

washed " gravel,

3.

washed 1-" gravel

4.

sub-base.

On August 7, 1982, [respondent] and CDCP executed

Amendment No. 1 increasing the amount of the third party
liability coverage from P50,000.00 to P100,000.00.

On November 5, 1982, [respondent] and CDCP executed

Amendment No. 2 amending the scope of services, as

Art. I is hereby amended to read:

1.

[W]ashed sand app. 17,500 cu. m.

2.

Washed " gravel app. 17,500 cu. m. Me-sm

3.

Washed 1 " gravel app. 35,000 cu. m.

4.

Sub-base 2" minus crusher run

Amendment No. 2 also altered Article IV (5.0) of the original

Agreement which provided that (t)he first party guarantees to
commence delivery within forty five (45) days after signing of
the contract and continue delivery until the quantities
enumerated x x x [shall] have been delivered to the jobsite
stockpile to read as follows:

ARTICLE V DELIVERY
'The FIRST PARTY [respondent] shall deliver a minimum of SIX
THOUSAND (6,000) cubic meters of combined concrete
aggregate per month until the entire requirements of the
SECOND PARTY [petitioner] to complete the Philphos Project
shall have been satisfied. (Underscoring supplied.)

BREACH:

Actual delivery of aggregates started only in March of 1983, or

a delay of eight (8) months of the 45 days stipulated in the
Agreement (Agreement, Article IV (5.0); TSN, September 6,
1985, pp. 9-10).
There were also non-deliveries between the period June 1983
to January 1984 .
Thus [petitioner] was constrained to obtain the necessary
materials from other sources, incurring additional costs
representing the difference between the agreed price of
P140.00 per cubic meter under the Agreement and the pricing
of the outside sources.
The difference in cost was reimbursed by [respondent] in
accordance with the default clause under the Agreement that
the Second Party [petitioner] can procure from any other
quarry operator x x x (and) should such procurement cost the
Second Party more than the agreed price above, the excess
[would] be for the account of the First Party x x x' (Article VII,
no. 7).
A total of P1.578 M was thusly paid by [respondent]

CONTROVERSY: S-l-x

LOWER COURT:nigella
Rendered in favor of plaintiff and against the defendant ordering
the defendant to pay plaintiff:
a.) the amount of P680,000.00 as lucrum cessans;
b.) the amount of P33,387.91 for the outstanding obligation of
PNCC in favor of plaintiff (118,518.68 less price differential of
P85,120.77);
c.) attorneys fees x x x reduced to the reasonable amount of
P50,000.00; and as the costs of litigation."
Ruling of the Court of Appeals

The controversy arose when [petitioner] refused to accept

[respondents] delivery of 17,000.00 cubic meters of washed 11/2" gravel, saying that it had no more need for the same.

For this, [respondent] claimed the amount of P680,000.00

representing lucrum cessans or unrealized profit with interest
at bank rate until fully paid, exemplary damages and attorneys
fees.

Petitioner denied that it breached the contract and counterclaimed for the amount of P85,120 as price differential of the
procurement cost over the agreed price, plus reimbursement
of overpayment of P23,256.80 it had made arising from error
in measurement. (Answer, Counterclaim).

The CA REVERSED and ruled for RESPONDENT that the

Contract and its amendments impelled petitioner to accept
delivery of the washed 1.5-inch gravel from the respondent.
The figures in the "Scope of Services" provision were
interpreted to mean the minimum quantities to be delivered to
the petitioner.
The petitioner received a total of 8,162.43 cubic meters of
washed 1.5-inch gravel from the respondent and 9,978.06
cubic meters from other sources.
Hence, the petitioner actually utilized only 18,140.49 cubic
meters of aggregates of this specification, which was only

about half of the stipulated 35,000 cubic meters.

Clearly, it breached the Contract when it refused to accept
delivery of the 17,000 cubic meters of washed 1.5-inch gravel
from the respondent
Because of this breach, the respondent was entitled to lucrum
cessans, computed by deducting the production cost from the
agreed cost per cubic meter of aggregatesslx
The CA denied the petitioners prayer for damages arising
from the delays in delivery, because respondent had already
compensated or paid for such delays.
The appellate court rejected petitioners contention that the
respondent committed bad faith by entering into a contract that
it was financially incapable of fulfilling, inasmuch as this issue
had not been raised before the trial court

Issues
Whether PNCC was compelled to accept the delivery of the
17,000 cubic meters of washed 1-" gravel which is not in accord
with law and jurisprudence
Whether the damages award of the amount of P680,000.00 as
lucrum cessans is not in accord with law and jurisprudence.Slxsc

The Courts Ruling

The Petition has no merit. Court favors RESPONDENT.
First Issue: Obligation to Accept Delivery
Petitioner contends that it was not under any obligation to accept
17,000 cubic meters of washed 1.5-inch gravel, because the

delivery was made after the actual aggregate requirement of the

project had already been fully satisfied, and after respondent had
defaulted on its contractual undertakings.
Interpreting the ContractSl-xm-is
Petitioner adds that the respondent had already delivered
aggregates, the combined volume of which was about 45 percent
over and above that required in Article I, Amendment 2 of the
Contract. Hence, the petitioner refused to accept the "excess"
delivery in issue.
This contention is incorrect. The various stipulations in a contract
should be interpreted together. Ambiguous ones should be so
construed as to conform to the sense that would result if all the
provisions are comprehended jointly.
The "Scope of Services" provision in Amendment 2 stipulated the
delivery of 70,000 cubic meters of concrete aggregates consisting
of approximately 17,500 cubic meters of washed sand,
approximately 17,500 cubic meters of washed .75-inch gravel,
35,000 cubic meters of washed 1.5-inch gravel, and "sub-base 2"
minus crusher run. Clearly, at least 35,000 of the 70,000 cubic
meters of concrete aggregates that the respondent was
supposed to deliver to the petitioner should be washed 1.5inch gravel.
The trial court correctly explained: M-issda
Besides, the stipulation would be too burdensome to the
respondent if, as petitioner insists, the breakdown of the specified
aggregates were interpreted as mere estimates of the project
requirements; the respondent would have then been uncertain as
to how much it should deliver.

Doubts in contracts should be settled in favor of the greatest

reciprocity of interests
Accordingly, these figures, as held by the CA, should be deemed
the minimum amounts to be procured and delivered. In this way,
both parties would know exactly how much to demand from each
other to be able to comply with their respective obligations.
Provisional Unilateral Resolution
PNCC Project Director H. R. Taylors letter of May 17, 1984
informed the respondent of the final quantities of concrete
aggregates to be delivered, with the advice that no other
deliveries would be accepted.
Hence, the petitioner asserts that, after that advice, it was no
longer bound to accept any further deliveries from the respondent.
Sd-aad-sc
We disagree. Such advice is not a sufficient justification for
refusing delivery. The only clause on delivery is Stipulation 2 of
Amendment 2, which states that "[t]he FIRST PARTY shall deliver
a minimum of SIX THOUSAND (6,000) [c]ubic meters of
combined concrete aggregate per month until the entire
requirements of the SECOND PARTY to complete the Philphos
Project shall have been satisfied." The Contract did not authorize
the petitioner to limit, by means of a unilateral advice, the quantity
of aggregates that may be delivered. Although there were several
occasions when the petitioner advised the respondent on the
quality and the quantity of concrete aggregates to be delivered,
Mr. Solomon Chu (general manager of respondent) testified that
the giving of advice did not become the practice between them.
By saying that the quantity specified in the letter was its last order,
petitioner unilaterally amended its Contract with the respondent.

The act of treating a contract as cancelled or rescinded on

account of infractions by the other contracting party is always
provisional; that is, contestable and subject to judicial
determination.Judicial action is necessary for its rescission in
order to afford the other party an opportunity to be heard and to
determine if the rescission was proper.
When the herein petitioner resolved or rescinded the Agreement
without previous court action, it proceeded at its own risk. Only
the final judgment of a court will conclusively and finally settle
whether such recourse was correct in law.
Default as Insubstantial BreachSc
Petitioner avers that respondent was already in default when the
former refused the latter's delivery of 17,000 cubic meters of
washed 1.5-inch gravel. Hence, its refusal was justified.
We are not persuaded. The contract specifically provided that if
the respondent failed to deliver the required aggregates, the
petitioner could procure them from other sources so as not to
jeopardize the entire construction project.
The records reveal that on several occasions, petitioner
purchased concrete aggregates from other suppliers.
Pursuant to Paragraph 3 of Amendment 2, petitioner imposed
penalties for the incremental cost of procuring materials from
other sources, which respondent willingly paid in the sum of
P1,577,000. Since petitioner was already compensated for
respondent's defaults, such defaults cannot be considered
as a substantial breach that justified the rescission of the
Contract and the refusal to accept the questioned delivery.
WHEREFORE, the Petition is DENIED and the assailed Decision

AFFIRMED. Costs against petitioner.

SO ORDERED.
2) Romero v ca 250 scra 223,

3.) LEODEGARIO AZARRAGA, plaintiff-appellee,

vs.MARIA GAY, defendant-appellant.
Ponente:
VILLAMOR, J.:
Facts:

By a public document Exhibit A, dated January 17, 1921, the

plaintiff sold two parcels of lands to the defendant for the lump
sum of P47,000, payable in installments.
The conditions of the payment were:
o P5,000 at the time of signing the contract
o P20,000 upon delivery by the vendor to the purchaser
of the Torrens title to the first parcel described in the
deed of sale
o P10,000 upon delivery by the vendor to the purchaser
of Torrens title to the second parcel;
o P12,000 one year after the delivery of the Torrens title
to the second parcel.
The defendant paid P5,000 to the plaintiff when the contract
was signed. The plaintiff delivered the Torrens title to the first
parcel to the defendant who, pursuant to the agreement, paid
him P20,000.
In the month of March 1921, Torrens title to the second parcel
was issued and forthwith delivered by the plaintiff to the
defendant who, however, failed to pay the P10,000 as agreed,
neither did she pay the remaining P12,000 one year after
having received the Torrens title to the second parcel.

The plaintiff here claims the sum of P22,000, with legal

interest from the month of April 1921 on the sum of
P10,000, and from April 1922 on the sum of P12,000, until
full payment of the amounts claimed.
The defendant admits that she purchased the two parcels of
land referred to by plaintiff, by virtue of the deed of sale Exhibit
A, but alleges in defense:
o (a) That the plaintiff knowing that the second parcels of
land he sold had an area of ONLY 60 hectares, by
misrepresentation lead the defendant to believe
that said second parcel contained 98 hectares, and
thus made it appear in the deed of sale and induced
the vendee to bind herself to pay the price of
P47,000 for the two parcels of land, which he
represented contained an area of no less than 200
hectares, to which price the defendant would not have
bound herself had she known that the real area of the
second parcel was 60 hectares, and, consequently, she
said that price reduction was lacking
o (b) that the defendant, in addition to the amounts
acknowledged by the plaintiff, had paid other sums
amounting to P4,000; and
o (c) that the defendants never refused to pay the justly
reduced price, but the plaintiff refused to receive the
just amount of the debt.
And by way of cross-complaint, the defendant prays that she
be indemnified in the sum of P15,000 for damages sustained
by her by reason of the malicious filing of the instant
complaint.
The plaintiff, replying to the amended answer, alleges that the
contract of sale in question was made only for the lump sum of
P47,000, and not at the rate of so much per hectare, and that
the defendant's claim for alleged damages has prescribed.

The lower court decided for PLAINTIFF, having minutely

analyzed the evidence adduced by the parties held that
neither the plaintiff nor the defendant gave any importance to
the area of the land in consenting to the contract in question,
and that there having been no fraud when the parties agreed
to the lump sum for the two parcels of land described in the
deed Exhibit A, following article 1471 of the Civil Code,
ordered the defendant to pay the plaintiff the sum of P19,300
with legal interest at 8 per cent per annum from April 30, 1921
on the sum of P7,300, and from April 30, 1922, on the sum of
P12,000. And finally dismissed the defendant's crosscomplaint, without special pronouncement as to costs.
A motion for a new trial having been denied, this case was
brought up to this court
The appellant alleges that the trial court erred in not
considering that the plaintiff induced the defendant by deceit,
to pay him the stipulated price for the two parcels he sold,
stating falsely in the deed of sale that the second of said
parcels had an area of 98 hectares when he knew that in
reality it only had about 60 hectares more or less, or at least, if
such deceit was not practiced that mere that there was a
mistake on the part of Maria Gay in believing that said second
parcel contained 98 hectares.

ISSUE: Is the defendant justified in not paying the balance and

interest because of the fraud and the alleged refusal of payment?
HELD: No. As a question of fact the trial court found from the
evidence adduced by the parties, that the plaintiff had not
practised any deception in agreeing with the defendant upon the
sale of the two parcels of land described in Exhibit A. We concur
with the trial court in this conclusion. It appears of record that
before the execution of the contract Exhibit A, the defendant went
over the plaintiff's land and made her calculations as to the area
of said two parcels. But this not all. The plaintiff delivered to the
defendant the documents covering the land he was trying to sell.

As to the first parcel there is no question whatever and the

defendant's contention is limited solely to the actual area of the
second parcel. The defendant had the deed by which the plaintiff
acquired the land from the original owner, Crispulo Beramo, in
which document it appears that the area of the second parcel is
about 70 hectares.
It was the defendant who intrusted the drawing of the deed of sale
Exhibit A to her attorney and notary, Hontiveros, and it is to be
presumed that both she and the lawyer who drew the document
Exhibit A, had read the contents of the document Exhibit 4.
The plaintiff declares that he signed the document between 5 and
7 in the afternoon of that day and he did not pay any attention to
the area of the second parcel, probably in the belief that in the
drawing of the document the data concerning the area of the land
had been taken from the said Exhibit 4.
The defendant testified that she received from the plaintiff a note
or piece of paper containing the data to be inserted in the contract
Exhibit A. The plaintiff denies this and said note or piece of paper
was not presented at the trial. We are of opinion that this
testimony of the defendant's is unimportant, because, in reality, if
the plaintiff had delivered Exhibit 4 to the defendant, there was no
need to deliver to her another note to indicate the area of the
second which already appeared in the said Exhibit 4.
If, notwithstanding the fact that it appeared in Exhibit 4 that the
area of the second parcel was, approximately, 70 hectares, the
defendant, however, stated in said document Exhibit A that said
second parcel contained 98 hectares as was admitted by him in
his interviews with the plaintiff in the months of April and June,
1924, then she has no right to claim from the plaintiff the shortage
in area of the second parcel. Furthermore, there is no evidence of
record that the plaintiff made representation to the defendant as

to the area of said second parcel, and even if he did make such
false representations as are now imputed to him by the
defendant, the latter accepted such representations at her own
risk and she is the only one responsible for the consequences of
her inexcusable credulousness.

a vendor of real property with reference to its area are not

actionable, where a correct description of the property was given
in the deed and recorded chain of title, which the purchaser's
agent undertook to investigate and report upon, and the vendor
made on effort to prevent a full investigation." (Shappirio vs.
Goldberg, 48 Law. ed., 419.)

In the case of Songco vs. Sellner (37 Phil., 254), the

"One who contracts for the purchase of real estate in reliance on
court said:
The law allows considerable latitude to seller's
statements, or dealer's talk; and experience teaches that
it as exceedingly risky to accept it at its face value.
Assertions concerning the property which is the subject of a
contract of sale, or in regard to its qualities and characteristics,
are the usual and ordinary means used by sellers to obtain a high
price and are always understood as affording to buyers no grund
from omitting to make inquires. A man who relies upon such an
affirmation made by a person whose interest might so readily
prompt him to exaggerate the value of his property does so at his
peril, and must take the consequences of his own imprudence.
The defendant had ample opportunity to appraise herself of the
condition of the land which she purchased, and the plaintiff did
nothing to prevent her from making such investigation as she
deemed fit, and as was said in Songco vs. Sellner, supra, when
the purchaser proceeds to make investigations by himself, and
the vendor does nothing to prevent such investigation from being
as complete as the former might wish, the purchaser cannot later
allege that the vendor made false representations to him.
(National Cash Register Co. vs. Townsend, 137 N. C., 652; 70 L.
R. A., 349; Williamson vs. Holt, 147 N. C., 515.)
The same doctrine has been sustained by the courts of the United
States in the following cases, among others: Misrepresentation by

the representations and statements of the vendor as to its

character and value, but after he has visited and examined it for
himself, and has had the means and opportunity of verifying such
statements, cannot avoid the contract on the ground that they
were false or exaggerated." (Brown vs. Smith, 109 Fed., 26.)
That the defendant knew that the area of the second parcel was
only about 70 hectares is shown by the fact that she received the
document Exhibit 4 before the execution of the contract Exhibit A,
as also Exhibit E-3 on September 30, 1920; which is the
notification of the day for the trial of the application for registration
of said parcel, wherein it appears that it had an area of 60
hectares more or less, and by the fact that she received from the
plaintiff in the month of June 1924 the copy of the plans of the two
parcels, wherein appear their respective areas; and yet, in spite of
all this, she did not complain of the difference in the area of said
second parcel until the year 1926.
Moreover, the record contains several of the defendant's letters to
the plaintiff in the years 1921 to 1925, in which said defendant
acknowledges her debt, and confining herself to petitioning for
extentions of time within which to make payment for the reasons
given therein. But in none of these letters is there any allusion to
such lack of area, nor did she complain to the plaintiff of the
supposed deceit of which she believes she is a victim. All of
which, in our opinion, shows that no such deceit was practiced, as
the trial court rightly found.

As to the alleged error to the effect that the trial court failed to
order the reduction from the price due on the second parcel as
stated in the contract of sale Exhibit A, the proportional price of
the area lacking, we are of the opinion that said error has no
legal ground.
It appears that by the contract Exhibit A, the parties agreed to the
sale of two parcels of land, the first one containing 102 hectares,
67 acres and 32 centares, and the second one containing about
98 hectares, for the lump sum of P47,000 payable partly in cash
and partly in installments. Said two parcels are defind by means
of the boundaries given in the instrument. Therefore, the case
falls within the provision of article 1471 of the Civil Code, which
reads as follows:

ART. 1471. In case of the sale of real estate for a lump

sum and not at the rate of a specified price for each unit
of measure, there shall be no increase or decrease of
the price even if the area be found to be more or less
than that stated in the contract.
The same rule shall apply when two or more estates are sold for a
single price; but, if in addition to a statement of the boundaries,
which is indispensable in every conveyance of real estate, the
area of the estate should be designated in the contract, the
vendor shall be obliged to deliver all that is included with such
boundaries, even should it exceed the area specified in the
contract; and, should he not be able to do so, he shall suffer a
reduction of the price in proportion to what is lacking of the area,
unless the contract be annulled by reason of the vendee's refusal
to accept anything other than that which was stipulated.

The plaintiff contends that, in accordance with the first paragraph

of this article, the defendant has no right to ask for the reduction
of price, whatever may be the area of the two parcels of land sold
her. On the other hand, the defendant contends that, according to
paragraph 2 of the same article of the Civil Code, she has a right
to ask for a reduction of the price due on the second parcel, in
proportion to the area lacking.
In his comments on the article cited, Manresa says, among other
things:
. . . if the sale was made for a price per unit of measure or
number, the consideration of the contract with respect to the
vendee, is the number of such units, or, if you wish, the thing
purchased as determined by the stipulated number of units. But if,
on the other hand, the sale was made for a lump sum, the
consideration of the contract is the object sold, independently of
its number or measure, the thing as determined by the stipulated
boundaries, which has been called in law a determinate object.
This difference in consideration between the two cases implies a
distinct regulation of the obligation to deliver the object, because,
for an acquittance delivery must be made in accordance with the
agreement of the parties, and the performance of the agreement
must show the confirmation in fact, of the consideratin which
induces each of the parties to enter into the contract.
From all this, it follows that the provisions of article 1471
concerning the delivery of determinate objects had to be
materially different from those governing the delivery of things
sold a price per unit of measure or number. Let us examine it, and
for the sake of greater clearness, let us expound it as we
understand it.
With respect to the delivery of determinate objects two cases may
arise, either the determinate object is delivered as stipulated, that
is, delivering everything included within the boundaries, inasmuch

as it is the entirety thereof that distinguishes the determinate

object; or that such entirety is impaired in the delivery by failing to
deliver to the purchaser something included within the
boundaries. These are the two cases for which the Code has
provided although, in our opinion, it has not been sufficiently
explicit in expressing the distinction; hence, at first sight, the
article seems somewhat difficult to understand.
The first paragraph and the first clause of the second paragraph
of article 1471 deal with the first of said cases; that is where
everything included within the boundaries as set forth in the
contract has been delivered. The Code goes on to consider the
case where a definite area or number has been expressed in the
contract, and enunciates the rule to be followed when, after
delivery, the area included within said boundaries is found not to
coincide with the aforesaid content or number.
Said rule may be thus stated: Whether or not the object of sale be
one realty for a lump sum, or two or more for a single price also a
lump sum, and, consequently, not for so much per unit of
measure or number, there shall be no increase or decrease in the
price even if the area be found to be more or less than that stated
in the contract.
Thus understood the reason for the regulation is clear and no
doubts can arise from its application. It is concerned with
determinate objects. The consideration of the contract, and the
thing to be delivered is a determinate object, and not the number
of units it contains. The price is determined with relation to it;
hence, its greater or lesser area cannot influence the increase or
decrease of the price agreed upon. We have just learned the
reason for the regulation, bearing in mind that the Code has
rightly considered an object as determinate for the purposes now
treated, when it is a single realty as when it is two or more, so
long as they are solds for a single price constituting a lump sum
and not for a specified amount per unit of measure or number.

We have stated that the second possible case in the delivery of

determinate objects is that in which, on account or circumstances
of diverse possible origins, everything included within the
boundaries is not delivered.
We have indicated about that where everything included within
the boundaries is delivered there can be no increase or decrease
in price, no matter whether the area be more or less than that
given in the contract. From this a very important consequence
follows, to wit: That if the vendor is bound to deliver a determinate
object, he is bound to deliver all of it, that is, everything within its
boundaries, in the contract, and that from the moment he fails to
do so, either because he cannot, or because, ignoring the
meaning of the contract, he alleges that it contains a greater area
than that stipulated, the contract is partially unfulfilled and it is but
just the certain actions be available to the vendee for the
protection of his right.
The rule in the latter case is found in the second paragraph of
article 1471, with the exception of the first clause which refers of
the former hypothesis. This rule may be stated as follows:
Whether or not the object of the sale be one realty for a lump
sum, or two or more for a single price also a lump sum, and,
consequently not at the rate of a specified price for each unit of
measuring or number, the vendor shall be bound to deliver
everything that is included within the boundaries stated, although
it may exceed the area or number expressed in the contract; in
case he cannot deliver it, the purchaser shall have the right either
to reduce the price proportionately to what is lacking of the area
or number, or to rescind the contract at his option.
Comprehending the meaning of a sale of a determinate object, it
is easily understod how, in cases wherein by virtue of the rule

enunciated, the vendor has to deliver a greater area than that

expressed in the contract, there is, strictly speaking, no excess of
area, inasmuch as one may always properly ask, excess with
respect to what? With respect to the area appearing in the deed, it
will be answered. But as this area was not taken into account in
entering into the contract inasmuch as the parties made neither
the amount of the price, nor the efficacy of the contract to depend
on the number of its units; since area was written in to fulfill a
formal requisite demanded by the present rules upon the drawing
of public instruments, but as a condition essential to the contract,
which, if it were not true, would not be consummated, it results in
the long run, that this detail of the written recital, with respect to
which the excess is to be estimated, is so negligible, so
inconsistent, so haphazard, and in the vast majority of cases so
wide of the mark, that it is impossible to calculate the excess; and
considering the nature of a contract of sale of a definite object, it
cannot be strictly held that there is any excess at all.

he must suffer the effects of the nullity of the contract or a

reduction of the price proportionately what may be lacking of the
area or number. It is added as a ground for this solution that if the
vendor fulfills the obligations, as stated in the article, by delivering
what is not included with in the boundaries, there can never be
any case of proportionate reduction of the price on account of
shortage of area, because he does not give less who delivers all
that he bound himself to.

If everything within the stipulated boundaries is not delivered, then

the determination object which was the consideration of the
contract for the vendee, is not delivered; hence his power to
nullify it. However, it might be (and this he alone can say), that
although he has not received the object, according to the
stipulated terms, it suits him; hence his power to carry the
contract into effect with the just decrease in price referred to in the
article under comment.

There is no such thing. So long as the vendor can deliver, and for
that reason, delivers all the land included within the boundaries
assigned to the property, there can be no claim whatsoever either
on his part, although the area may be found to be much greater
than what was expressed, nor on the part of the puchaser
although that area may be in reality much smaller. But as he sold
everything within the boundaries and this is all the purchaser has
paid, or must pay for whether much or little, if afterwards it is
found that he cannot deliver all, because, for instance, a part, a
building, a valley, various pieces of land, a glen, etc., are not his,
there is no sale of a determinate object, there is no longer a sale
of the object agreed upon, and the solution given by the article is
then just and logical: Either the contract is annulled or the price
reduced proportionately.

The manner in which the matter covered by this article was

Some eminent commentators construe the last part of article 1471
in a different way. To them the phrase "and should he not be able
to do so" as applied to the vendor, does not mean as apparently it
does "should he not be able to deliver all that is included within
the boundaries stated," but this other thing namely, that if by
reason of the fact that a less area is included within the
boundaries than that expressed in the contract, it is not possible
for the vendor to comply therewith according to its literal sense,

According to this opinion, which we believe erroneous, if within

the boundaries of the property sold, there is included more area
than that expressed in the title deeds, nothing can be claimed by
the vendor who losses the value of that excess, but if there is less
area, then he loses also because either the price is reduced or
the contract is annulled. This theory would be anomalous in case
of sale of properties in bulk, but, especially, would work a gross
injustice which the legislator never intended.

DISPOSITIVE. The judgment appealed from being in accordance

with the law, it should be as it is hereby, affirmed with costs
against the appellant. So ordered

4) investment and devt v ca 162 scra 636,

Ponente: PANGANIBAN, J.:
ISSUE: Is the seller's failure to eject the lessees from a lot that
is the subject of a contract of sale with assumption of
mortgage a ground (1) for rescission of such contract and (2)
for a return by the mortgagee of the amortization payments
made by the buyer who assumed such mortgage?
Petitioner posits an affirmative answer to such question in this
petition for review on certiorari of the March 27, 1995 Decision
1
of the Court of Appeals, Eighth Division, in CA-G.R. CV Case
No. 32298 upholding the validity of the contract of sale with
assumption of mortgage and absolving the mortgagee from
the liability of returning the mortgage payments already made.
The Facts
o Petitioner Power Commercial & Industrial Development
Corporation, an industrial asbestos manufacturer, needed
a bigger office space and warehouse for its products.
o For this purpose, on January 31, 1979, it entered into a
contract of sale with the spouses Reynaldo and Angelita R.
Quiambao, herein private respondents.
o The contract involved a 612-sq. m. parcel of land located at
the corner of Bagtican and St. Paul Streets, San Antonio
Village, Makati City.
o The parties agreed that petitioner would pay private
respondents P108,000.00 as down payment, and the
balance of P295,000.00 upon the execution of the deed of
transfer of the title over the property.
o Further, petitioner assumed, as part of the purchase price,
the existing mortgage on the land. In full satisfaction

thereof, he paid P79,145.77 to Respondent Philippine

National Bank ("PNB" for brevity).
o On June 1, 1979, respondent spouses mortgaged again
said land to PNB to guarantee a loan of P145,000.00,
P80,000.00 of which was paid to respondent spouses.
o Petitioner agreed to assume payment of the loan.
o On June 26, 1979, the parties executed a Deed of Absolute
Sale With Assumption of Mortgage which contained the
following terms and conditions:
o That for and in consideration of the sum
(P295,000.00) Philippine Currency, to us in hand
paid in cash, and which we hereby acknowledge to
be payment in full and received to our entire
satisfaction, by POWER COMMERCIAL AND
INDUSTRIAL DEVELOPMENT CORPORATION
o We hereby certify that the aforesaid property is not
subject to nor covered by the provisions of the Land
Reform Code the same having no agricultural
lessee and/or tenant.
o We hereby also warrant that we are the lawful and
absolute owners of the above described property,
free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and
peaceful possession thereof in favor of the said
Power Commercial and Industrial Development
Corporation, its successors and assigns, against
any claims whatsoever of any and all third persons;
subject, however, to the provisions hereunder
provided to wit:
o That the above described property is mortgaged to
the Philippine National Bank, Cubao, Branch,
Quezon City for the amount of one hundred fortyfive thousand pesos, Philippine, evidenced by
document No. 163, found on page No. 34 of Book
No. XV, Series of 1979 of Notary Public HeritaL.

o
o

o
o

Altamirano registered with the Register of Deeds of

Pasig (Makati), Rizal . . . ;
On the same date, Mrs. C.D. Constantino, then General
Manager of petitioner-corporation, submitted to PNB said
deed with a formal application for assumption of mortgage.
On February 15, 1980, PNB informed respondent spouses
that, for petitioner's failure to submit the papers necessary
for approval pursuant to the former's letter dated January
15, 1980, the application for assumption of mortgage was
considered withdrawn; that the outstanding balance of
P145,000.00 was deemed fully due and demandable;
and that said loan was to be paid in full within fifteen
(15) days from notice.
Petitioner paid PNB P41,880.45 on June 24, 1980 and
P20,283.14 on December 23, 1980, payments which were
to be applied to the outstanding loan.
On December 23, 1980, PNB received a letter from
petitioner which reads:

With regard to the presence of the people who are currently in

physical occupancy of the (l)ot . . . it is our desire as buyers
and new owners of this lot to make use of this lot for our own
purpose, which is why it is our desire and intention that all the
people who are currently physically present and in occupation
of said lot should be removed immediately.
For this purpose we respectfully request that . . . our
assumption of mortgage be given favorable consideration, and
that the mortgage and title be transferred to our name so that
we may undertake the necessary procedures to make use of
this lot ourselves.
It was our understanding that this lot was free and clear of
problems of this nature, and that the previous owner would be
responsible for the removal of the people who were there.
Inasmuch as the previous owner has not been able to keep

his commitment, it will be necessary for us to take legal

possession of this lot inorder (sic) to take physical possession.
PNB writes:
o (T)his refers to the loan granted to Mr. Reynaldo Quiambao
which was assumed by you on June 4, 1979 for
P101,500.00. It was last renewed on December 24, 1980
to mature on June 4, 1981.
o A review of our records show that it has been past due
from last maturity with interest arrearages amounting to
P25,826.08 as of February 19, 1982.
o The last payment received by us was on December 24,
1980 for P20,283. 14. In order to place your account in
current form, we request you to remit payments to cover
interest, charges, and at least part of the principal.
o On March 17, 1982, petitioner filed Civil Case No. 45217
against respondent spouses for rescission and damages
before the Regional Trial Court of Pasig, Branch 159.
Then, in its reply to PNB's letter of February 19, 1982,
petitioner demanded the return of the payments it
made on the ground that its assumption of mortgage
was never approved.
o On May 31, 1983, 8 while this case was pending, the
mortgage was foreclosed. The property was subsequently
bought by PNB during the public auction.
o Thus, an amended complaint was filed impleading PNB as
party defendant.
o TRIAL COURT: Ruled that the failure of respondent
spouses to deliver actual possession to petitioner entitled
the latter to rescind the sale, and in view of such failure
and of the denial of the latter's assumption of mortgage,

PNB was obliged to return the payments made by the

latter.
COURT OF APPEALS: REVERSED LOWER COURT: In the
assailed Decision, it held that the deed of sale between
respondent spouses and petitioner did not obligate the former
to eject the lessees from the land in question as a condition of
the sale, nor was the occupation thereof by said lessees a
violation of the warranty against eviction. Hence, there was no
substantial breach to justify the rescission of said contract or
the return of the payments made.
Issues
Petitioner contends that:
(1) there was a substantial breach of the contract between the
parties warranting rescission; and
(2) there was a "mistake in payment" made by petitioner,
obligating PNB to return such payments
DECIDED FOR RESPONDENT. The petition is devoid of
merit. It fails to appreciate the difference between a condition
and a warranty and the consequences of such distinction.
Conspicuous Absence of an Imposed Condition
The alleged "failure" of respondent spouses to eject the
lessees from the lot in question and to deliver actual and
physical possession thereof cannot be considered a
substantial breach of a condition for two reasons: first, such
"failure" was not stipulated as a condition whether
resolutory or suspensive in the contract; and second, its
effects and consequences were not specified either.
The provision adverted to by petitioner does not impose a
condition or an obligation to eject the lessees from the lot. The
deed of sale provides in part:

We hereby also warrant that we are the lawful and absolute

owners of the above described property, free from any lien
and/or encumbrance, and we hereby agree and warrant to
defend its title and peaceful possession thereof in favor of the
said Power Commercial and Industrial Development
Corporation, its successors and assigns, against any claims
whatsoever of any and all third persons; subject, however, to
the provisions hereunder provided to wit:
By his own admission, Anthony Powers, General Manager of
petitioner-corporation, did not ask the corporation's lawyers to
stipulate in the contract that Respondent Reynaldo was
guaranteeing the ejectment of the occupants, because there
was already a proviso in said deed of sale that the sellers
were guaranteeing the peaceful possession by the buyer of
the land in question. 15 Any obscurity in a contract, if the
above-quoted provision can be so described, must be
construed against the party who caused it. 16 Petitioner itself
caused the obscurity because it omitted this alleged condition
when its lawyer drafted said contract.
If the parties intended to impose on respondent spouses the
obligation to eject the tenants from the lot sold, it should have
included in the contract a provision similar to that referred to in
Romero vs. Court of Appeals, 17 where the ejectment of the
occupants of the lot sold by private respondent was the
operative act which set into motion the period of petitioner's
compliance with his own obligation, i.e., to pay the balance of
the purchase price. Failure to remove the squatters within the
stipulated period gave the other party the right to either refuse
to proceed with the agreement or to waive that condition of
ejectment in consonance with Article 1545 of the Civil Code. In
the case cited, the contract specifically stipulated that the
ejectment was a condition to be fulfilled; otherwise, the
obligation to pay the balance would not arise. This is not so in
the case at bar.

Absent a stipulation therefor, we cannot say that the parties

intended to make its nonfulfillment a ground for
rescission. If they did intend this, their contract should
have expressly stipulated so. In Ang vs. C.A., 18 rescission
was sought on the ground that the petitioners had failed
to fulfill their obligation "to remove and clear" the lot sold,
the performance of which would have given rise to the
payment of the consideration by private respondent.
Rescission was not allowed, however, because the breach
was not substantial and fundamental to the fulfillment by the
petitioners of the obligation to sell.
As stated, the provision adverted to in the contract pertains to
the usual warranty against eviction, and not to a condition that
was not met.
The terms of the contract are so clear as to leave no room for
any other interpretation. 19
Furthermore, petitioner was well aware of the presence of the
tenants at the time it entered into the sales transaction. As
testified to by Reynaldo, 20 petitioner's counsel during the sales
negotiation even undertook the job of ejecting the squatters. In
fact, petitioner actually filed suit to eject the occupants. Finally,
petitioner in its letter to PNB of December 23, 1980 admitted
that it was the "buyer(s) and new owner(s) of this lot.
Effective Symbolic Delivery
The Court disagrees with petitioner's allegation that the
respondent spouses failed to deliver the lot sold. Petitioner
asserts that the legal fiction of symbolic delivery yielded to the
truth that, at the execution of the deed of sale, transfer of
possession of said lot was impossible due to the presence of
occupants on the lot sold. We find this misleading.

Although most authorities consider transfer of ownership as

the primary purpose of sale, delivery remains an indispensable
requisite as our law does not admit the doctrine of transfer of
property by mere consent.
. . . (I)n order that this symbolic delivery may produce the
effect of tradition, it is necessary that the vendor shall have
had such control over the thing sold that . . . its material
delivery could have been made. It is not enough to confer
upon the purchaser the ownership and the right of possession.
The thing sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold passing into the
tenancy of the purchaser by the sole will of the vendor,
symbolic delivery through the execution of a public instrument
is sufficient. But if, notwithstanding the execution of the
instrument, the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it himself or
through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will,
then fiction yields to reality the delivery has not been
effected.
Considering that the deed of sale between the parties did not
stipulate or infer otherwise, delivery was affected through the
execution of said deed. The lot sold had been placed under
the control of petitioner; thus, the filing of the ejectment suit
was subsequently done. It signified that its new owner
intended to obtain for itself and to terminate said occupants'
actual possession thereof.

Requisites of Breach of Warranty Against Eviction

Obvious to us in the ambivalent stance of petitioner is its
failure to establish any breach of the warranty against eviction.
Despite its protestation that its acquisition of the lot was to
enable it to set up a warehouse for its asbestos products and
that failure to deliver actual possession thereof defeated this
purpose, still no breach of warranty against eviction can be
appreciated because the facts of the case do not show that
the requisites for such breach have been satisfied. A breach of
this warranty requires the concurrence of the following
circumstances:
(1) The purchaser has been deprived of the whole or part of
the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale
made by the vendor; and
(4) The vendor has been summoned and made codefendant in the suit for eviction at the instance of the
vendee.
In the absence of these requisites, a breach of the warranty
against eviction under Article 1547 cannot be declared.
Petitioner argues in its memorandum that it has not yet ejected
the occupants of said lot, and not that it has been evicted
therefrom. As correctly pointed out by Respondent Court, the
presence of lessees does not constitute an encumbrance of
the land, 26 nor does it deprive petitioner of its control thereof.

We note, however, that petitioner's deprivation of

ownership and control finally occurred when it failed
and/or discontinued paying the amortizations on the
mortgage, causing the lot to be foreclosed and sold at
public auction. But this deprivation is due to petitioner's
fault, and not to any act attributable to the vendorspouses.
Because petitioner failed to impugn its integrity, the contract is
presumed, under the law, to be valid and subsisting.
DISPOSITIVE: All told, respondent Court did not commit any
reversible error which would warrant the reversal of the
assailed Decision.
WHEREFORE, the petition is hereby DENIED, and the
assailed Decision is AFFIRMED.
SO ORDERED.

5) MARIA LUISA DE LEON ESCALER and ERNESTO

ESCALER, CECILIA J. ROXAS and PEDRO ROXAS,
petitioners, vs.COURT OF APPEALS, JOSE L. REYNOSO,
now deceased, to be substituted by his heirs or legal
representatives and AFRICA V. REYNOSO, respondents.
Ponente: CUEVAS, J.:
Facts:
o On March 7, 1958, the spouses Africa V. Reynoso and
Jose L, Reynoso sold to petitioners several others, a parcel
of land, situated in Antipolo, Rizal with an area of 239,479
square meters
o The Deed of Sale 1 contained the following covenant
against eviction, to wit:
o That the VENDOR is the absolute owner of a parcel
of land ... the ownership thereof being evidenced by
an absolute deed of sale executed in her favor by
registered owner ANGELINA C. REYNOSO, ...;
o That the VENDOR warrants valid title to and
ownership of said parcel of land and further, warrant
to defend the property herein sold and conveyed,
unto the VENDEES, their heirs, and assignees, from
any and all claims of any persons whatsoever.
o On April 21, 1961, the Register of Deeds of Rizal
and A. Doronilla Resources Development, Inc. filed
Case No. 4252 before the Court of First Instance of
Rizal for the cancellation of OCT No. 1526 issued in
the name of Angelina C. Reynoso (predecessor-ininterest of private respondents-vendors) on
February 26, 1958 under Decree No. 62373, LRC
Record No. N-13783, on the ground that the
property covered by said title is already previously
registered under Transfer Certificate of Title No.

42999 issued in the name of A. Doronilla

Development, Inc.
o Petitioners as vendees filed their opposition to the
said petition.
o On June 10, 1964, an Order was issued in the said
case, the dispositive portion of which reads:
IN VIEW OF THE ABOVE CONSIDERATIONS, this Court is
constrained to set aside Decree No. 62373 issued in LRC.
Rec. No. N-13783 and the Register of Deeds of Rizal is
directed to cancel OCT No. 1526 of his office and all Transfer
Certificates of Title issued subsequently thereafter to
purchaser of said property or portions thereof, the same being
null and void, the expenses for such cancellation to be
charged to spouses Angelina Reynoso and Floro Reynoso.
The owner's duplicates in the possession of the transferees of
the property covered by OCT No. 1526 are declared null and
void and said transferees are directed to surrender to the
Register of Deeds of Rizal, said owner's duplicates for
cancellation.
The other reliefs sought for by the party oppositors are denied
the same not falling within the jurisdiction of this Court under
this proceeding.
o On August 31, 1965, herein petitioners, spouses Maria de
Leon Escaler and Ernesto Escaler and spouses Cecilia J.
Roxas and Pedro Roxas, filed Civil Case No. 9014 before
the Court of First Instance of Rizal against their vendors,
herein private respondents, spouses Jose L. Reynoso and
Africa Reynoso for the recovery of the value of the property
sold to them plus damages on the ground that the latter
have violated the vendors' "warranty against eviction."

o The complaint among others, alleged that the Order issued

in Case No. 4252 which cancelled the title of Angelina C.
Reynoso and all subsequent Transfer Certificates of Title
derived and/or emanating therefrom and which includes
the titles of petitioners, is now final, and by reason thereof
petitioners lost their right over the property sold; and that in
said Case No. 4252, the respondents were summoned
and/or given their day in court at the instance of the
petitioners.
o The respondents, as defendants, filed their answer
alleging, among others, by way of affirmative defenses that
"the cause of action, if any, of plaintiffs against defendants
have been fully adjudicated in Case No. 4252 when
plaintiffs failed to file a third-party complaint against
defendants." 4
o On August 18, 1967, petitioners, as plaintiffs, filed a Motion
for Summary Judgment, alleging the facts already averred
in the complaint, and further alleging that the defendants
were summoned and were given their day in court at the
instance of plaintiffs in Case No. 4252.
o In support of their said motion, the plaintiffs attached the
affidavit of Atty. Alberto R. Avancea who had represented
the plaintiffs in Case No. 4252 and had filed a joint
opposition in behalf of all the vendees.

o Private respondents appealed the aforesaid decision to the

then Court of Appeals assigning as sole errorthat the
lower court erred in finding that they were summoned and
were given their day in court at the instance of petitionersplaintiffs in Case No. 4252.
o In reversing the decision of the trial court and dismissing
the case, the then Court of Appeals found and so ruled that
petitioners Escalers as vendees had not given private
respondents-vendors, formal notice of the eviction case as
mandated by Arts. 1558 and 1559 of the New Civil Code.

o TRIAL COURT: judgment was rendered by the trial court,

the pertinent portion of which DECIDED FOR PLAINTIFF
ESCALERS:
Considering the foregoing motion for summary judgment and it
appearing that the defendants under a Deed of Absolute Sale
(Annex "C") have expressly warranted their valid title and
ownership of the said parcel of land and further warranted to
defend said property from any and all claims of any persons
whomever in favor of plaintiffs; that the said warranties were
violated when on June 10, 1964, an Order was promulgated
by the Court of First Instance of Rizal in Case No. 4252

Article 1548, in relation to Articles 1558. and 1559 of the New

Civil Code reads as follows:

ISSUES:
1) Whether the Court of Appeals erred in applying strictly to
the instant case the provisions of Articles 1558 and 1559 of
the new Civil Code;
2) Whether the decision of the Court of First Instance of Rizal
should have been affirmed by the Court of Appeals or at
least, the, Court of Appeals should have remanded the
case to the trial court, for hearing on the merits.
HELD: AFFIRMS CA. The petition is devoid of merit.
Consequently, it must be dismissed.

Art. 1548, Eviction shall take place whenever by a final

judgment based on a right prior to the sale or an act imputable
to the vendor, the vendee is deprived of the whole or of a part
of the thing purchased.
The vendor shall answer for the eviction even though nothing
has been said in the contract on the subject.

The contracting parties, however, may increase, diminish, or

suppress this legal obligation of the vendor.
Art. 1558. The vendor shall not be obliged to make good the
proper warranty, unless he is summoned in the suit for
eviction at the instance of the vendee. (emphasis supplied)
Art. 1559. The defendant vendee shall ask, within the time
fixed in the Rules of Court for answering the complaint that the
vendor be made as co-defendant.
In order that a vendor's liability for eviction may be enforced,
the following requisites must concur

should be made parties to the suit at the instance of

petitioners-vendees, either by way of asking that the former be
made a co-defendant or by the filing of a third-party complaint
against said vendors. Nothing of that sort appeared to have
been done by the petitioners in the instant case.
Separate Opinions
AQUINO, J., dissenting:
In my opinion, it was not possible for Escaler and Roxas to
comply strictly with articles 1558 and 1559. The eviction took
place, not in an ordinary suit wherein the vendor can be made
a co-defendant, but as an incident in the cancellation of title in
a land registration proceeding.

a) there must be a final judgment;

b) the purchaser has been deprived of the whole or part of the
thing sold;
c) said deprivation was by virtue of a right prior to the sale
made by the vendor; and
d) the vendor has been summoned and made co-defendant in
the suit for eviction at the instance of the vendee.
In the case at bar, the fourth requisitethat of being
summoned in the suit for eviction (Case No. 4252) at the
instance of the vendeeis not present.
All that the petitioners did, per their very admission, was to
furnish respondents, by registered mail, with a copy of the
opposition they (petitioners filed in the eviction suit. Decidedly,
this is not the kind of notice prescribed by the aforequoted
Articles 1558 and 1559 of the New Civil Code. The term
"unless he is summoned in the suit for eviction at the instance
of the vendee" means that the respondents as vendor/s

In such a case, the furnishing of the vendor with a copy of the

opposition was a substantial compliance with articles 1558
and 1559. It was a notice to the vendor. Africa's vendor,
Angelina, was first notified of the cancellation proceeding.
At least, Escaler and Roxas complied with article 1481 of the
old Civil Code which requires notice to the vendor. It was not
the fault of the petitioners that the eviction case assumed the
shape of a mere incident in the land registration proceeding
and not that of an ordinary contentious civil action. Africa
Reynoso could not be made a co- defendant in that incident
for cancellation of title, a summary proceeding.
A contrary view would enable Africa Reynoso to enrich herself
unjustly at the expense of the petitioners.
Makasiar, C.J., Teehankee, Melencio-Herrera, Alampay, JJ.,
concur.

6) filinvest credit v ca 178 scra 188

FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS
G.R. No. 82508 September 29, 1989
Facts:
Spouses Sy Bang were engaged in the sale of gravel produced
from crushed rocks and used for construction purposes. In order
to increase their production, they looked for a rock crusher which
Rizal Consolidated Corporation then had for sale. A brother of Sy
Bang, went to inspect the machine at the Rizal Consolidateds
plant site. Apparently satisfied with the machine, the private
respondents signified their intent to purchase the same.
Since he does not have the financing capability, Sy Bang applied
for financial assistance from Filinvest Credit Corporation. Filinvest
agreed to extend financial aid on the following conditions: (1) that
the machinery be purchased in the petitioners name; (2) that it be
leased with option to purchase upon the termination of the lease
period; and (3) that Sy Bang execute a real estate mortgage as
security for the amount advanced by Filinvest. A contract of lease
of machinery (with option to purchase) was entered into by the
parties whereby they to lease from the petitioner the rock crusher
for two years. The contract likewise stipulated that at the end of
the two-year period, the machine would be owned by Sy Bang.
3 months from the date of delivery, Sy Bang claiming that they
had only tested the machine that month, sent a letter-complaint to
the petitioner, alleging that contrary to the 20 to 40 tons per hour
capacity of the machine as stated in the lease contract, the
machine could only process 5 tons of rocks and stones per hour.
They then demanded that the petitioner make good the stipulation
in the lease contract. Sy Bang stopped payment on the remaining
checks they had issued to the petitioner.
As a consequence of the non-payment, Filinvest extrajudicially
foreclosed the real estate mortgage.

Issue:
WON the real transaction was lease or sale? SALE ON
INSTALLMENTS.
Held:
The real intention of the parties should prevail. The nomenclature
of the agreement cannot change its true essence, i.e., a sale on
installments. It is basic that a contract is what the law defines it
and the parties intend it to be, not what it is called by the parties.
It is apparent here that the intent of the parties to the subject
contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock
crusher, subject matter of the contract, would become the
property of the private respondents. This form of agreement has
been criticized as a lease only in name.
Sellers desirous of making conditional sales of their goods, but
who do not wish openly to make a bargain in that form, for one
reason or another, have frequently resorted to the device of
making contracts in the form of leases either with options to the
buyer to purchase for a small consideration at the end of term,
provided the so-called rent has been duly paid, or with stipulations
that if the rent throughout the term is paid, title shall thereupon
vest in the lessee. It is obvious that such transactions are leases
only in name. The so-called rent must necessarily be regarded as
payment of the price in installments since the due payment of the
agreed amount results, by the terms of bargain, in the transfer of
title to the lessee.
Indubitably, the device contract of lease with option to buy is at
times resorted to as a means to circumvent Article 1484,
particularly paragraph (3) thereof.Through the set-up, the vendor,
by retaining ownership over the property in the guise of being the
lessor, retains, likewise, the right to repossess the same, without

going through the process of foreclosure, in the event the vendeelessee defaults in the payment of the installments. There arises
therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the
property and, in effect, canceling the contract of sale, gets to keep
all the installments-cum-rentals already paid.
Even if there was a contract of sale, Filinvest is still not liable
because Sy Bang is presumed to be more knowledgeable, if not
experts, on the machinery subject of the contract, they should not
therefore be heard now to complain of any alleged deficiency of
the said machinery. It was Sy Bang who was negligent, not
Filinvest. Further, Sy Bang is precluded to complain because he
signed a Waiver of Warranty.
7) jm Tuazon v ca 94 scra 413,
J.M. TUASON & CO., INC., petitioner, vs.HON. COURT OF
APPEALS, ALFONSO DE LEON and ROSARIO G. DE LEON,
respondents.
Araneta, Mendoza & Papa for petitioner.
Martin B. Laurea for private respondents.
DE CASTRO, J.:
Appeal by certiorari from the decision of respondent Court of
Appeals (CA-G.R. No. 54695-R) affirming with modification the
decision of the Court of First Instance of Manila in Civil Case No.
89119, which is an action based on warranty against eviction, and
to recover the value of a subdivision lot at the time of eviction,
plus damages.
The following facts may be regarded as without any dispute:
On January 31, 1952, petitioner J.M. Tuason & Co., Inc.
executed, in favor of Ricardo de Leon, a contract to sell Lot No.
15, Block 460 of the Sta. Mesa Heights Subdivision containing an
area of 1,703.6 square meters with the agreed price of P24.60 per

square meter or a total of P41,908.56. At the execution of the

contract, Ricardo de Leon paid the down-payment of P4,190.86
and agreed to pay the balance in the monthly installment of
P498.63 including the agreed annual interest of 10% (Exhibit A).
Meanwhile, on April 10, 1953, petitioner signed a compromise
agreement with the Deudors (in another Civil Case No. Q-135,
captioned Florencio Deudor, et al. vs. J.M. Tuason, et al.).
On July 19, 1965 with the consent of the petitioner, Ricardo de
Leon transferred all his rights to the lot in favor of his parents,
herein private respondents Alfonso and Rosario de Leon (exhibit
B). On the same date, private respondents paid the outstanding
balance of the purchase price (Exhibit 1-B). On August 5, 1965
petitioner executed in favor of private respondents the deed of
sale over the lot (Exhibit C) and upon its registration, the Register
of Deeds issued to the respondents the Transfer Certificate of
Title No. 96143 (Exhibit 3; Annex B, Rollo, 39-40).
At the time of the execution of the contract to sell, the contracting
parties knew that a portion of the lot in question was actually
occupied by Ramon Rivera. However, it was their understanding
that the latter will be ejected by the petitioner from the premises
(Annex B, Id).
On May 13, 1958, herein petitioner filed a complaint of ejectment
against Ramon Rivera before the Court of First Instance of Rizal
(Civil Case No. Q-2989) and later petitioner petitioner Ricardo de
Leon and respondents Alfonso and Rosario de Leon as necessary
parties. In this Civil Case No. Q-2989, the decision of the lower
court, principally based on the compromise agreement executed
in another Civil Case No. Q-135 entitled Florencio Deudor, et al.
vs. J.M. Tuason, et al. has the following dispositive portion:
WHEREFORE, the complaint against the defendant Ramon
Rivera is hereby DISMISSSED ordering the plaintiff to enter into
an agreement with Ramon Rivera allowing said defendant to
purchase 1,050 square meters to land now covered by Lot 15,
Block 460 of the Sta. Mesa Heights Subdivision to be priced at
the prevailing cost in the year 1958 which is placed by this Court
to be P60.00 per square meters; to pay attorney's fees of

P3,000.00 to defendant Ramon Rivera, with costs against the

plaintiff ... (Emphasis supplied)
The Court of Appeals wholly affirmed this decision with costs
against plaintiff-appellant J.M. Tuason & Co., Inc. (CA-G.R. No.
38212-R), and denied the motion for reconsideration filed by the
other plaintiffs-appellants Alfonso and Rosario de Leon, stating
among others: ... We believe, however, that these questions
should be properly ventilated in the proper action which the
plaintiffs- appellants, the De Leons, may file against the plaintiffappellant (J.M. Tuason & Co., Inc.) for failure of the latter to
deliver to them the possession of the whole of Lot 15, Block 460
of the Sta. Mesa Heights Subdivision ... (Annex E, 4-5).
This decision of the Court of Appeals became final and executory
in September, 1971 when the De Leons were evicted from the
premises in question (Annex E, 6).
Pursuing the step as suggested by the Court of Appeals advising
herein private respondents to file the proper action the latter
instituted on December 5,1972 before the Court of First Instance
of Manila, Branch XXIX, Civil Case No. 89119, an action against
J.M. Tuason & Co., Inc. to enforce the vendor's warranty against
eviction or to recover the value of the land amounting to
P315,000.00, plus damages.
The lower court decided the case against herein petitioner J.M. &
Co., Inc. (defendant below) disposing as follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendant:
(1) Ordering defendant to pay plaintiffs the sum of TWO
HUNDRED
TEN
THOUSAND
(P210,000.00)
PESOS
representing the value of the 1,050 square meters at P200.00 per
square meter, from which the latter were evicted, with legal
interest from December 5, 1972, the date of filing of the
complaint;
(2) Ordering defendant to pay plaintiffs the sum of TWENTY FIVE
THOUSAND (P25,000.00) PESOS, by lay of moral damages,
TEN THOUSAND (P10,000.00) PESOS, by way of exemplary

damages, and FIFTEEN THOUSAND (P15,000.00) PESOS, for

and as attorney's fees; and
(3) For costs of this suit.
This decision of the lower court was appealed to herein
respondent Court of Appeals (CA-G.R. No. 54695-R), which on
July 2, 1975 affirmed it with the sole modification on the reduction
of the awarded moral damages from P25,000.00 to P5,000.00
(Annex B, Rollo, p. 52).
Hence, this petition before Us with the prayer that the decision of
respondent court be reversed and another rendered, 'dismissing
the complaint and ordering respondents De Leons to accept from
petitioner J.M. Tuason & Co., Inc. the sum of P60.00 per square
meter for the 1,050 square meters which the petitioner was
ordered to sell to Ramon Rivera, and to pay petitioner P30,000.00
as attorney's fees plus costs.
Petitioner J. M. Tuason & Co., Inc. alleges that dent court erred:
(1) in holding that the compromise agreement was the proximate
cause of its failure to comply with its contract to self in favor of
Ricardo de Leon; (2) in holding that it entered into the
compromise agreement without the knowledge and behind the
back of Ricardo de Leon and thereafter continued the collection of
the installments until the purchase price was fully paid and thus it
wilfully committed fraud against him; (3) in not considering that
Ricardo de Leon was guilty of bad faith in entering into the
contract to sell and therefore he is not entitled to the warranty
against eviction; and (4) in granting moral and exemplary
damages.
The real point in issue is whether respondents De Leon are
entitled to the vendor's warranty against eviction and damages.
The appellate court, in this action of warranty against eviction,
found that petitioner J.M. Tuason & Co., Inc. failed to comply with
its obligation to transfer ownership over the lot to the De Leons
due to the compromise agreement it entered with the Deudors,
and that petitioner is guilty of "wilful deception, intentional
forsaking of one to whom defendant was bound in a contract to

convey, and worse yet, even at that, after the compromise,

defendant still continued to collect installments from buyer ...
Contrary to these findings, this Court holds that it was not
petitioner's own making that it executed the compromise
agreement with the Deudors. This agreement was sanctioned by
the court after the Deudors filed an action against petitioner in
Civil Case No. Q-135 entitled "Florencio Deudor, et al. vs. J.M.
Tuason et al." The prior right of Ramon Rivera to purchase the lot
in litigation was based more on his prior occupancy to the same
since 1949, about which fact respondents De Leon were informed
by petitioner at the time of the execution of the contract to sell.
The execution of the compromise agreement merely recognized
this prior right, under the condition as stipulated in said
agreement, that it was possible to do so.
Petitioner claims, without having been contradicted, that it
executed the compromise agreement with the Deudors in the
honest belief that the lots it already sold. like the lot in question,
were excluded from the coverage of the agreement. This claim
finds support in paragraph "SEVENTH" of the compromise
agreement which reads ... It shall be the joint and solidary
obligation of the Deudors to make the buyers of the lots
purportedly sold by them recognize the title of the OWNERS over
the property purportedly bought by them, and to make them sign,
whenever possible, new contracts of purchase for the said
property at the current prices and terms specified by the
OWNERS in their sales of lots in their subdivision known as Sta.
Mesa Heights Subdivision ... " (Annex C, Rollo, p. 55). In fact, in
their brief as appellants in CA-G.R. No. 38212-R, private
respondents stated that "as correctly pointed out in the brief for
plaintiff-appellant, it was not the intention of the signatories of the
Compromise Agreement to include within its coverage those
parcels of land already sold by plaintiff-appellant (petitioner
herein) to third parties," and "We reproduce herein by way of
reference the arguments in pp. 1-2 to 39 of plaintiffs- appellants'
brief." (See Annex C, Petition, pp. 3-4). Private respondents
should not be allowed to turn back from what they stated in their

brief in CA-G.R. No. 38212-R, to impute "wilful deception" as the

respondent court said in its decision under review.
This particular stipulation in the compromise agreement discloses
an understanding between the petitioner and the Deudors that the
buyers of lots from the Deudors, like Ramon Rivera, may, acquire
lots from the subdivision being sold by petitioner and sign new
contracts of purchase with the latter 6 whenever possible", or only
when said lots have not already been sold to third 'parties.
Relying on the above-quoted provision, petitioner believed in
good faith that said lot sold to the De Leons would not be
adversely affected. Nonetheless, with the inevitable and admitted
fact that Ramon Rivera was a prior occupant thereof, petitioner
was compelled by judicial fiat in Civil Case No. 2989 of the Court
of First Instance of Rizal, to recognize the preferential right of
Rivera to rightfully purchase the lot. This fact is not of itself a proof
under the circumstance just cited, of bad faith on the part of the
petitioner or that it is guilty of committing fraud and deception
upon the respondents as the respondent court found. Its good
faith in with Ricardo de Leon who was the one branded as a
"buyer in bad faith" by the Court of Appeals in its decision
affirming of the Court of First Instance of Rizal in CA-G.R. No. No.
38212-R seems beyond question.
If petitioner continued the collection of the outstanding monthly
after the execution of the compromise agreement on April
10,1953 pursuant to the agreements embodied in the contract to
sell (Exhibit A), its act only proved its honest belief that it found no
barrier against the enforceability of the contract to sell, the terms
of which have the force of law between the parties and must be
complied with in good faith (Lazo vs. Republic Surety & Insurance
Co., Inc., 311 SCRA 329; Ramos vs. Central Bank of the
Philippines, 41 SCRA 565; Enriquez vs. Ramos, 73 SCRA 116;
De Cortes vs, Venturanza, 79 SCRA 709). The collection of the
monthly installment payments terminated upon the fun payment of
the purchase price on July 19, 1965, long before the ejectment
case against Ramon Rivera was finally resolved by the appellate
court in September, 1971 (Civil Case No. Q-2989; CA-G.R. No.

38212-R). As properly claimed by the petitioner, it had the right to

hopefully expect to win the ejectment case. It was not exactly its
fault that it lost the case. Private respondents joined in a common
cause with it.
The subsequent execution of a deed of sale upon the total
payment of the purchase price in favor of herein respondents on
August 5, 1965 in lieu of the previous contract to sell made in
favor of Ricardo de Leon, through which deed of sale the
respondents acquired a transfer certificate of title over the
questioned lot, is further evidence of the honesty and good faith of
petitioner in dealing with private respondents. Petitioner owns
vast tracts of land, with the lot in question possibly put an
insignificant part in terms of value, and it would be much too
difficult to make the serious imputations made to petitioner.
In fulfillment of the assurance made to eject the occupant from the
lot, petitioner, on May 13, 1958, later joined by Ricardo de Leon
and respondents Alfonso and Rosario de Leon, instituted a
complaint of ejectment against Ramon Rivera in Civil Case No. Q2989. Unfortunately, however, the decision of the lower court
dismissing the complaint of ejectment was affirmed by the
appellate court in CA-G.R. No. 38212-R, which decision, of the
latter upon its finality in September, 1971 resulted in the eviction
of herein respondents from the lot. It is meet, at this juncture, to
repeat that in its decision, the Court of Appeals branded Ricardo
de Leon as a buyer in bad faith.
In manifesting its desire to compensate respondents, as disclosed
by prayer in the instant petition in the sum of P60.00 per square
meter for the 1,050 meters which it was ordered by the courts, in
Civil Case No. Q-2989 and CA-G.R. No. 38212-R, to sell to
Ramon Rivera, again reveals how fair petitioner would want to be
to private respondents, not to defraud them as the respondent
court would ascribe such base intent to petitioner, which is by no
means not a disreputable but a respectable, corporation.
For all the foregoing circumstances, We have no hesitation to give
to petitioner the benefit of the doubt of its having acted in good
faith, which is always presumed,, without any intention of taking

advantage of the other party dealing with it. "Good faith consists
in an honest intention to abstain from taking any unconscientious
advantage of another. Good faith is an opposite of fraud and of
bad faith and its non-existence must be established by competent
proof." (Leung Yee vs. Strong Machinery Company, 37 PhiL 645;
Cui vs. Henson, 51 Phil. 606, 612; Fule vs. De Legare, 7 SCRA
351).
Moreover, at the time of the execution of the contract to sell it is
an admitted fact that Ricardo de Leon knew that a third party was
occupying a part of the lot subject of the sale. Ricardo de Leon
ought to have known that he was buying a property with the
distinct possibility of not being able to possess and own the land
due to the occupancy of another person on the same. So there
had to be an understanding between him and the petitioner for the
latter to eject the occupant, something which, by the facts then
obtaining and the law relevant thereto, would make the ejectment
more speculative than certain. Nonetheless, Ricardo de Leon
knowingly assumed the risk when he bought the, land, and was
even called a vendee in bad faith by the Court of Appeals in doing
so, clearly not an innocent purchaser in good faith. If petitioner
that it would eject Ramon Rivera, he did so, not knowing that the
compromise agreement would stand on the way, as it had
thought, in all good faith, that paragraph 7 of the compromise
agreement excluded the lot in question, having been already sold
to Ricardo de Leon before the agreement was executed in court.
This Court is impelled to declare that private respondents were
lacking in good faith for knowing beforehand, at the time of the
sale, the presence of an obstacle to their taking over the
possession of the land, which, in effect, would amount to eviction
from said land, and still they bought the land without first
removing that obstacle. (Angelo vs. Pacheco, 56 Phil. 70; Andaya
vs. Manansala, 107 Phil 1151).
One who purchases real estate with knowledge of a defect or lack
of title in his vendor cannot claim that he has acquired title thereto
in good faith, as against the true owner of the land or of an
interest therein; and the same rule must be applied to one who

has knowledge of facts which should have put him upon such
inquiry and investigation as might be necessary to acquaint him
with the defects in the title of his vendor. A purchaser cannot
close his eyes to facts which should put a reasonable man upon
his guard and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor (Leung
Yee vs. Strong Machinery Company, supra; Manancop Jr. vs.
Cansino, 1 SCRA 572; Paylago vs. Jarabe, 22-SCRA 1247;
Barrios vs. Court of Appeals, 78 SCRA 427; Emphasis supplied).
Without being shown to be vendees in good faith, herein
respondents are not entitled to the warranty against eviction nor
are they On titled to recover damages (Article 1555 of the Civil
Code). However, for justice and equity sake, and in consonance
with the salutary principle of non-enrichment at another's
expense, herein petitioner J.M. Tuason & Co., Inc. should
compensate respondents De Leons in the total sum of ONE
HUNDRED TWENTY SIX THOUSAND (P126,000.00) PESOS,
representing the aggregate value of the 1,050 square meters
(which petitioner was judicially ordered to sell to Ramon Rivera at
the year 1958 prevailing rate of P60.00 per square meter) at the
value of P120.00 per square meter, doubling the price of P60.00
per square meter which amount petitioner voluntarily offered to
pay herein respondents following how indemnity for death had
been raised from P6,000.00 to P12,060.00 (People vs. Pantoja,
25 SCRA 468, 474 [1968]) based on grounds of equity, due to the
reduced purchasing power of the peso, with the legal rate of
interest from December 5, 1972, the date respondents filed their
complaint, until the said total sum is fully paid.
WHEREFORE, the judgment of respondent court is hereby
modified by ordering petitioner J.M. Tuason & Co., Inc. to pay the
respondents the amount of ONE HUNDRED TWENTY-SIX
THOUSAND (Pl26,000.00) PESOS plus the legal rate of interest
from December 5, 1972, the date of filing the complaint until the s
aid total sum is fully paid. No costs.
8) Santiago land v ca 276 scra 674

SANTIAGO
LAND
DEVELOPMENT
CORPORATION,
petitioner, vs. The HONORABLE COURT OF APPEALS and
the HEIRS OF NORBERTO J. QUISUMBING, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision of the
Court of Appeals, annulling certain orders issued by the Regional
Trial Court of Makati, Branch 62 in Civil Case No. 10513, entitled
Norberto J. Quisumbing v. Philippine National Bank, to wit:
(1) Order, dated March 30, 1990, granting petitioner Santiago
Land Development Corporation's motion for intervention and
order admitting its answer in intervention;
(2) Order, dated March 21, 1991, denying private respondent
Quisumbing's motion to quash or disallow interrogatories and
(3) Order, dated July 30, 1991, denying Quisumbing's motion for
reconsideration.
The facts are as follows:
Norberto J. Quisumbing brought an action against the Philippine
National Bank to enforce an alleged right to redeem certain real
properties foreclosed by the Philippine National Bank.
Quisumbing brought the suit as assignee of the mortgagor,
Komatsu Industries (Phils.), Incorporated.
On November 21, 1989, with notice of the pending civil action,[1]
petitioner Santiago Land Development Corporation purchased
from PNB one of the properties subject of the litigation, situated
along Pasong Tamo Extension in Makati, for P90 Million.[2]
On December 11, 1989, petitioner SLDC filed a motion to
intervene, with its answer in intervention attached, alleging that it
was the transferee pendente lite of the property and that any
adverse ruling or decision which might be rendered against PNB
would necessarily affect it (petitioner).[3] In its attached answer,
SLDC, aside from adopting the answer filed by PNB, raised as
affirmative defenses the trial court's lack of jurisdiction based on
the alleged failure of plaintiff Quisumbing to pay the docket fee

and Quisumbing's alleged lack of cause of action against the PNB

due to the invalidity of the deed of assignment to him.[4]
On February 7, 1990, Quisumbing opposed SLDC's motion for
intervention. He argued that SLDC's interest in the subject
property was a mere contingency or expectancy, which was
dependent on any judgment which might be rendered for or
against PNB as transferor. He further argued that the allowance
of SLDC's motion would only make the proceedings complicated,
expensive and interminable.[5]
On March 30, 1990, the lower court issued an order granting
petitioner's motion for intervention and admitting its answer in
intervention. The court also directed the substitution of heirs in
view of Norberto J. Quisumbing's demise and submitted for
resolution PNB's motion to dismiss.[6]
Petitioner SLDC, as intervenor, then served interrogatories upon
private respondents and moved for the production, inspection and
copying of certain documents.[7] SLDC wanted to know whether
there were documents to show that a consideration had been paid
for the assignment of the right of redemption; if so, whether
payment was made in cash or by check; and, if it was by check, in
what banks the checking accounts were kept and whether the
checks were still in its custody or possession.
Private respondents filed a motion to quash or disallow the
interrogatories, which petitioner opposed. Subsequently, private
respondents filed a reply to which petitioner SLDC responded by
filing a rejoinder.[8]
On March 21, 1991, the trial court denied private respondents'
motion to quash or disallow interrogatories and instead granted
petitioner SLDC's motion for the production, inspection and
copying of certain documents.[9] Private respondents moved for a
reconsideration, but their motion was denied by the lower court in
its order of July 30, 1991. Private respondents therefore filed a
petition for certiorari with the Court of Appeals which rendered the
decision, now the subject of this review, setting aside the orders
dated March 30, 1990, March 21, 1991, and July 30, 1991 of the
trial court.

In its petition before the Court, SLDC contends that the Court of
Appeals erred thus:
[1]
THE COURT OF APPEALS GRAVELY ABUSED ITS
DISCRETION, EXCEEDED ITS JURISDICTION AND/OR WAS
PATENTLY IN ERROR IN TAKING COGNIZANCE OF AND
RULING UPON THE FIRST ISSUE RAISED BY PRIVATE
RESPONDENTS IN CA-G.R. SP NO. 25826 WHEN THIS ISSUE
WAS NOT EVEN RAISED BY THEM BEFORE THE TRIAL
COURT.
[2]
THE COURT OF APPEALS GRAVELY ABUSED ITS
DISCRETION EXCEEDED ITS JURISDICTION AND/OR WAS
PATENTLY IN ERROR IN TAKING COGNIZANCE OF THE
PETITION RAISED BY PRIVATE RESPONDENTS IN CA-G.R.
SP NO. 25826 SINCE THEY DID NOT RAISE ANY
JURISDICTIONAL ERROR THEREIN BUT ONLY RAISED
QUESTIONS AS TO PROCEDURAL ORDERS ISSUED BY THE
TRIAL COURT IN THE RIGHTFUL EXERCISE OF ITS
JURISDICTION AND DISCRETION.
[3]
EVEN IF THE COURT OF APPEALS WAS
AUTHORIZED TO PASS UPON THE PROCEDURAL QUESTION
RAISED BY PRIVATE RESPONDENTS IN CA-G.R. SP NO.
25826, IT ERRED IN BARRING THE TRIAL COURT, IN THE
SOUND EXERCISE OF ITS SOUND DISCRETION, FROM
ALLOWING PETITIONER TO INTERVENE IN ONE OF THE
CLASSIC OR RECOGNIZED INSTANCES OF INTERVENTION
IN THE CIVIL ACTION UNDER SECTION 2 OF RULE 12 OF
THE RULES OF COURT DESPITE COMPLIANCE WITH THE
STANDARDS FOR INTERVENTION PRESCRIBED THEREIN.
[4]
THE COURT OF APPEALS DENIED PETITIONER OF
THE RIGHT TO GENUINELY OR EFFECTIVELY DEFEND
ITSELF IN THE CIVIL ACTION DESPITE ITS HAVING
ACQUIRED A REAL AND SUBSTANTIVE INTEREST IN THE
SUBJECT MATTER OF THE CIVIL ACTION.
[5]
PRIVATE RESPONDENTS FAILED TO OBJECT TO
THE INTERROGATORIES IN THE MANNER PRESCRIBED BY
THE RULES OF COURT AND THEY WERE THEREFORE

BARRED FROM RAISING THEIR OBJECTIONS TO THE

INTERROGATORIES.
[6]
THE TRIAL COURT CORRECTLY DENIED PRIVATE
RESPONDENTS' MOTION TO QUASH PETITIONER'S
INTERROGATORIES.[10]
Petitioner's contentions are without merit.
Petitioner's first contention is without basis in fact. The fact is that
the issue regarding the propriety of petitioner's motion for
intervention was raised by private respondents before the trial
court in their opposition to said motion.[11] Moreover, petitioner
SLDC is estopped from questioning the appellate court's ruling on
this issue since petitioner did not object to its consideration by the
court in its comment on the petition filed in that court.[12]
Nor is it true that private respondents' petition for certiorari in the
Court of Appeals did not raise a jurisdictional question. The
petition specifically charged the RTC with gravely abusing its
discretion in issuing its questioned orders, in granting petitioner's
motion for intervention and in denying private respondents' motion
to quash or disallow interrogatories. Clearly, the Court of Appeals
correctly took cognizance of the issue regarding the propriety of
petitioner SLDC's motion for intervention.
This brings us to the main question raised in the third and fourth
assignments of errors, namely, whether petitioner, as transferee
pendente lite of the property in litigation has a right to intervene.
Rule 12, 2 of the Rules of Court provides:
Sec. 2.
Intervention. A person may, before or during a
trial be permitted by the court, in its discretion, to intervene in an
action, if he has legal interest in the matter in litigation, or in the
success of either of the parties, or an interest against both, or
when he is so situated as to be adversely affected by a
distribution or other disposition of property in the custody of the
court or of an officer thereof.
The question is whether this provision applies to petitioner in view
of Rule 3, 20 governing transfers of interest pendente lite such
as was alleged in the trial court by petitioner. This provision
reads:

Sec. 20.
Transfer of interest. In case of any transfer of
interest, the action may be continued by or against the original
party, unless the court upon motion directs the person to whom
the interest is transferred to be substituted in the action or joined
with the original party.
In applying the rule on transfer of interest pendente lite (Rule 3,
20) rather than the rule on intervention (Rule 12, 2), the Court
of Appeals stated:
While it may be that respondent SLDC has a legal interest in the
subject matter of the litigation, its interest as transferee pendente
lite is different from that of an intervenor. Section 2 of Rule 12
refers to all other persons or entities whose legal interests stand
to be affected by a litigation, but it does not cover a transferee
pendente lite because such transferee is already specifically
governed by Section 20 of Rule 3. Otherwise, Section 20 of Rule
3 on transferees pendente lite would be rendered ineffectual and
useless. Since it specifically covers transferees pendente lite, any
such transferee cannot just disregard said provision and instead,
opt to participate as an intervenor when it is more convenient for it
to do so. Indeed, there has never been a rule, authority or
decision holding that a transferee pendente lite has the option to
avail of either Rule 3, Section 20 or Rule 12, Section 2.
. . . It has been consistently held that a transferee pendente lite
stands in exactly the same position as its predecessor-in-interest,
that is, the original defendant. . . . However, should the transferee
pendente lite choose to participate in the proceedings, it can only
do so as a substituted defendant or as a joint party-defendant.
The transferee pendente lite is a proper but not an indispensable
party as it would in any event be bound by the judgment against
his predecessor-in-interest. This would be true even if
respondent SLDC is not formally included as a party-defendant
through an amendment of the complaint. As such the transferee
pendente lite is bound by the proceedings already had in the case
before the property was transferred to it (Jocson vs. CA, 183
SCRA 589, citing Fetalino vs. Sanz, 44 Phil. 691; Associacion de

Agricultores de Talisay Silay, Inc. vs. Talisay Silay Milling Co., Inc.,
88 SCRA 294)
Petitioner asserts that Rule 12, 2 and Rule 3, 20 can be applied
interchangeably and that the Court of Appeals is in error in its
insistence on the application of Rule 3, 20 solely. Petitioner thus
overlooks a substantial difference in the nature and
consequences of the two rules. The purpose of Rule 12, 2 on
intervention is to enable a stranger to an action to become a party
to protect his interest and the court incidentally to settle all
conflicting claims.[13] On the other hand, the purpose of Rule 3,
20 is to provide for the substitution of the transferee pendente
lite precisely because he is not a stranger but a successor-ininterest of the transferor, who is a party to the action. As such, a
transferee's title to the property is subject to the incidents and
results of the pending litigation and is in no better position than
the vendor in whose shoes he now stands.[14] As held in Fetalino
v. Sanz:[15]
As such, he stands exactly in the shoes of his predecessor in
interest, the original defendant, and is bound by the proceedings
had in the case before the property was transferred to him. He is
a proper, but not an indispensable, party as he would, in any
event, have been bound by the judgment against his predecessor.
How then can it legally be possible for a transferee pendente lite
to still intervene when, for all intents and purposes, the law
already considers him joined or substituted in the pending action,
commencing at the exact moment when the transfer of interest is
perfected between the original party-transferor and the transferee
pendente lite? And this even if the transferee is not formally
joined as a party in the action. On the other hand, one who
intervenes has a choice not to intervene and thus not to be
concluded by any judgment that may be rendered between the
original parties to the action.
Because the transferee pendente lite simply takes the place of the
transferor, he is barred from presenting a new or different claim.
The appellate court therefore properly refused to pass upon

petitioner's attempt to inquire into the consideration paid for the

assignment of the right of redemption to the late Norberto J.
Quisumbing, as well as petitioner's claim that the transfer of
interest to Quisumbing was made in violation of Art. 1491(5) of the
Civil Code, prohibiting attorneys from acquiring property or
interest which is the object of the litigation in which they take part
as such. This matter was never alleged by PNB in its answer to
Quisumbing's complaint.
Since petitioner is a transferee pendente lite with notice of the
pending litigation between Quisumbing and PNB, petitioner
stands exactly in the shoes of defendant PNB and is bound by
any judgment or decree which may be rendered for or against
PNB.[16] Under Rule 3, 20, the action may be continued against
PNB, the original defendant. In the alternative although it was
not essential that the transferee be substituted and the latter insist
on such substitution the trial court could have directed that
petitioner be either substituted as party-defendant or joined with
defendant PNB.[17]
But petitioner could not be allowed to intervene for the reason
already stated that the conditions under which one may be
allowed to intervene are significantly far different from the
conditions under which a transferee pendente lite is substituted in
place of the original party. For the fact is that an intervenor can
withdraw and refuse to be bound by any decision that may be
rendered in the case but the fortunes of a transferee pendente
lite, although not formally impleaded as a party, are bound up with
those of his transferor.
With respect to the fifth and sixth assignments of errors, suffice it
to say that because petitioner did not have a right to intervene, it
did not have the right to file interrogatories or seek the production
of documents by private respondents, either.
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED.