LAW ON SALES SUMMER

2016
Contract of Sale Distinguish from:
Barter or Exchange (Art. 1438, 1638, 1641)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-69259 January 26, 1988
DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES,
INC., respondents.

GUTIERREZ, JR., J.:

The petitioners question the decision of the Intermediate Appellate Court
which sustained the private respondent's contention that the deed of
exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a parcel of
land to Delpher Trades Corporation in exchange for 2,500 shares of stock was
actually a deed of sale which violated a right of first refusal under a lease
contract.
Briefly, the facts of the case are summarized as follows:
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the
owners of 27,169 square meters of real estate Identified as Lot.
No. 1095, Malinta Estate, in the Municipality of Polo (now
Valenzuela), Province of Bulacan (now Metro Manila) which is
covered by Transfer Certificate of Title No. T-4240 of the Bulacan
land registry.
On April 3, 1974, the said co-owners leased to Construction
Components International Inc. the same property and providing
that during the existence or after the term of this lease the lessor
should he decide to sell the property leased shall first offer the
same to the lessee and the letter has the priority to buy under
similar conditions (Exhibits A to A-5)

LAW ON SALES SUMMER

2016
On August 3, 1974, lessee Construction Components
International, Inc. assigned its rights and obligations under the
contract of lease in favor of Hydro Pipes Philippines, Inc. with the
signed conformity and consent of lessors Delfin Pacheco and
Pelagia Pacheco (Exhs. B to B-6 inclusive)
The contract of lease, as well as the assignment of lease were
annotated at he back of the title, as per stipulation of the parties
(Exhs. A to D-3 inclusive)
On January 3, 1976, a deed of exchange was executed between
lessors Delfin and Pelagia Pacheco and defendant Delpher Trades
Corporation whereby the former conveyed to the latter the
leased property (TCT No.T-4240) together with another parcel of
land also located in Malinta Estate, Valenzuela, Metro Manila (TCT
No. 4273) for 2,500 shares of stock of defendant corporation with
a total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 4445, Rollo)
On the ground that it was not given the first option to buy the leased
property pursuant to the proviso in the lease agreement, respondent Hydro
Pipes Philippines, Inc., filed an amended complaint for reconveyance of Lot.
No. 1095 in its favor under conditions similar to those whereby Delpher
Trades Corporation acquired the property from Pelagia Pacheco and Delphin
Pacheco.
After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff.
The dispositive portion of the decision reads:
ACCORDINGLY, the judgment is hereby rendered declaring the
valid existence of the plaintiffs preferential right to acquire the
subject property (right of first refusal) and ordering the
defendants and all persons deriving rights therefrom to convey
the said property to plaintiff who may offer to acquire the same
at the rate of P14.00 per square meter, more or less, for Lot 1095
whose area is 27,169 square meters only. Without
pronouncement as to attorney's fees and costs. (Appendix I;
Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)
The lower court's decision was affirmed on appeal by the Intermediate
Appellate Court.
The defendants-appellants, now the petitioners, filed a petition for certiorari
to review the appellate court's decision.

LAW ON SALES SUMMER

2016
We initially denied the petition but upon motion for reconsideration, we set
aside the resolution denying the petition and gave it due course.
The petitioners allege that:
The denial of the petition will work great injustice to the
petitioners, in that:
1. Respondent Hydro Pipes Philippines, Inc, ("private
respondent") will acquire from petitioners a parcel
of industrial land consisting of 27,169 square meters or 2.7
hectares (located right after the Valenzuela, Bulacan exit of the
toll expressway) for only P14/sq. meter, or a total of P380,366,
although the prevailing value thereof is approximately P300/sq.
meter or P8.1 Million;
2. Private respondent is allowed to exercise its right of first
refusal even if there is no "sale" or transfer of actual ownership
interests by petitioners to third parties; and
3. Assuming arguendo that there has been a transfer of actual
ownership interests, private respondent will acquire the
land not under "similar conditions" by which it was transferred to
petitioner Delpher Trades Corporation, as provided in the same
contractual provision invoked by private respondent. (pp. 251252, Rollo)
The resolution of the case hinges on whether or not the "Deed of Exchange"
of the properties executed by the Pachecos on the one hand and the Delpher
Trades Corporation on the other was meant to be a contract of sale which, in
effect, prejudiced the private respondent's right of first refusal over the
leased property included in the "deed of exchange."
Eduardo Neria, a certified public accountant and son-in-law of the late
Pelagia Pacheco testified that Delpher Trades Corporation is a family
corporation; that the corporation was organized by the children of the two
spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses
Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land
leased to Hydro Pipes Philippines in order to perpetuate their control over the
property through the corporation and to avoid taxes; that in order to
accomplish this end, two pieces of real estate, including Lot No. 1095 which
had been leased to Hydro Pipes Philippines, were transferred to the
corporation; that the leased property was transferred to the corporation by
virtue of a deed of exchange of property; that in exchange for these

LAW ON SALES SUMMER

2016
properties, Pelagia and Delfin acquired 2,500 unissued no par value shares of
stock which are equivalent to a 55% majority in the corporation because the
other owners only owned 2,000 shares; and that at the time of incorporation,
he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes
Philippines. In the petitioners' motion for reconsideration, they refer to this
scheme as "estate planning." (p. 252, Rollo)
Under this factual backdrop, the petitioners contend that there was actually
no transfer of ownership of the subject parcel of land since the Pachecos
remained in control of the property. Thus, the petitioners allege: "Considering
that the beneficial ownership and control of petitioner corporation remained
in the hands of the original co-owners, there was no transfer of actual
ownership interests over the land when the same was transferred to
petitioner corporation in exchange for the latter's shares of stock. The
transfer of ownership, if anything, was merely in form but not in substance.
In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco
co-owners; hence the corporation and the co-owners should be deemed to
be the same, there being in substance and in effect an Identity of interest."
(p. 254, Rollo)
The petitioners maintain that the Pachecos did not sell the property. They
argue that there was no sale and that they exchanged the land for shares of
stocks in their own corporation. "Hence, such transfer is not within the letter,
or even spirit of the contract. There is a sale when ownership is transferred
for a price certain in money or its equivalent (Art. 1468, Civil Code) while
there is a barter or exchange when one thing is given in consideration of
another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo)
On the other hand, the private respondent argues that Delpher Trades
Corporation is a corporate entity separate and distinct from the Pachecos.
Thus, it contends that it cannot be said that Delpher Trades Corporation is
the Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco,
having treated Delpher Trades Corporation as such a separate and distinct
corporate entity, is not a party who may allege that this separate corporate
existence should be disregarded. It maintains that there was actual transfer
of ownership interests over the leased property when the same was
transferred to Delpher Trades Corporation in exchange for the latter's shares
of stock.
We rule for the petitioners.
After incorporation, one becomes a stockholder of a corporation by
subscription or by purchasing stock directly from the corporation or from
individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing

LAW ON SALES SUMMER

2016
Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their
properties, the Pachecos acquired 2,500 original unissued no par value
shares of stocks of the Delpher Trades Corporation. Consequently, the
Pachecos became stockholders of the corporation by subscription "The
essence of the stock subscription is an agreement to take and pay for
original unissued shares of a corporation, formed or to be formed." (Rohrlich
243, cited in Agbayani, Commentaries and Jurisprudence on the Commercial
Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the
Pachecos took no par value shares in exchange for their properties.
A no-par value share does not purport to represent any stated
proportionate interest in the capital stock measured by value,
but only an aliquot part of the whole number of such shares of
the issuing corporation. The holder of no-par shares may see
from the certificate itself that he is only an aliquot sharer in the
assets of the corporation. But this character of proportionate
interest is not hidden beneath a false appearance of a given sum
in money, as in the case of par value shares. The capital stock of
a corporation issuing only no-par value shares is not set forth by
a stated amount of money, but instead is expressed to be
divided into a stated number of shares, such as, 1,000 shares.
This indicates that a shareholder of 100 such shares is an aliquot
sharer in the assets of the corporation, no matter what value
they may have, to the extent of 100/1,000 or 1/10. Thus, by
removing the par value of shares, the attention of persons
interested in the financial condition of a corporation is focused
upon the value of assets and the amount of its debts. (Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the
Philippines, Vol. III, 1980 Edition, p. 107).
Moreover, there was no attempt to state the true or current market value of
the real estate. Land valued at P300.00 a square meter was turned over to
the family's corporation for only P14.00 a square meter.
It is to be stressed that by their ownership of the 2,500 no par shares of
stock, the Pachecos have control of the corporation. Their equity capital is
55% as against 45% of the other stockholders, who also belong to the same
family group.
In effect, the Delpher Trades Corporation is a business conduit of the
Pachecos. What they really did was to invest their properties and change the
nature of their ownership from unincorporated to incorporated form by
organizing Delpher Trades Corporation to take control of their properties and
at the same time save on inheritance taxes.

LAW ON SALES SUMMER

2016
As explained by Eduardo Neria:
xxx xxx xxx
ATTY. LINSANGAN:
Q Mr. Neria, from the point of view of taxation, is
there any benefit to the spouses Hernandez and
Pacheco in connection with their execution of a deed
of exchange on the properties for no par value shares
of the defendant corporation?
A Yes, sir.
COURT:
Q What do you mean by "point of view"?
A To take advantage for both spouses and
corporation in entering in the deed of exchange.
ATTY. LINSANGAN:
Q (What do you mean by "point of view"?) What are
these benefits to the spouses of this deed of
exchange?
A Continuous control of the property, tax exemption
benefits, and other inherent benefits in a corporation.
Q What are these advantages to the said spouses
from the point of view of taxation in entering in the
deed of exchange?
A Having fulfilled the conditions in the income tax
law, providing for tax free exchange of property, they
were able to execute the deed of exchange free from
income tax and acquire a corporation.
Q What provision in the income tax law are you
referring to?
A I refer to Section 35 of the National Internal
Revenue Code under par. C-sub-par. (2) Exceptions

LAW ON SALES SUMMER

2016
regarding the provision which I quote: "No gain or
loss shall also be recognized if a person exchanges
his property for stock in a corporation of which as a
result of such exchange said person alone or
together with others not exceeding four persons
gains control of said corporation."
Q Did you explain to the spouses this benefit at the
time you executed the deed of exchange?
A Yes, sir
Q You also, testified during the last hearing that the
decision to have no par value share in the defendant
corporation was for the purpose of flexibility. Can you
explain flexibility in connection with the ownership of
the property in question?
A There is flexibility in using no par value shares as
the value is determined by the board of directors in
increasing capitalization. The board can fix the value
of the shares equivalent to the capital requirements
of the corporation.
Q Now also from the point of taxation, is there any
flexibility in the holding by the corporation of the
property in question?
A Yes, since a corporation does not die it can
continue to hold on to the property indefinitely for a
period of at least 50 years. On the other hand, if the
property is held by the spouse the property will be
tied up in succession proceedings and the
consequential payments of estate and inheritance
taxes when an owner dies.
Q Now what advantage is this continuity in relation to
ownership by a particular person of certain
properties in respect to taxation?
A The property is not subjected to taxes on
succession as the corporation does not die.

LAW ON SALES SUMMER

2016
Q So the benefit you are talking about are
inheritance taxes?
A Yes, sir. (pp. 3-5, tsn., December 15, 1981)
The records do not point to anything wrong or objectionable about this
"estate planning" scheme resorted to by the Pachecos. "The legal right of a
taxpayer to decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law permits, cannot be doubted."
(Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing
Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).
The "Deed of Exchange" of property between the Pachecos and Delpher
Trades Corporation cannot be considered a contract of sale. There was no
transfer of actual ownership interests by the Pachecos to a third party. The
Pacheco family merely changed their ownership from one form to another.
The ownership remained in the same hands. Hence, the private respondent
has no basis for its claim of a light of first refusal under the lease contract.
WHEREFORE, the instant petition is hereby GRANTED, The questioned
decision and resolution of the then Intermediate Appellate Court are
REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-V79 of the then Court of First Instance of Bulacan is DISMISSED. No costs.
SO ORDERED.
Contract for Piece of Work (Arts. 1467 1713 to 1715)
THIRD DIVISION

[G.R. No. 52267. January 24, 1996]

ENGINEERING & MACHINERY CORPORATION, petitioner, vs. COURT

OF APPEALS and PONCIANO L. ALMEDA, respondents.
DECISION
PANGANIBAN, J.:
Is a contract for the fabrication and installation of a central airconditioning system in a building, one of sale or for a piece of work? What is

LAW ON SALES SUMMER

2016
the prescriptive period for filing actions for breach of the terms of such
contract?
These are the legal questions brought before this Court in this Petition for
review on certiorari under Rule 45 of the Rules of Court, to set aside the
Decision[1] of the Court of Appeals[2]in CA-G.R. No. 58276-R promulgated on
November 28, 1978 (affirming in toto the decision[3] dated April 15, 1974 of
the then Court of First Instance of Rizal, Branch II, [4] in Civil Case No. 14712,
which ordered petitioner to pay private respondent the amount needed to
rectify the faults and deficiencies of the air-conditioning system installed by
petitioner in private respondents building, plus damages, attorneys fees and
costs).
By a resolution of the First Division of this Court dated November 13,
1995, this case was transferred to the Third. After deliberating on the various
submissions of the parties, including the petition, record on appeal, private
respondents comment and briefs for the petitioner and the private
respondent, the Court assigned the writing of this Decision to the
undersigned, who took his oath as a member of the Court on October 10,
1995.
The Facts
Pursuant to the contract dated September 10, 1962 between petitioner
and private respondent, the former undertook to fabricate, furnish and install
the air-conditioning system in the latters building along Buendia
Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish the
materials, labor, tools and all services required in order to so fabricate and
install said system. The system was completed in 1963 and accepted by
private respondent, who paid in full the contract price.
On September 2, 1965, private respondent sold the building to the
National Investment and Development Corporation (NIDC). The latter took
possession of the building but on account of NIDCs noncompliance with the
terms and conditions of the deed of sale, private respondent was able to
secure judicial rescission thereof. The ownership of the building having been
decreed back to private respondent, he re-acquired possession sometime in
1971. It was then that he learned from some NIDC employees of the defects
of the air-conditioning system of the building.
Acting on this information, private respondent commissioned Engineer
David R. Sapico to render a technical evaluation of the system in relation to
the contract with petitioner. In his report, Sapico enumerated the defects of

LAW ON SALES SUMMER

2016
the system and concluded that it was not capable of maintaining the desired
room temperature of 76F - 2F (Exhibit C)[5]
On the basis of this report, private respondent filed on May 8, 1971 an
action for damages against petitioner with the then Court of First Instance of
Rizal (Civil Case No. 14712). The complaint alleged that the air-conditioning
system installed by petitioner did not comply with the agreed plans and
specifications. Hence, private respondent prayed for the amount of P2
10,000.00 representing the rectification cost, P100,000.00 as damages and
P15,000.00 as attorneys fees.
Petitioner moved to dismiss the complaint, alleging that the prescriptive
period of six months had set in pursuant to Articles 1566 and 1567, in
relation to Article 1571 of the Civil Code, regarding the responsibility of a
vendor for any hidden faults or defects in the thing sold.
Private respondent countered that the contract dated September 10,
1962 was not a contract of sale but a contract for a piece of work under
Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of
the same Code, the complaint was timely brought within the ten-year
prescriptive period.
In its reply, petitioner argued that Article 1571 of the Civil Code providing
for a six-month prescriptive period is applicable to a contract for a piece of
work by virtue of Article 1714, which provides that such a contract shall be
governed by the pertinent provisions on warranty of title and against hidden
defects and the payment of price in a contract of sale.[6]
The trial court denied the motion to dismiss. In its answer to the
complaint, petitioner reiterated its claim of prescription as an affirmative
defense. It alleged that whatever defects might have been discovered in the
air-conditioning system could have been caused by a variety of factors,
including ordinary wear and tear and lack of proper and regular
maintenance. It pointed out that during the one-year period that private
respondent withheld final payment, the system was subjected to very rigid
inspection and testing and corrections or modifications effected by
petitioner. It interposed a compulsory counterclaim suggesting that the
complaint was filed to offset the adverse effects of the judgment in Civil Case
No. 71494, Court of First Instance of Manila, involving the same parties,
wherein private respondent was adjudged to pay petitioner the balance of
the unpaid contract price for the air-conditioning system installed in another
building of private respondent, amounting to P138,482.25.
Thereafter, private respondent filed an ex-parte motion for preliminary
attachment on the strength of petitioners own statement to the effect that it
had sold its business and was no longer doing business in Manila. The trial

LAW ON SALES SUMMER

2016
court granted the motion and, upon private respondents posting of a bond of
P50,000.00, ordered the issuance of a writ of attachment.
In due course, the trial court rendered a decision finding that petitioner
failed to install certain parts and accessories called for by the contract, and
deviated from the plans of the system, thus reducing its operational
effectiveness to the extent that 35 window-type units had to be installed in
the building to achieve a fairly desirable room temperature. On the question
of prescription, the trial court ruled that the complaint was filed within the
ten-year prescriptive period although the contract was one for a piece of
work, because it involved the installation of an air-conditioning system which
the defendant itself manufactured, fabricated, designed and installed.
Petitioner appealed to the Court of Appeals, which affirmed the decision
of the trial court. Hence, it instituted the instant petition.
The Submissions of the Parties
In the instant Petition, petitioner raised three issues. First, it contended
that private respondents acceptance of the work and his payment of the
contract price extinguished any liability with respect to the defects in the airconditioning system. Second, it claimed that the Court of Appeals erred when
it held that the defects in the installation were not apparent at the time of
delivery and acceptance of the work considering that private respondent was
not an expert who could recognize such defects. Third, it insisted that,
assuming arguendo that there were indeed hidden defects, private
respondents complaint was barred by prescription under Article 1571 of the
Civil Code, which provides for a six-month prescriptive period.
Private respondent, on the other hand, averred that the issues raised by
petitioner, like the question of whether there was an acceptance of the work
by the owner and whether the hidden defects in the installation could have
been discovered by simple inspection, involve questions of fact which have
been passed upon by the appellate court.
The Courts Ruling
The Supreme Court reviews only errors of law in petitions for review on
certiorari under Rule 45. It is not the function of this Court to re-examine the
findings of fact of the appellate court unless said findings are not supported
by the evidence on record or the judgment is based on a misapprehension of
facts.[7]

LAW ON SALES SUMMER

2016
The Court has consistently held that the factual findings of the trial court, as
well as the Court of Appeals, are final and conclusive and may not be
reviewed on appeal. Among the exceptional circumstances where a
reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or
impossible; when there is grave abuse of discretion in the appreciation of
facts; when the judgment is premised on a misapprehension of facts; when
the findings went beyond the issues of the case and the same are contrary to
the admissions of both appellant and appellee. After a careful study of the
case at bench, we find none of the above grounds present to justify the reevaluation of the findings of fact made by the courts below.[8]
We see no valid reason to discard the factual conclusions of the appellate
court. x x x (I)t is not the function of this Court to assess and evaluate all
over again the evidence, testimonial and documentary, adduced by the
parties, particularly where, such as here, the findings of both the trial court
and the appellate court on the matter coincide.[9] (Italics supplied)
Hence, the first two issues will not be resolved as they raise questions of
fact.
Thus, the only question left to be resolved is that of prescription. In their
submissions, the parties argued lengthily on the nature of the contract
entered into by them, viz., whether it was one of sale or for a piece of work.
Article 1713 of the Civil Code defines a contract for a piece of work thus:
By the contract for a piece of work the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or
compensation. The contractor may either employ only his labor or skill, or
also furnish the material.
A contract for a piece of work, labor and materials may be distinguished
from a contract of sale by the inquiry as to whether the thing transferred is
one not in existence and which would never have existed but for the order of
the person desiring it.[10] In such case, the contract is one for a piece of work,
not a sale. On the other hand, if the thing subject of the contract would have
existed and been the subject of a sale to some other person even if the order
had not been given, then the contract is one of sale.[11]
Thus, Mr. Justice Vitug[12] explains that
A contract for the delivery at a certain price of an article which the vendor in
the ordinary course of his business manufactures or procures for the general

LAW ON SALES SUMMER

2016
market, whether the same is on hand at the time or not is a contract of sale,
but if the goods are to be manufactured specially for the customer and upon
his special order, and not for the general market, it is a contract for a piece
of work (Art. 1467, Civil Code).The mere fact alone that certain articles are
made upon previous orders of customers will not argue against the
imposition of the sales tax if such articles are ordinarily manufactured by the
taxpayer for sale to the public (Celestino Co vs. Collector, 99 Phil. 841).
To Tolentino, the distinction between the two contracts depends on the
intention of the parties. Thus, if the parties intended that at some future date
an object has to be delivered, without considering the work or labor of the
party bound to deliver, the contract is one of sale. But if one of the parties
accepts the undertaking on the basis of some plan, taking into account the
work he will employ personally or through another, there is a contract for a
piece of work.[13]
Clearly, the contract in question is one for a piece of work. It is not
petitioners line of business to manufacture air-conditioning systems to be
sold off-the-shelf. Its business and particular field of expertise is the
fabrication and installation of such systems as ordered by customers and in
accordance with the particular plans and specifications provided by the
customers.Naturally, the price or compensation for the system manufactured
and installed will depend greatly on the particular plans and specifications
agreed upon with the customers.
The obligations of a contractor for a piece of work are set forth in Articles
1714 and 1715 of the Civil Code, which provide:
Art. 1714. If the contractor agrees to produce the work from material
furnished by him, he shall deliver the thing produced to the employer and
transfer dominion over the thing. This contract shall be governed by the
following articles as well as by the pertinent provisions on warranty of title
and against hidden defects and the payment of price in a contract of sale.
Art. 1715. The contractor shall execute the work in such a manner that it has
the qualities agreed upon and has no defects which destroy or lessen its
value or fitness for its ordinary or stipulated use. Should the work be not of
such quality, the employer may require that the contractor remove the
defect or execute another work. If the contractor fails or refuses to comply
with this obligation, the employer may have the defect removed or another
work executed, at the contractors cost.
The provisions on warranty against hidden defects, referred to in Art.
1714 above-quoted, are found in Articles 1561 and 1566, which read as
follows:

LAW ON SALES SUMMER

2016
Art. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of his trade
or profession, should have known them.
xxx xxx xxx
Art. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold.
The remedy against violations of the warranty against hidden defects is
either to withdraw from the contract (redhibitory action) or to demand
a proportionate reduction of the price(accion quanti minoris), with damages
in either case.[14]
In Villostas vs. Court of Appeals,[15] we held that, while it is true that
Article 1571 of the Civil Code provides for a prescriptive period of six months
for a redhibitory action, a cursory reading of the ten preceding articles to
which it refers will reveal that said rule may be applied only in case of
implied warranties; and where there is an express warranty in the contract,
as in the case at bench, the prescriptive period is the one specified in the
express warranty, and in the absence of such period, the general rule on
rescission of contract, which is four years (Article 1389, Civil Code) shall
apply.[16]
Consistent with the above discussion, it would appear that this suit is
barred by prescription because the complaint was filed more than four years
after the execution of the contract and the completion of the air-conditioning
system.
However, a close scrutiny of the complaint filed in the trial court reveals
that the original action is not really for enforcement of the warranties against
hidden defects, but one for breach of the contract itself. It alleged[17] that the
petitioner, in the installation of the air-conditioning system did not comply
with the specifications provided in the written agreement between the
parties, and an evaluation of the air-conditioning system as installed by the
defendant showed the following defects and violations of the specifications
of the agreement, to wit:

LAW ON SALES SUMMER

2016
GROUND FLOOR:
A. RIGHT WING:
Equipped with Worthington Compressor, Model 2VC4 directly driven
by an Hp Elm electric motor 1750 rmp, 3 phase, 60 cycles, 220 volts,
complete with starter evaporative condenser, circulating water pump,
air handling unit air ducts.
Defects Noted:
1. Deteriorated evaporative condenser panels, coils are full of
scales and heavy corrosion is very evident.
2. Defective gauges of compressors;
3. No belt guard on motor;
4. Main switch has no cover;
5. Desired room temperature not attained;
Aside from the above defects, the following were noted not installed
although provided in the specifications.
1. Face and by-pass damper of G.I. sheets No. 16. This damper
regulates the flow of cooled air depending on room condition.
2. No fresh air intake provision were provided which is very
necessary for efficient comfort cooling.
3. No motor to regulate the face and by-pass damper.
4. Liquid level indicator for refrigerant not provided.
5. Suitable heat exchanger is not installed. This is an important
component to increase refrigeration efficiency.
6. Modulating thermostat not provided.
7. Water treatment device for evaporative condenser was not
provided.
8. Liquid receiver not provided by sight glass.
B. LEFT WING:
Worthington Compressor Model 2VC4 is installed complete with 15
Hp electric motOr, 3 phase, 220 volts 60 cycles with starter.

LAW ON SALES SUMMER

2016
Defects Noted:
Same as right wing. except No. 4. All other defects on right wing are
common to the left wing.
SECOND FLOOR: (Common up to EIGHT FLOORS)
Compressors installed are MELCO with 7.5 Hp V-belt driven by 1800
RPM, 220 volts, 60 cycles, 3 phase, Thrige electric motor with
starters.
As stated in the specifications under Section No. IV, the MELCO
compressors do not satisfy the conditions stated therein due to the
following:
1. MELCO Compressors are not provided with automatic capacity
unloader.
2. Not provided with oil pressure safety control.
3. Particular compressors do not have provision for renewal
sleeves.
Out of the total 15 MELCO compressors installed to serve the 2nd
floor up to 8th floors, only six (6) units are in operation and the rest
were already replaced. Of the remaining six (6) units, several of them
have been replaced with bigger cranks hafts.
NINTH FLOOR:
Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60
cycles, 1750 rpm, Higgs motors with starters.
Defects Noted are similar to ground floor.
GENERAL REMARKS:
Under Section III, Design conditions of specification for air
conditioning work, and taking into account A & B same, the present
systems are not capable of maintaining the desired room
temperature of 76 = 2F (sic).
The present tenant have installed 35 window type air conditioning
units distributed among the different floor levels. Temperature

LAW ON SALES SUMMER

2016
measurements conducted on March 29, 1971, revealed that 78F
room (sic) is only maintained due to the additional window type units.
The trial court, after evaluating the evidence presented, held that,
indeed, petitioner failed to install items and parts required in the contract
and substituted some other items which were not in accordance with the
specifications,[18] thus:
From all of the foregoing, the Court is persuaded to believe the plaintiff that
not only had the defendant failed to install items and parts provided for in
the specifications of the air-conditioning system be installed, like face and
by-pass dampers and modulating thermostat and many others, but also that
there are items, parts and accessories which were used and installed on the
air-conditioning system which were not in full accord with contract
specifications. These omissions to install the equipments, parts and
accessories called for in the specifications of the contract, as well as the
deviations made in putting into the air-conditioning system equipments,
parts and accessories not in full accord with the contract specification
naturally resulted to adversely affect the operational effectiveness of the airconditioning system which necessitated the installation of thirty-five window
type of air-conditioning units distributed among the different floor levels in
order to be able to obtain a fairly desirable room temperature for the tenants
and actual occupants of the building. The Court opines and so holds that the
failure of the defendant to follow the contract specifications and said
omissions and deviations having resulted in the operational ineffectiveness
of the system installed makes the defendant liable to the plaintiff in the
amount necessary to rectify to put the air conditioning system in its proper
operational condition to make it serve the purpose for which the plaintiff
entered into the contract with the defendant.
The respondent Court affirmed the trial courts decision thereby making
the latters findings also its own.
Having concluded that the original complaint is one for damages arising
from breach of a written contract - and not a suit to enforce warranties
against hidden defects - we herewith declare that the governing law is Article
1715 (supra). However, inasmuch as this provision does not contain a
specific prescriptive period, the general law on prescription, which is Article
1144 of the Civil Code, will apply. Said provision states, inter alia, that actions
upon a written contract prescribe in ten (10) years. Since the governing
contract was executed on September 10, 1962 and the complaint was filed
on May 8, 1971, it is clear that the action has not prescribed.

LAW ON SALES SUMMER

2016
What about petitioners contention that acceptance of the work by the
employer relieves the contractor of liability for any defect in the work? This
was answered by respondent Court[19]as follows:
As the breach of contract which gave rise to the instant case consisted in
appellants omission to install the equipments (sic), parts and accessories not
in accordance with the plan and specifications provided for in the contract
and the deviations made in putting into the air conditioning system parts and
accessories not in accordance with the contract specifications, it is evident
that the defect in the installation was not apparent at the time of the
delivery and acceptance of the work, considering further that plaintiff is not
an expert to recognize the same. From the very nature of things, it is
impossible to determine by the simple inspection of air conditioning system
installed in an 8-floor building whether it has been furnished and installed as
per agreed specifications.
Verily, the mere fact that the private respondent accepted the work does
not, ipso facto, relieve the petitioner from liability for deviations from and
violations of the written contract, as the law gives him ten (10) years within
which to file an action based on breach thereof.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is
AFFIRMED. No costs.
SO ORDERED.

AGENCY TO SELL (ART. 1466)

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-20871 April 30, 1971
KER & CO., LTD., petitioner,
vs.
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.
Ross, Selph and Carrascoso for petitioner.

LAW ON SALES SUMMER

2016
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty.
Balbino Gatdula, Jr. for respondent.

FERNANDO, J.:
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it
liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea,
notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh
insuperable stands in the way. The decision under review conforms to and is in accordance with the
controlling doctrine announced in the recent case of Commissioner of Internal Revenue v.
Constantino. 1 The decisive test, as therein set forth, is the retention of the ownership of the goods
delivered to the possession of the dealer, like herein petitioner, for resale to customers, the price and
terms remaining subject to the control of the firm consigning such goods. The facts, as found by
respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The juridical
consequences must inevitably follow. We affirm.
It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio
R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and
compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request on
the part of petitioner for the cancellation of such assessment, which request was turned down. As a
result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then
Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a
commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court of
Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount
due from it being fixed at P19,772.33.
Such liability arose from a contract of petitioner with the United States Rubber International, the
former being referred to as the Distributor and the latter specifically designated as the Company. The
contract was to apply to transactions between the former and petitioner, as Distributor, from July 1,
1948 to continue in force until terminated by either party giving to the other sixty days' notice. 2 The
shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental,
and Mindanao except [the] province of Davao", petitioner, as Distributor, being precluded from disposing
such products elsewhere than in the above places unless written consent would first be obtained from the
Company. 3 Petitioner, as Distributor, is required to exert every effort to have the shipment of the products
in the maximum quantity and to promote in every way the sale thereof. 4 The prices, discounts, terms of
payment, terms of delivery and other conditions of sale were subject to change in the discretion of the
Company. 5
Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor
and the Distributor will receive, accept and/or hold upon consignment the products specified under
the terms of this agreement in such quantities as in the judgment of the Company may be necessary
for the successful solicitation and maintenance of business in the territory, and the Distributor agrees
that responsibility for the final sole of all goods delivered shall rest with him. All goods on
consignment shall remain the property of the Company until sold by the Distributor to the purchaser
or purchasers, but all sales made by the Distributor shall be in his name, in which the sale price of all
goods sold less the discount given to the Distributor by the Company in accordance with the
provision of paragraph 13 of this agreement, whether or not such sale price shall have been
collected by the Distributor from the purchaser or purchasers, shall immediately be paid and remitted

LAW ON SALES SUMMER

2016
by the Distributor to the Company. It is further agreed that this agreement does not constitute
Distributor the agent or legal representative 4 of the Company for any purpose whatsoever.
Distributor is not granted any right or authority to assume or to create any obligation or responsibility,
express or implied, in behalf of or in the name of the Company, or to bind the Company in any
manner or thing whatsoever." 6
All specifications for the goods ordered were subject to acceptance by the Company with petitioner,
as Distributor, required to accept such goods shipped as well as to clear the same through customs
and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole
or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other
sources of Company's brands. 7 Shipments were to be invoiced at prices to be agreed upon, with the
customs duties being paid by petitioner, as Distributor, for account of the Company. 8 Moreover, all resale
prices, lists, discounts and general terms and conditions of local resale were to be subject to the approval
of the Company and to change from time to time in its discretion. 9 The dealer, as Distributor, is allowed a
discount of ten percent on the net amount of sales of merchandise made under such agreement. 10 On a
date to be determined by the Company, the petitioner, as Distributor, was required to report to it data
showing in detail all sales during the month immediately preceding, specifying therein the quantities, sizes
and types together with such information as may be required for accounting purposes, with the Company
rendering an invoice on sales as described to be dated as of the date of inventory and sales report. As
Distributor, petitioner had to make payment on such invoice or invoices on due date with the Company
being privileged at its option to terminate and cancel the agreement forthwith upon the failure to comply
with this obligation. 11 The Company, at its own expense, was to keep the consigned stock fully insured
against loss or damage by fire or as a result of fire, the policy of such insurance to be payable to it in the
event of loss. Petitioner, as Distributor, assumed full responsibility with reference to the stock and its
safety at all times; and upon request of the Company at any time, it was to render inventory of the existing
stock which could be subject to change. 12 There was furthermore this equally tell-tale covenant: "Upon
the termination or any cancellation of this agreement all goods held on consignment shall be held by the
Distributor for the account of the Company, without expense to the Company, until such time as provision
can be made by the Company for disposition." 13
The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is
one of vendor and vendee or of broker and principal. Not that there would have been the slightest
doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the
agent or legal representative of the Company for any purpose whatsoever." It would be, however, to
impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly
the role assigned to petitioner considering the instrument as a whole. That would be to lose sight
altogether of what has been agreed upon. The Court of Tax Appeals was not misled in the language
of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an
agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the
products of the Company only to certain persons or entities and within stipulated limits, unless
excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or
holds upon consignment the products, which remain properties of the latter company (Par. 8); that
every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3);
that sales made by petitioner are subject to approval by the company (Par. 12); that on dates
determined by the rubber company, petitioner shall render a detailed report showing sales during the
month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and
sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured
under insurance policies payable to it in case of loss (Par. 15); that upon request of the rubber
company at any time, petitioner shall render an inventory of the existing stock which may be
checked by an authorized representative of the former (Par. 15); and that upon termination or
cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the

LAW ON SALES SUMMER

2016
account of the rubber company until their disposition is provided for by the latter (Par. 19). All these
circumstances are irreconcilably antagonistic to the idea of an independent merchant." 14 Hence its
conclusion: "However, upon analysis of the contract, as a whole, together with the actual conduct of the
parties in respect thereto, we have arrived at the conclusion that the relationship between them is one of
brokerage or agency." 15 We find ourselves in agreement, notwithstanding the able brief filed on behalf of
petitioner by its counsel. As noted at the outset, we cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a commercial broker "includes all persons,
other than importers, manufacturers, producers, or bona fide employees, who, for compensation or
profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed
buyers and sellers together, or negotiate freights or other business for owners of vessels or other
means of transportation, or for the shippers, or consignors or consignees of freight carried by
vessels or other means of transportation. The term includes commission merchants." 16 The
controlling decision as to the test to be followed as to who falls within the above definition of a commercial
broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the language of Justice J. B. L.
Reyes, who penned the opinion: "Since the company retained ownership of the goods, even as it
delivered possession unto the dealer for resale to customers, the price and terms of which were subject to
the company's control, the relationship between the company and the dealer is one of agency, ... ." 18 An
excerpt from Salisbury v. Brooks 19 cited in support of such a view follows: " 'The difficulty in distinguishing
between contracts of sale and the creation of an agency to sell has led to the establishment of rules by
the application of which this difficulty may be solved. The decisions say the transfer of title or agreement
to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the
attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price,
and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while
the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the
principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and
receive the proceeds less the agent's commission upon sales made.' " 20 The opinion relied on the work of
Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote treatises on
Sales, were likewise referred to.
Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the
necessity or presence of these mutual requirements and obligations on any theory other than that of
a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into a
marketable condition in the form of lumber; Brooks was to furnish the funds necessary for that
purpose, sell the manufactured product, and account therefor to Salisbury upon the specific terms of
the agreement, less the compensation fixed by the parties in lieu of interest on the money advanced
and for services as agent. These requirements and stipulations are in tent with any other conception
of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be
ignored. They were placed there for some purpose, doubtless as the result of definite antecedent
negotiations therefore, consummated by the final written expression of the agreement." 21 Hence the
Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity like
petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice to yield
the conclusion that it is an independent merchant if the control over the goods for resale of the goods
consigned is pervasive in character. The Court of Tax Appeals decision now under review pays fealty to
such an applicable doctrine.
2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals.
Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the
implementation of the contract by both the United States Rubber International and petitioner, as was
contended in the second assignment of error. Petitioner ought to have been aware that there was no
need for such an inquiry. The terms of the contract, as noted, speak quite clearly. There is lacking

LAW ON SALES SUMMER

2016
that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the
parties. A reading thereof discloses that the relationship arising therefrom was not one of seller and
purchaser. If it were thus intended, then it would not have included covenants which in their totality
would negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations
were so worded as to lead to no other conclusion than that the control by the United States Rubber
International over the goods in question is, in the language of the Constantino opinion, "pervasive".
The insistence on a relationship opposed to that apparent from the language employed might even
yield the impression that such a mode of construction was resorted to in order that the applicability of
a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has
developed an expertise in view of its function being limited solely to the interpretation of revenue
laws, this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is
manifest. It would be to frustrate the objective for which administrative tribunals are created if the
judiciary, absent such a showing, is to ignore their appraisal on a matter that forms the staple of their
specialized competence. While it is to be admitted that counsel for petitioner did scrutinize with care
the decision under review with a view to exposing what was considered its flaws, it cannot be said
that there was such a failure to apply what the law commands as to call for its reversal. Instead,
what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the
recent Constantino decision gave the imprimatur of its approval.
WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against
petitioner.

DACION EN PAGO (ART. 1245)

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-46658

May 13, 1991

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance
of Rizal, Branch XXI and TAYABAS CEMENT COMPANY, INC., respondents.
The Chief Legal Counsel for petitioner.
Ortille Law Office for private respondent.

FERNAN, C.J.:

LAW ON SALES SUMMER

2016
In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set aside
the orders dated March 4, 1977 and May 31, 1977 rendered in Civil Case No. 24422 of the Court of
First Instance of Rizal, Branch XXI, respectively granting private respondent Tayabas Cement
Company, Inc.'s application for a writ of preliminary injunction to enjoin the foreclosure sale of certain
properties in Quezon City and Negros Occidental and denying petitioner's motion for reconsideration
thereof.
1

In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a loan of
P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock, and thereby
acquire the controlling interest of private respondent Tayabas Cement Company, Inc. (TCC). As
security for said loan, the spouses Arroyo executed a real estate mortgage over a parcel of land
covered by Transfer Certificate of Title No. 55323 of the Register of Deeds of Quezon City known as
the La Vista property.
2

Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of an
eight (8) year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of
Tokyo, Japan, to cover the importation of a cement plant machinery and equipment.
Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd.
for the account of TCC, the Arroyo spouses executed the following documents to secure this loan
accommodation: Surety Agreement dated August 5, 1964 and Covenant dated August 6, 1964.
3

The imported cement plant machinery and equipment arrived from Japan and were released to TCC
under a trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding
drawings against the L/C as scheduled. TCC, however, failed to remit and/or pay the corresponding
amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust receipt agreement,
PNB notified TCC of its intention to repossess, as it later did, the imported machinery and equipment
for failure of TCC to settle its obligations under the L/C.
5

In the meantime, the personal accounts of the spouses Arroyo, which included another loan of
P160,000.00 secured by a real estate mortgage over parcels of agricultural land known as Hacienda
Bacon located in Isabela, Negros Occidental, had likewise become due. The spouses Arroyo having
failed to satisfy their obligations with PNB, the latter decided to foreclose the real estate mortgages
executed by the spouses Arroyo in its favor.
On July 18, 1975, PNB filed with the City Sheriff of Quezon City a petition for extra-judicial
foreclosure under Act 3138, as amended by Act 4118 and under Presidential Decree No. 385 of the
real estate mortgage over the properties known as the La Vista property covered by TCT No.
55323. PNB likewise filed a similar petition with the City Sheriff of Bacolod, Negros Occidental with
respect to the mortgaged properties located at Isabela, Negros Occidental and covered by OCT No.
RT 1615.
6

The foreclosure sale of the La Vista property was scheduled on August 11, 1975. At the auction sale,
PNB was the highest bidder with a bid price of P1,000,001.00. However, when said property was
about to be awarded to PNB, the representative of the mortgagor-spouses objected and demanded
from the PNB the difference between the bid price of P1,000,001.00 and the indebtedness of
P499,060.25 of the Arroyo spouses on their personal account. It was the contention of the spouses
Arroyo's representative that the foreclosure proceedings referred only to the personal account of the
mortgagor spouses without reference to the account of TCC.

LAW ON SALES SUMMER

2016
To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the
Sheriff's Office to proceed with the sale of the subject real properties to satisfy not only the amount
of P499,060.25 owed by the spouses Arroyos on their personal account but also the amount of
P35,019,901.49 exclusive of interest, commission charges and other expenses owed by said
spouses as sureties of TCC. Said petition was opposed by the spouses Arroyo and the other
bidder, Jose L. Araneta.
7

On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff Diana L. Dungca issued a
resolution finding that the questions raised by the parties required the reception and evaluation of
evidence, hence, proper for adjudication by the courts of law. Since said questions were prejudicial
to the holding of the foreclosure sale, she ruled that her "Office, therefore, cannot properly proceed
with the foreclosure sale unless and until there be a court ruling on the aforementioned issues."
8

Thus, in May, 1976, PNB filed with the Court of First Instance of Quezon City, Branch V a petition
for mandamus against said Diana Dungca in her capacity as City Sheriff of Quezon City to compel
her to proceed with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 in
order to satisfy both the personal obligation of the spouses Arroyo as well as their liabilities as
sureties of TCC.
9

10

On September 6, 1976, the petition was granted and Dungca was directed to proceed with the
foreclosure sale of the mortgaged properties covered by TCT No. 55323 pursuant to Act No. 3135
and to issue the corresponding Sheriff's Certificate of Sale.
11

Before the decision could attain finality, TCC filed on September 14, 1976 before the Court of First
Instance of Rizal, Pasig, Branch XXI a complaint against PNB, Dungca, and the Provincial Sheriff
of Negros Occidental and Ex-Officio Sheriff of Bacolod City seeking, inter alia, the issuance of a writ
of preliminary injunction to restrain the foreclosure of the mortgages over the La Vista property and
Hacienda Bacon as well as a declaration that its obligation with PNB had been fully paid by reason
of the latter's repossession of the imported machinery and equipment.
12

13

On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining
order and on March 4, 1977, granted a writ of preliminary injunction. PNB's motion for
reconsideration was denied, hence this petition.
14

15

Petitioner PNB advances four grounds for the setting aside of the writ of preliminary injunction,
namely: a) that it contravenes P.D. No. 385 which prohibits the issuance of a restraining order
against a government financial institution in any action taken by such institution in compliance with
the mandatory foreclosure provided in Section 1 thereof; b) that the writ countermands a final
decision of a co-equal and coordinate court; c) that the writ seeks to prohibit the performance of acts
beyond the court's territorial jurisdiction; and, d) private respondent TCC has not shown any clear
legal right or necessity to the relief of preliminary injunction.
Private respondent TCC counters with the argument that P.D. No. 385 does not apply to the case at
bar, firstly because no foreclosure proceedings have been instituted against it by PNB and secondly,
because its account under the L/C has been fully satisfied with the repossession of the imported
machinery and equipment by PNB.

LAW ON SALES SUMMER

2016
The resolution of the instant controversy lies primarily on the question of whether or not TCC's
liability has been extinguished by the repossession of PNB of the imported cement plant machinery
and equipment.
We rule for the petitioner PNB. It must be remembered that PNB took possession of the imported
cement plant machinery and equipment pursuant to the trust receipt agreement executed by and
between PNB and TCC giving the former the unqualified right to the possession and disposal of all
property shipped under the Letter of Credit until such time as all the liabilities and obligations under
said letter had been discharged. In the case of Vintola vs. Insular Bank of Asia and
America wherein the same argument was advanced by the Vintolas as entrustees of imported
seashells under a trust receipt transaction, we said:
16

17

Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished
inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and
that they have relinquished possession thereof to the IBAA, as owner of the goods, by
depositing them with the Court.
The foregoing submission overlooks the nature and mercantile usage of the transaction
involved. A letter of credit-trust receipt arrangement is endowed with its own distinctive
features and characteristics. Under that set-up, a bank extends a loan covered by the Letter
of Credit, with the trust receipt as a security for the loan. In other words, the transaction
involves a loan feature represented by the letter of credit, and a security feature which is in
the covering trust receipt.
xxx

xxx

xxx

A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a

"security interest" in the goods. It secures an indebtedness and there can be no such thing
as security interest that secures no obligation. As defined in our laws:
1wphi1

(h) "Security interest" means a property interest in goods, documents or instruments

to secure performance of some obligations of the entrustee or of some third persons
to the entruster and includes title, whether or not expressed to be absolute,
whenever such title is in substance taken or retained for security only.
xxx

xxx

xxx

Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the
goods. It was merely the holder of a security title for the advances it had made to the
VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their
own property and they hold it at their own risk. The trust receipt arrangement did not convert
the IBAA into an investor; the latter remained a lender and creditor.
xxx

xxx

xxx

Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim
that because they have surrendered the goods to IBAA and subsequently deposited them in
the custody of the court, they are absolutely relieved of their obligation to pay their loan
because of their inability to dispose of the goods. The fact that they were unable to sell the

LAW ON SALES SUMMER

2016
seashells in question does not affect IBAA's right to recover the advances it had made under
the Letter of Credit.
PNB's possession of the subject machinery and equipment being precisely as a form of security for
the advances given to TCC under the Letter of Credit, said possession by itself cannot be
considered payment of the loan secured thereby. Payment would legally result only after PNB had
foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan
obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure
adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the
sale itself.
18

Neither can said repossession amount to dacion en pago. Dation in payment takes place when
property is alienated to the creditor in satisfaction of a debt in money and the same is governed by
sales. Dation in payment is the delivery and transmission of ownership of a thing by the debtor to
the creditor as an accepted equivalent of the performance of the obligation. As aforesaid, the
repossession of the machinery and equipment in question was merely to secure the payment of
TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction
of said loan. Thus, no dacion en pago was ever accomplished.
19

20

Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the spouses
Arroyo as sureties of TCC. A surety is considered in law as being the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable. As sureties, the Arroyo spouses are primarily liable as original
promissors and are bound immediately to pay the creditor the amount outstanding.
21

22

Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial
institutions like herein petitioner PNB are required to foreclose on the collaterals and/or securities for
any loan, credit or accommodation whenever the arrearages on such account amount to at least
twenty percent (20%) of the total outstanding obligations, including interests and charges, as
appearing in the books of account of the financial institution concerned. It is further provided
therein that "no restraining order, temporary or permanent injunction shall be issued by the court
against any government financial institution in any action taken by such institution in compliance with
the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary
or permanent injunction is sought by the borrower(s) or any third party or parties . . ."
23

24

It is not disputed that the foreclosure proceedings instituted by PNB against the Arroyo spouses
were in compliance with the mandate of P.D. 385. This being the case, the respondent judge acted in
excess of his jurisdiction in issuing the injunction specifically proscribed under said decree.
Another reason for striking down the writ of preliminary injunction complained of is that it interfered
with the order of a co-equal and coordinate court. Since Branch V of the CFI of Rizal had already
acquired jurisdiction over the question of foreclosure of mortgage over the La Vista property and
rendered judgment in relation thereto, then it retained jurisdiction to the exclusion of all other
coordinate courts over its judgment, including all incidents relative to the control and conduct of its
ministerial officers, namely the sheriff thereof. The foreclosure sale having been ordered by Branch
V of the CFI of Rizal, TCC should not have filed injunction proceedings with Branch XXI of the same
CFI, but instead should have first sought relief by proper motion and application from the former
court which had exclusive jurisdiction over the foreclosure proceeding.
25

26

LAW ON SALES SUMMER

2016
This doctrine of non-interference is premised on the principle that a judgment of a court of competent
jurisdiction may not be opened, modified or vacated by any court of concurrent jurisdiction.
27

Furthermore, we find the issuance of the preliminary injunction directed against the Provincial Sheriff
of Negros Occidental and ex-officio Sheriff of Bacolod City a jurisdictional faux pas as the Courts of
First Instance, now Regional Trial Courts, can only enforce their writs of injunction within their
respective designated territories.
28

WHEREFORE, the instant petition is hereby granted. The assailed orders are hereby set aside.
Costs against private respondent.

CONTRACT TO SELL
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 194785

July 11, 2012

VIRGILIO S. DAVID, Petitioner,

vs.
MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE, INC., Respondent.
DECISION
MENDOZA, J.:
Before this Court is a petition for review under Rule 45 of the Rules of Court assailing the July 8,
2010 Decision1of the Court of Appeals (CA), in CA-G.R. CR No. 91839, which affirmed the July 17,
2008 Decision2 of the Regional Trial Court, Branch VIII, Manila (RTC) in Civil Case No. 94-69402, an
action for specific performance and damages.
The Facts:
Petitioner Virgilio S. David (David) was the owner or proprietor of VSD Electric Sales, a company
engaged in the business of supplying electrical hardware including transformers for rural electric
cooperatives like respondent Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with
principal office located in Ozamis City.
To solve its problem of power shortage affecting some areas within its coverage, MOELCI expressed
its intention to purchase a 10 MVA power transformer from David. For this reason, its General
Manager, Engr. Reynaldo Rada (Engr. Rada), went to meet David in the latters office in Quezon
City. David agreed to supply the power transformer provided that MOELCI would secure a board
resolution because the item would still have to be imported.

LAW ON SALES SUMMER

2016
On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez), who was in-charge of
procurement, returned to Manila and presented to David the requested board resolution which
authorized the purchase of one 10 MVA power transformer. In turn, David presented his proposal for
the acquisition of said transformer. This proposal was the same proposal that he would usually give
to his clients.
After the reading of the proposal and the discussion of terms, David instructed his then secretary
and bookkeeper, Ellen M. Wong, to type the names of Engr. Rada and Jimenez at the end of the
proposal. Both signed the document under the word "conforme." The board resolution was thereafter
attached to the proposal.
As stated in the proposal, the subject transformer, together with the basic accessories, was valued at
P5,200,000.00. It was also stipulated therein that 50% of the purchase price should be paid as
downpayment and the remaining balance to be paid upon delivery. Freight handling, insurance,
customs duties, and incidental expenses were for the account of the buyer.
The Board Resolution, on the other hand, stated that the purchase of the said transformer was to be
financed through a loan from the National Electrification Administration (NEA). As there was no
immediate action on the loan application, Engr. Rada returned to Manila in early December 1992
and requested David to deliver the transformer to them even without the required downpayment.
David granted the request provided that MOELCI would pay interest at 24% per annum. Engr. Rada
acquiesced to the condition. On December 17, 1992, the goods were shipped to Ozamiz City via
William Lines. In the Bill of Lading, a sales invoice was included which stated the agreed interest
rate of 24% per annum.
When nothing was heard from MOELCI for sometime after the shipment, Emanuel Medina (Medina),
Davids Marketing Manager, went to Ozamiz City to check on the shipment. Medina was able to
confer with Engr. Rada who told him that the loan was not yet released and asked if it was possible
to withdraw the shipped items. Medina agreed.
When no payment was made after several months, Medina was constrained to send a demand
letter, dated September 15, 1993, which MOELCI duly received. Engr. Rada replied in writing that
the goods were still in the warehouse of William Lines again reiterating that the loan had not been
approved by NEA. This prompted Medina to head back to Ozamiz City where he found out that the
goods had already been released to MOELCI evidenced by the shipping companys copy of the Bill
of Lading which was stamped "Released," and with the notation that the arrastre charges in the
amount of P5,095.60 had been paid. This was supported by a receipt of payment with the
corresponding cargo delivery receipt issued by the Integrated Port Services of Ozamiz, Inc.
Subsequently, demand letters were sent to MOELCI demanding the payment of the whole amount
plus the balance of previous purchases of other electrical hardware. Aside from the formal demand
letters, David added that several statements of accounts were regularly sent through the mails by
the company and these were never disputed by MOELCI.
On February 17, 1994, David filed a complaint for specific performance with damages with the RTC.
In response, MOECLI moved for its dismissal on the ground that there was lack of cause of action as
there was no contract of sale, to begin with, or in the alternative, the said contract was
unenforceable under the Statute of Frauds. MOELCI argued that the quotation letter could not be
considered a binding contract because there was nothing in the said document from which consent,
on its part, to the terms and conditions proposed by David could be inferred. David knew that

LAW ON SALES SUMMER

2016
MOELCIs assent could only be obtained upon the issuance of a purchase order in favor of the
bidder chosen by the Canvass and Awards Committee.
Eventually, pursuant to Rule 16, Section 5 of the Rules of Court, MOELCI filed its Motion for
Preliminary Hearing of Affirmative Defenses and Deferment of the Pre-Trial Conference which was
denied by the RTC to abbreviate proceedings and for the parties to proceed to trial and avoid
piecemeal resolution of issues. The order denying its motion was raised with the CA, and then with
this Court. Both courts sustained the RTC ruling.
Trial ensued. By reason of MOELCIs continued failure to appear despite notice, David was allowed
to present his testimonial and documentary evidence ex parte, pursuant to Rule 18, Section 5 of the
Rules. A Very Urgent Motion to Allow Defendant to Present Evidence was filed by MOELCI, but was
denied.
In its July 17, 2008 Decision, the RTC dismissed the complaint. It found that although a contract of
sale was perfected, it was not consummated because David failed to prove that there was indeed a
delivery of the subject item and that MOELCI received it.3
Aggrieved, David appealed his case to the CA.
On July 8, 2010, the CA affirmed the ruling of the RTC. In the assailed decision, the CA reasoned out
that although David was correct in saying that MOELCI was deemed to have admitted the
genuineness and due execution of the "quotation letter" (Exhibit A), wherein the signatures of the
Chairman and the General Manager of MOELCI appeared, he failed to offer any textual support to
his stand that it was a contract of sale instead of a mere price quotation agreed to by MOELCI
representatives. On this score, the RTC erred in stating that a contract of sale was perfected
between the parties despite the irregularities that tainted their transaction. Further, the fact that
MOELCIs representatives agreed to the terms embodied in the agreement would not preclude the
finding that said contract was at best a mere contract to sell.
A motion for reconsideration was filed by David but it was denied. 4
Hence, this petition.
Before this Court, David presents the following issues for consideration:
I.
WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE.
II.
WHETHER OR NOT THERE WAS A DELIVERY THAT CONSUMMATED THE CONTRACT.
The Court finds merit in the petition.
I.

LAW ON SALES SUMMER

2016
On the issue as to whether or not there was a perfected contract of sale, this Court is required to
delve into the evidence of the case. In a petition for review on certiorari under Rule 45 of the Rules
of Court, the issues to be threshed out are generally questions of law only, and not of fact.
This was reiterated in the case of Buenaventura v. Pascual, 5 where it was written:
Time and again, this Court has stressed that its jurisdiction in a petition for review on certiorari under
Rule 45 of the Rules of Court is limited to reviewing only errors of law, not of fact, unless the findings
of fact complained of are devoid of support by the evidence on record, or the assailed judgment is
based on the misapprehension of facts. The trial court, having heard the witnesses and observed
their demeanor and manner of testifying, is in a better position to decide the question of their
credibility. Hence, the findings of the trial court must be accorded the highest respect, even finality,
by this Court.
That being said, the Court is not unmindful, however, of the recognized exceptions well-entrenched
in jurisprudence. It has always been stressed that when supported by substantial evidence, the
findings of fact of the CA are conclusive and binding on the parties and are not reviewable by this
Court, unless the case falls under any of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and
conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion:
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are without citation of specific evidence on which the
conclusions are based;
(9) When the facts set forth in the petition as well as in the petitioners main and reply briefs
are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the supposed
absence of evidence and contradicted by the evidence on record. 6 [Emphasis supplied]
In this case, the CA and the RTC reached different conclusions on the question of whether or not
there was a perfected contract of sale. The RTC ruled that a contract of sale was perfected although
the same was not consummated because David failed to show proof of delivery.7

LAW ON SALES SUMMER

2016
The CA was of the opposite view. The CA wrote:
Be that as it may, it must be emphasized that the appellant failed to offer any textual support to his
insistence that Exhibit "A" is a contract of sale instead of a mere price quotation conformed to by
MOELCI representatives. To that extent, the trial court erred in laying down the premise that "indeed
a contract of sale is perfected between the parties despite the irregularities attending the
transaction." x x x
That representatives of MOELCI conformed to the terms embodied in the agreement does not
preclude the finding that such contract is, at best, a mere contract to sell with stipulated costs quoted
should it ultimately ripen into one of sale. The conditions upon which that development may occur
may even be obvious from statements in the agreement itself, that go beyond just "captions." Thus,
the appellant opens with, "WE are pleased to submit our quotation xxx." The purported contract also
ends with. "Thank you for giving us the opportunity to quote on your requirements and we hope to
receive your order soon" apparently referring to a purchase order which MOELCI contends to be a
formal requirement for the entire transaction. 8
In other words, the CA was of the position that Exhibit A was at best a contract to sell.
A perusal of the records persuades the Court to hold otherwise.
The elements of a contract of sale are, to wit: a) Consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in
money or its equivalent.9 It is the absence of the first element which distinguishes a contract of sale
from that of a contract to sell.
In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective
buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of an event, such as, in most cases, the
full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his
promise to sell the subject property when the entire amount of the purchase price is delivered to him.
In other words, the full payment of the purchase price partakes of a suspensive condition, the nonfulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer.10
In a contract of sale, on the other hand, the title to the property passes to the vendee upon the
delivery of the thing sold. Unlike in a contract to sell, the first element of consent is present, although
it is conditioned upon the happening of a contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated.
However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if
there had already been previous delivery of the property subject of the sale to the buyer, ownership
thereto automatically transfers to the buyer by operation of law without any further act having to be
performed by the seller. The vendor loses ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded. 11
An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form, would
show that said document, with all the stipulations therein and with the attendant circumstances
surrounding it, was actually a Contract of Sale. The rule is that it is not the title of the contract, but its
express terms or stipulations that determine the kind of contract entered into by the parties. 12 First,

LAW ON SALES SUMMER

2016
there was meeting of minds as to the transfer of ownership of the subject matter. The letter (Exhibit
A), though appearing to be a mere price quotation/proposal, was not what it seemed. It contained
terms and conditions, so that, by the fact that Jimenez, Chairman of the Committee on Management,
and Engr. Rada, General Manager of MOELCI, had signed their names under the word
"CONFORME," they, in effect, agreed with the terms and conditions with respect to the purchase of
the subject 10 MVA Power Transformer. As correctly argued by David, if their purpose was merely to
acknowledge the receipt of the proposal, they would not have signed their name under the word
"CONFORME."
Besides, the uncontroverted attending circumstances bolster the fact that there was consent or
meeting of minds in the transfer of ownership. To begin with, a board resolution was issued
authorizing the purchase of the subject power transformer. Next, armed with the said resolution, top
officials of MOELCI visited Davids office in Quezon City three times to discuss the terms of the
purchase. Then, when the loan that MOELCI was relying upon to finance the purchase was not
forthcoming, MOELCI, through Engr. Rada, convinced David to do away with the 50% downpayment
and deliver the unit so that it could already address its acute power shortage predicament, to which
David acceded when it made the delivery, through the carrier William
Lines, as evidenced by a bill of lading.
Second, the document specified a determinate subject matter which was one (1) Unit of 10 MVA
Power Transformer with corresponding KV Line Accessories. And third, the document stated
categorically the price certain in money which was P5,200,000.00 for one (1) unit of 10 MVA Power
Transformer and P2,169,500.00 for the KV Line Accessories.
In sum, since there was a meeting of the minds, there was consent on the part of David to transfer
ownership of the power transformer to MOELCI in exchange for the price, thereby complying with
the first element. Thus, the said document cannot just be considered a contract to sell but rather a
perfected contract of sale.
II.
Now, the next question is, was there a delivery?
MOELCI, in denying that the power transformer was delivered to it, argued that the Bill of Lading
which David was relying upon was not conclusive. It argued that although the bill of lading was
stamped "Released," there was nothing in it that indicated that said power transformer was indeed
released to it or delivered to its possession. For this reason, it is its position that it is not liable to pay
the purchase price of the 10 MVA power transformer.
This Court is unable to agree with the CA that there was no delivery of the items. On the contrary,
there was delivery and release.
To begin with, among the terms and conditions of the proposal to which MOELCI agreed stated:
2. Delivery Ninety (90) working days upon receipt of your purchase order and downpayment.
C&F Manila, freight, handling, insurance, custom duties and incidental expenses shall be for the
account of MOELCI II. 13 (Emphasis supplied)

LAW ON SALES SUMMER

2016
On this score, it is clear that MOELCI agreed that the power transformer would be delivered and that
the freight, handling, insurance, custom duties, and incidental expenses shall be shouldered by it.
On the basis of this express agreement, Article 1523 of the Civil Code becomes applicable. It
provides:
1wphi1

Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to
the buyer delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases
provided for in Article 1503, first, second and third paragraphs, or unless a contrary intent appears.
(Emphasis supplied)
Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was
deemed to be a delivery to MOELCI. David was authorized to send the power transformer to the
buyer pursuant to their agreement. When David sent the item through the carrier, it amounted to a
delivery to MOELCI.
Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco, 14 it was pointed out that a
specification in a contract relative to the payment of freight can be taken to indicate the intention of
the parties with regard to the place of delivery. So that, if the buyer is to pay the freight, as in this
case, it is reasonable to suppose that the subject of the sale is transferred to the buyer at the point of
shipment. In other words, the title to the goods transfers to the buyer upon shipment or delivery to
the carrier.
Of course, Article 1523 provides a mere presumption and in order to overcome said presumption,
MOELCI should have presented evidence to the contrary. The burden of proof was shifted to
MOELCI, who had to show that the rule under Article 1523 was not applicable. In this regard,
however, MOELCI failed.
There being delivery and release, said fact constitutes partial performance which takes the case out
of the protection of the Statute of Frauds. It is elementary that the partial execution of a contract of
sale takes the transaction out of the provisions of the Statute of Frauds so long as the essential
requisites of consent of the contracting parties, object and cause of the obligation concur and are
clearly established to be present. 15
That being said, the Court now comes to Davids prayer that MOELCI be made to pay the total sum
of P5,472,722.27 plus the stipulated interest at 24% per annum from the filing of the complaint.
Although the Court agrees that MOELCI should pay interest, the stipulated rate is, however,
unconscionable and should be equitably reduced. While there is no question that parties to a loan
agreement have wide latitude to stipulate on any interest rate in view of the Central Bank Circular
No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it is
also worth stressing that interest rates whenever unconscionable may still be reduced to a
reasonable and fair level. There is nothing in the said circular which grants lenders carte blanche
authority to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.16 Accordingly, the excessive interest of 24% per annum stipulated in
the sales invoice should be reduced to 12% per annum.
Indeed, David was compelled to file an action against MOELCI but this reason alone will not warrant
an award of attorneys fees. It is settled that the award of attorney's fees is the exception rather than

LAW ON SALES SUMMER

2016
the rule. Counsel's fees are not awarded every time a party prevails in a suit because of the policy
that no premium should be placed on the right to litigate. Attorney's fees, as part of damages, are not
necessarily equated to the amount paid by a litigant to a lawyer. In the ordinary sense, attorney's
fees represent the reasonable compensation paid to a lawyer by his client for the legal services he
has rendered to the latter; while in its extraordinary concept, they may be awarded by the court as
indemnity for damages to be paid by the losing party to the prevailing party. Attorney's fees as part of
damages are awarded only in the instances specified in Article 2208 of the Civil Code 17 which
demands factual, legal, and equitable justification. Its basis cannot be left to speculation or
conjecture. In this regard, none was proven.
Moreover, in the absence of stipulation, a winning party may be awarded attorney's fees only in case
plaintiffs action or defendant's stand is so untenable as to amount to gross and evident bad faith. 18 is
MOELCI's case cannot be similarly classified.
Also, David's claim for the balance of P73,059.76 plus the stipulated interest is denied for being
unsubstantiated.
WHEREFORE, the petition Is GRANTED. The July 8, 2010 Decision of the Court of Appeals Is
REVERSED and SET ASIDE. Respondent Misamis Occidental II Electric Cooperative, Inc. is
ordered to pay petitioner Virgilio S. David the total sum of P5,472,722.27 with interest at the rate of
12o/o per annum reckoned from the filing of the complaint until fully paid.
SO ORDERED.

Conditional Deed of Sale v. Contract to Sell

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 188064

June 1, 2011

MILA A. REYES, Petitioner,

vs.
VICTORIA T. TUPARAN, Respondent.
DECISION
MENDOZA, J.:
Subject of this petition for review is the February 13, 2009 Decision 1 of the Court of Appeals (CA)
which affirmed with modification the February 22, 2006 Decision 2 of the Regional Trial Court, Branch
172, Valenzuela City (RTC), in Civil Case No. 3945-V-92, an action for Rescission of Contract with
Damages.

LAW ON SALES SUMMER

2016
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with
Damages against Victoria T. Tuparan (respondent) before the RTC. In her Complaint, petitioner
alleged, among others, that she was the registered owner of a 1,274 square meter residential and
commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V-4130; that on that
property, she put up a three-storey commercial building known as RBJ Building and a residential
apartment building; that since 1990, she had been operating a drugstore and cosmetics store on the
ground floor of RBJ Building where she also had been residing while the other areas of the buildings
including the sidewalks were being leased and occupied by tenants and street vendors.
In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ
Building for her pawnshop business for a monthly rental of 4,000.00. A close friendship developed
between the two which led to the respondent investing thousands of pesos in petitioners
financing/lending business from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a
month.
On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank
and Loan Bank, Inc. (FSL Bank) to secure a loan of 2,000,000.00 payable in installments. On
November 15, 1990, petitioners outstanding account on the mortgage reached 2,278,078.13.
Petitioner then decided to sell her real properties for at least 6,500,000.00 so she could liquidate
her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to
conditionally buy petitioners real properties for 4,200,000.00 payable on installment basis without
interest and to assume the bank loan. To induce the petitioner to accept her offer, respondent offered
the following conditions/concessions:
1. That the conditional sale will be cancelled if the plaintiff (petitioner) can find a buyer of said
properties for the amount of 6,500,000.00 within the next three (3) months provided all
amounts received by the plaintiff from the defendant (respondent) including payments
actually made by defendant to Farmers Savings and Loan Bank would be refunded to the
defendant with additional interest of six (6%) monthly;
2. That the plaintiff would continue using the space occupied by her and drugstore and
cosmetics store without any rentals for the duration of the installment payments;
3. That there will be a lease for fifteen (15) years in favor of the plaintiff over the space for
drugstore and cosmetics store at a monthly rental of only 8,000.00 after full payment of the
stipulated installment payments are made by the defendant;
4. That the defendant will undertake the renewal and payment of the fire insurance policies
on the two (2) subject buildings following the expiration of the then existing fire insurance
policy of the plaintiff up to the time that plaintiff is fully paid of the total purchase price of
4,200,000.00.3
After petitioners verbal acceptance of all the conditions/concessions, both parties worked together
to obtain FSL Banks approval for respondent to assume her (petitioners) outstanding bank account.
The assumption would be part of respondents purchase price for petitioners mortgaged real
properties. FSL Bank approved their proposal on the condition that petitioner would sign or remain
as co-maker for the mortgage obligation assumed by respondent.

LAW ON SALES SUMMER

2016
On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional
Sale of Real Properties with Assumption of Mortgage. Due to their close personal friendship and
business relationship, both parties chose not to reduce into writing the other terms of their
agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did not want to
incorporate in the Deed of Conditional Sale of Real Properties with Assumption of Mortgage any
other side agreement between petitioner and respondent.
Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage, respondent
was bound to pay the petitioner a lump sum of 1.2 million pesos without interest as part of the
purchase price in three (3) fixed installments as follows:
a) 200,000.00 due January 31, 1991
b) 200,000.00 due June 30, 1991
c) 800,000.00 due December 31, 1991
Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of
paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner in
small amounts from time to time. To compensate for her delayed payments, respondent agreed to
pay petitioner an interest of 6% a month. As of August 31, 1992, respondent had only paid
395,000.00, leaving a balance of 805,000.00 as principal on the unpaid installments and
466,893.25 as unpaid accumulated interest.
Petitioner further averred that despite her success in finding a prospective buyer for the subject real
properties within the 3-month period agreed upon, respondent reneged on her promise to allow the
cancellation of their deed of conditional sale. Instead, respondent became interested in owning the
subject real properties and even wanted to convert the entire property into a modern commercial
complex. Nonetheless, she consented because respondent repeatedly professed friendship and
assured her that all their verbal side agreement would be honored as shown by the fact that since
December 1990, she (respondent) had not collected any rentals from the petitioner for the space
occupied by her drugstore and cosmetics store.
On March 19, 1992, the residential building was gutted by fire which caused the petitioner to lose
rental income in the amount of 8,000.00 a month since April 1992. Respondent neglected to renew
the fire insurance policy on the subject buildings.
Since December 1990, respondent had taken possession of the subject real properties and had
been continuously collecting and receiving monthly rental income from the tenants of the buildings
and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner.
On September 2, 1992, respondent offered the amount of 751,000.00 only payable on September
7, 1992, as full payment of the purchase price of the subject real properties and demanded the
simultaneous execution of the corresponding deed of absolute sale.
Respondents Answer
Respondent countered, among others, that the tripartite agreement erroneously designated by the
petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was actually

LAW ON SALES SUMMER

2016
a pure and absolute contract of sale with a term period. It could not be considered a conditional sale
because the acquisition of contractual rights and the performance of the obligation therein did not
depend upon a future and uncertain event. Moreover, the capital gains and documentary stamps and
other miscellaneous expenses and real estate taxes up to 1990 were supposed to be paid by
petitioner but she failed to do so.
Respondent further averred that she successfully rescued the properties from a definite foreclosure
by paying the assumed mortgage in the amount of 2,278,078.13 plus interest and other finance
charges. Because of her payment, she was able to obtain a deed of cancellation of mortgage and
secure a release of mortgage on the subject real properties including petitioners ancestral
residential property in Sta. Maria, Bulacan.
Petitioners claim for the balance of the purchase price of the subject real properties was baseless
and unwarranted because the full amount of the purchase price had already been paid, as she did
pay more than 4,200,000.00, the agreed purchase price of the subject real properties, and she had
even introduced improvements thereon worth more than 4,800,000.00. As the parties could no
longer be restored to their original positions, rescission could not be resorted to.
Respondent added that as a result of their business relationship, petitioner was able to obtain from
her a loan in the amount of 400,000.00 with interest and took several pieces of jewelry worth
120,000.00. Petitioner also failed and refused to pay the monthly rental of 20,000.00 since
November 16, 1990 up to the present for the use and occupancy of the ground floor of the building
on the subject real property, thus, accumulating arrearages in the amount of 470,000.00 as of
October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its decision finding that respondent failed to pay in full
the 4.2 million total purchase price of the subject real properties leaving a balance of 805,000.00.
It stated that the checks and receipts presented by respondent refer to her payments of the
mortgage obligation with FSL Bank and not the payment of the balance of 1,200,000.00. The RTC
also considered the Deed of Conditional Sale of Real Property with Assumption of Mortgage
executed by and among the two parties and FSL Bank a contract to sell, and not a contract of sale. It
was of the opinion that although the petitioner was entitled to a rescission of the contract, it could not
be permitted because her non-payment in full of the purchase price "may not be considered as
substantial and fundamental breach of the contract as to defeat the object of the parties in entering
into the contract."4 The RTC believed that the respondents offer stated in her counsels letter dated
September 2, 1992 to settle what she thought was her unpaid balance of 751,000.00 showed her
sincerity and willingness to settle her obligation. Hence, it would be more equitable to give
respondent a chance to pay the balance plus interest within a given period of time.
Finally, the RTC stated that there was no factual or legal basis to award damages and attorneys
fees because there was no proof that either party acted fraudulently or in bad faith.
Thus, the dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered as follows:

LAW ON SALES SUMMER

2016
1. Allowing the defendant to pay the plaintiff within thirty (30) days from the finality hereof the
amount of 805,000.00, representing the unpaid purchase price of the subject property, with
interest thereon at 2% a month from January 1, 1992 until fully paid. Failure of the defendant
to pay said amount within the said period shall cause the automatic rescission of the contract
(Deed of Conditional Sale of Real Property with Assumption of Mortgage) and the plaintiff
and the defendant shall be restored to their former positions relative to the subject property
with each returning to the other whatever benefits each derived from the transaction;
2. Directing the defendant to allow the plaintiff to continue using the space occupied by her
for drugstore and cosmetic store without any rental pending payment of the aforesaid
balance of the purchase price.
3. Ordering the defendant, upon her full payment of the purchase price together with interest,
to execute a contract of lease for fifteen (15) years in favor of the plaintiff over the space for
the drugstore and cosmetic store at a fixed monthly rental of 8,000.00; and
4. Directing the plaintiff, upon full payment to her by the defendant of the purchase price
together with interest, to execute the necessary deed of sale, as well as to pay the Capital
Gains Tax, documentary stamps and other miscellaneous expenses necessary for securing
the BIR Clearance, and to pay the real estate taxes due on the subject property up to 1990,
all necessary to transfer ownership of the subject property to the defendant.
No pronouncement as to damages, attorneys fees and costs.
SO ORDERED.5
Ruling of the CA
On February 13, 2009, the CA rendered its decision affirming with modification the RTC Decision.
The CA agreed with the RTC that the contract entered into by the parties is a contract to sell but
ruled that the remedy of rescission could not apply because the respondents failure to pay the
petitioner the balance of the purchase price in the total amount of 805,000.00 was not a breach of
contract, but merely an event that prevented the seller (petitioner) from conveying title to the
purchaser (respondent). It reasoned that out of the total purchase price of the subject property in the
amount of 4,200,000.00, respondents remaining unpaid balance was only 805,000.00. Since
respondent had already paid a substantial amount of the purchase price, it was but right and just to
allow her to pay the unpaid balance of the purchase price plus interest. Thus, the decretal portion of
the CA Decision reads:
WHEREFORE, premises considered, the Decision dated 22 February 2006 and Order dated 22
December 2006 of the Regional Trial Court of Valenzuela City, Branch 172 in Civil Case No. 3945-V92 are AFFIRMED with MODIFICATION in that defendant-appellant Victoria T. Tuparan is hereby
ORDERED to pay plaintiff-appellee/appellant Mila A. Reyes, within 30 days from finality of this
Decision, the amount of 805,000.00 representing the unpaid balance of the purchase price of the
subject property, plus interest thereon at the rate of 6% per annum from 11 September 1992 up to
finality of this Decision and, thereafter, at the rate of 12% per annum until full payment. The ruling of
the trial court on the automatic rescission of the Deed of Conditional Sale with Assumption of
Mortgage is hereby DELETED. Subject to the foregoing, the dispositive portion of the trial courts
decision is AFFIRMED in all other respects.

LAW ON SALES SUMMER

2016
SO ORDERED.6
After the denial of petitioners motion for reconsideration and respondents motion for partial
reconsideration, petitioner filed the subject petition for review praying for the reversal and setting
aside of the CA Decision anchored on the following
ASSIGNMENT OF ERRORS
A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN
DISALLOWING THE OUTRIGHT RESCISSION OF THE SUBJECT DEED OF CONDITIONAL SALE
OF REAL PROPERTIES WITH ASSUMPTION OF MORTGAGE ON THE GROUND THAT
RESPONDENT TUPARANS FAILURE TO PAY PETITIONER REYES THE BALANCE OF THE
PURCHASE PRICE OF 805,000.00 IS NOT A BREACH OF CONTRACT DESPITE ITS OWN
FINDINGS THAT PETITIONER STILL RETAINS OWNERSHIP AND TITLE OVER THE SUBJECT
REAL PROPERTIES DUE TO RESPONDENTS REFUSAL TO PAY THE BALANCE OF THE TOTAL
PURCHASE PRICE OF 805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE
PRICE OF 4,200,000.00 OR 66% OF THE STIPULATED LAST INSTALLMENT OF 1,200,000.00
PLUS THE INTEREST THEREON. IN EFFECT, THE COURT OF APPEALS AFFIRMED AND
ADOPTED THE TRIAL COURTS CONCLUSION THAT THE RESPONDENTS NON-PAYMENT OF
THE 805,000.00 IS ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT.
B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN
DISREGARDING AS GROUND FOR THE RESCISSION OF THE SUBJECT CONTRACT THE
OTHER FRAUDULENT AND MALICIOUS ACTS COMMITTED BY THE RESPONDENT AGAINST
THE PETITIONER WHICH BY THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE
PERIOD OF THIRTY (30) DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO THE
PETITIONER THE 805,000.00 PLUS INTEREST THEREON.
C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO THE RESCISSION
OF THE SUBJECT CONTRACT, THE COURT OF APPEALS STILL SERIOUSLY ERRED AND
ABUSED ITS DISCRETION IN REDUCING THE INTEREST ON THE 805,000.00 TO ONLY "6%
PER ANNUM STARTING FROM THE DATE OF FILING OF THE COMPLAINT ON SEPTEMBER 11,
1992" DESPITE THE PERSONAL COMMITMENT OF THE RESPONDENT AND AGREEMENT
BETWEEN THE PARTIES THAT RESPONDENT WILL PAY INTEREST ON THE 805,000.00 AT
THE RATE OF 6% MONTHLY STARTING THE DATE OF DELINQUENCY ON DECEMBER 31,
1991.
D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION AND/OR MISAPPRECIATION OF FACTS RESULTING INTO THE DENIAL OF
THE CLAIM OF PETITIONER REYES FOR ACTUAL DAMAGES WHICH CORRESPOND TO THE
MILLIONS OF PESOS OF RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WHICH
RESPONDENT TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH
THE UNPAID BALANCE OF 805,000.00 AND DESPITE THE FACT THAT RESPONDENT DID
NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS CONTAINED IN HER AMENDED
COMPLAINT DATED APRIL 22, 2006.
E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER
REYES FOR THE 29,609.00 BACK RENTALS THAT WERE COLLECTED BY RESPONDENT
TUPARAN FROM THE OLD TENANTS OF THE PETITIONER.

LAW ON SALES SUMMER

2016
F. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING
THE PETITIONERS EARLIER "URGENT MOTION FOR ISSUANCE OF A PRELIMINARY
MANDATORY AND PROHIBITORY INJUNCTION" DATED JULY 7, 2008 AND THE
"SUPPLEMENT" THERETO DATED AUGUST 4, 2008 THEREBY CONDONING THE
UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE WITHIN ELEVEN
(11) YEARS THE PETITIONERS THREE (3) SEPARATE "MOTIONS FOR PRELIMINARY
INJUNCTION/ TEMPORARY RESTRAINING ORDER, ACCOUNTING AND DEPOSIT OF RENTAL
INCOME" DATED MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY 7, 2006 THEREBY
PERMITTING THE RESPONDENT TO UNJUSTLY ENRICH HERSELF BY CONTINUOUSLY
COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WITHOUT
ANY ACCOUNTING AND COURT DEPOSIT OF THE COLLECTED RENTALS/FRUITS AND THE
PETITIONERS "URGENT MOTION TO DIRECT DEFENDANT VICTORIA TUPARAN TO PAY THE
ACCUMULATED UNPAID REAL ESTATE TAXES AND SEF TAXES ON THE SUBJECT REAL
PROPERTIES" DATED JANUARY 13, 2007 THEREBY EXPOSING THE SUBJECT REAL
PROPERTIES TO IMMINENT AUCTION SALE BY THE CITY TREASURER OF VALENZUELA
CITY.
G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING
THE PETITIONERS CLAIM FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES
AGAINST THE RESPONDENT.
In sum, the crucial issue that needs to be resolved is whether or not the CA was correct in ruling that
there was no legal basis for the rescission of the Deed of Conditional Sale with Assumption of
Mortgage.
Position of the Petitioner
The petitioner basically argues that the CA should have granted the rescission of the subject Deed of
Conditional Sale of Real Properties with Assumption of Mortgage for the following reasons:
1. The subject deed of conditional sale is a reciprocal obligation whose outstanding
characteristic is reciprocity arising from identity of cause by virtue of which one obligation is
correlative of the other.
2. The petitioner was rescinding not enforcing the subject Deed of Conditional Sale
pursuant to Article 1191 of the Civil Code because of the respondents failure/refusal to pay
the 805,000.00 balance of the total purchase price of the petitioners properties within the
stipulated period ending December 31, 1991.
3. There was no slight or casual breach on the part of the respondent because she
(respondent) deliberately failed to comply with her contractual obligations with the petitioner
by violating the terms or manner of payment of the 1,200,000.00 balance and unjustly
enriched herself at the expense of the petitioner by collecting all rental payments for her
personal benefit and enjoyment.
Furthermore, the petitioner claims that the respondent is liable to pay interest at the rate of 6% per
month on her unpaid installment of 805,000.00 from the date of the delinquency, December 31,
1991, because she obligated herself to do so.

LAW ON SALES SUMMER

2016
Finally, the petitioner asserts that her claim for damages or lost income as well as for the back
rentals in the amount of 29,609.00 has been fully substantiated and, therefore, should have been
granted by the CA. Her claim for moral and exemplary damages and attorneys fees has been
likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of Conditional Sale with Assumption of Mortgage
entered into between the parties is a contract to sell and not a contract of sale because the title of
the subject properties still remains with the petitioner as she failed to pay the installment payments in
accordance with their agreement.
Respondent echoes the RTC position that her inability to pay the full balance on the purchase price
may not be considered as a substantial and fundamental breach of the subject contract and it would
be more equitable if she would be allowed to pay the balance including interest within a certain
period of time. She claims that as early as 1992, she has shown her sincerity by offering to pay a
certain amount which was, however, rejected by the petitioner.
Finally, respondent states that the subject deed of conditional sale explicitly provides that the
installment payments shall not bear any interest. Moreover, petitioner failed to prove that she was
entitled to back rentals.
The Courts Ruling
The petition lacks merit.
The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with
Assumption of Mortgage entered into by and among the two parties and FSL Bank on November 26,
1990 is a contract to sell and not a contract of sale. The subject contract was correctly classified as a
contract to sell based on the following pertinent stipulations:
8. That the title and ownership of the subject real properties shall remain with the First Party until the
full payment of the Second Party of the balance of the purchase price and liquidation of the
mortgage obligation of 2,000,000.00. Pending payment of the balance of the purchase price and
liquidation of the mortgage obligation that was assumed by the Second Party, the Second Party shall
not sell, transfer and convey and otherwise encumber the subject real properties without the written
consent of the First and Third Party.
9. That upon full payment by the Second Party of the full balance of the purchase price and the
assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed
of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute
Sale in favor of the Second Party.7
Based on the above provisions, the title and ownership of the subject properties remains with the
petitioner until the respondent fully pays the balance of the purchase price and the assumed
mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of
mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the
respondent.

LAW ON SALES SUMMER

2016
Accordingly, the petitioners obligation to sell the subject properties becomes demandable only upon
the happening of the positive suspensive condition, which is the respondents full payment of the
purchase price. Without respondents full payment, there can be no breach of contract to speak of
because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the
purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code
but rather just an event that prevents the petitioner from being bound to convey title to the
respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson8is enlightening:
The Court holds that the contract entered into by the Spouses Nabus and respondents was a
contract to sell, not a contract of sale.
A contract of sale is defined in Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
xxx
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for
the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the
first essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until the happening of an
event, which for present purposes we shall take as the full payment of the purchase price. What the
seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words, the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and, thus, ownership is retained by the prospective seller without
further remedies by the prospective buyer.
xxx

xxx

xxx

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, the prospective sellers obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

LAW ON SALES SUMMER

2016
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of
the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract of
sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment
of a suspensive condition, because in a conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely
abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected,
such that if there had already been previous delivery of the property subject of the sale to the buyer,
ownership thereto automatically transfers to the buyer by operation of law without any further act
having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may
have been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.
Further, Chua v. Court of Appeals, cited this distinction between a contract of sale and a contract to
sell:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold;
in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor
loses ownership over the property and cannot recover it until and unless the contract is resolved or
rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price.
In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a
breach but an event that prevents the obligation of the vendor to convey title from becoming
effective.
It is not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties. In this case, the contract entitled "Deed of Conditional Sale" is
actually a contract to sell. The contract stipulated that "as soon as the full consideration of the sale
has been paid by the vendee, the corresponding transfer documents shall be executed by the
vendor to the vendee for the portion sold." Where the vendor promises to execute a deed of absolute
sale upon the completion by the vendee of the payment of the price, the contract is only a contract to
sell." The aforecited stipulation shows that the vendors reserved title to the subject property until full
payment of the purchase price.
xxx
Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their favor
was merely a contract to sell, the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition. The full payment of the purchase price is the positive

LAW ON SALES SUMMER

2016
suspensive condition, the failure of which is not a breach of contract, but simply an event that
prevented the obligation of the vendor to convey title from acquiring binding force. Thus, for
its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the suspensive
condition which enforces a juridical relation. With this circumstance, there can be no rescission or
fulfillment of an obligation that is still non-existent, the suspensive condition not having occurred as
yet. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is
the obligors failure to comply with an obligation already extant, not a failure of a condition to render
binding that obligation. [Emphases and underscoring supplied]
Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of Atienza v.
Espidol, 9 where it was written:
Regarding the right to cancel the contract for non-payment of an installment, there is need to initially
determine if what the parties had was a contract of sale or a contract to sell. In a contract of sale, the
title to the property passes to the buyer upon the delivery of the thing sold. In a contract to sell, on
the other hand, the ownership is, by agreement, retained by the seller and is not to pass to the
vendee until full payment of the purchase price. In the contract of sale, the buyers non-payment of
the price is a negative resolutory condition; in the contract to sell, the buyers full payment of the
price is a positive suspensive condition to the coming into effect of the agreement. In the first case,
the seller has lost and cannot recover the ownership of the property unless he takes action to set
aside the contract of sale. In the second case, the title simply remains in the seller if the buyer does
not comply with the condition precedent of making payment at the time specified in the contract.
Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as
sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the
agreed price. Indeed, there seems no question that the parties understood this to be the case.
Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in
December 2002. That payment, said both the RTC and the CA, was a positive suspensive condition
failure of which was notregarded a breach in the sense that there can be no rescission of an
obligation (to turn over title) that did not yet exist since the suspensive condition had not
taken place. x x x. [Emphases and underscoring supplied]
Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that the Deed of
Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase
price of the subject property in the amount of 4,200,000.00, the remaining unpaid balance of
Tuparan (respondent) is only 805,000.00, a substantial amount of the purchase price has already
been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase
price to Reyes."10
Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the
reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment
of the obligation.
Unless the parties stipulated it, rescission is allowed only when the breach of the contract is
substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or
substantial is largely determined by the attendant circumstances. 11 In the case at bench, the subject
contract stipulated the following important provisions:
2. That the purchase price of 4,200,000.00 shall be paid as follows:

LAW ON SALES SUMMER

2016
a) 278,078.13 received in cash by the First Party but directly paid to the Third Party as
partial payment of the mortgage obligation of the First Party in order to reduce the amount to
2,000,000.00 only as of November 15, 1990;
b) 721,921.87 received in cash by the First Party as additional payment of the Second
Party;
c) 1,200,000.00 to be paid in installments as follows:
1. 200,000.00 payable on or before January 31, 1991;
2. 200,000.00 payable on or before June 30, 1991;
3. 800,000.00 payable on or before December 31, 1991;
Note: All the installments shall not bear any interest.
d) 2,000,000.00 outstanding balance of the mortgage obligation as of November 15, 1990
which is hereby assumed by the Second Party.
xxx
3. That the Third Party hereby acknowledges receipts from the Second Party P278,078.13 as partial
payment of the loan obligation of First Party in order to reduce the account to only 2,000,000.00 as
of November 15, 1990 to be assumed by the Second Party effective November 15, 1990. 12
From the records, it cannot be denied that respondent paid to FSL Bank petitioners mortgage
obligation in the amount of 2,278,078.13, which formed part of the purchase price of the subject
property. Likewise, it is not disputed that respondent paid directly to petitioner the amount of
721,921.87 representing the additional payment for the purchase of the subject property. Clearly,
out of the total price of 4,200,000.00, respondent was able to pay the total amount of
3,000,000.00, leaving a balance of 1,200,000.00 payable in three (3) installments.
Out of the 1,200,000.00 remaining balance, respondent paid on several dates the first and second
installments of 200,000.00 each. She, however, failed to pay the third and last installment of
800,000.00 due on December 31, 1991. Nevertheless, on August 31, 1992, respondent, through
counsel, offered to pay the amount of 751,000.00, which was rejected by petitioner for the reason
that the actual balance was 805,000.00 excluding the interest charges.
Considering that out of the total purchase price of 4,200,000.00, respondent has already paid the
substantial amount of 3,400,000.00, more or less, leaving an unpaid balance of only 805,000.00,
it is right and just to allow her to settle, within a reasonable period of time, the balance of the unpaid
purchase price. The Court agrees with the courts below that the respondent showed her sincerity
and willingness to comply with her obligation when she offered to pay the petitioner the amount of
751,000.00.
On the issue of interest, petitioner failed to substantiate her claim that respondent made a personal
commitment to pay a 6% monthly interest on the 805,000.00 from the date of delinquency,
December 31, 1991. As can be gleaned from the contract, there was a stipulation stating that: "All

LAW ON SALES SUMMER

2016
the installments shall not bear interest." The CA was, however, correct in imposing interest at the
rate of 6% per annum starting from the filing of the complaint on September 11, 1992.
1avvphi1

Finally, the Court upholds the ruling of the courts below regarding the non-imposition of damages
and attorneys fees. Aside from petitioners self-serving statements, there is not enough evidence on
record to prove that respondent acted fraudulently and maliciously against the petitioner. In the case
of Heirs of Atienza v. Espidol,13 it was stated:
Respondents are not entitled to moral damages because contracts are not referred to in Article 2219
of the Civil Code, which enumerates the cases when moral damages may be recovered. Article 2220
of the Civil Code allows the recovery of moral damages in breaches of contract where the defendant
acted fraudulently or in bad faith. However, this case involves a contract to sell, wherein full payment
of the purchase price is a positive suspensive condition, the non-fulfillment of which is not a breach
of contract, but merely an event that prevents the seller from conveying title to the purchaser. Since
there is no breach of contract in this case, respondents are not entitled to moral damages.
In the absence of moral, temperate, liquidated or compensatory damages, exemplary damages
cannot be granted for they are allowed only in addition to any of the four kinds of damages
mentioned.
WHEREFORE, the petition is DENIED.
SO ORDERED.

Form of Sales
General rule: FORM NOT REQUIRED FOR THE PERFECTION OF SALE
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 85240 July 12, 1991

HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely, MODESTA CLAUDEL,
LORETA HERRERA, JOSE CLAUDEL, BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA
CLAUDEL, MARIO CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL, ARSENIA
VILLALON, PERPETUA CLAUDEL and FELISA CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and
CELESTINA, all surnamed CLAUDEL, respondents.
Ricardo L. Moldez for petitioners.

LAW ON SALES SUMMER

2016
Juan T. Aquino for private respondents

SARMIENTO, J.:p
This petition for review on certiorari seeks the reversal of the decision rendered by the Court of
Appeals in CA-G.R. CV No. 04429 1 and the reinstatement of the decision of the then Court of First
Instance (CFI) of Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of Macario Claudel, et al.
v. Heirs of Cecilio Claudel, et al.," which dismissed the complaint of the private respondents against the
petitioners for cancellation of titles and reconveyance with damages. 2
As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the Bureau
of Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa,
Rizal, with an area of 10,107 square meters; he secured Transfer Certificate of Title (TCT) No. 7471
issued by the Registry of Deeds for the Province of Rizal in 1923; he also declared the lot in his
name, the latest Tax Declaration being No. 5795. He dutifully paid the real estate taxes thereon until
his death in 1937. 3 Thereafter, his widow "Basilia" and later, her son Jose, one of the herein petitioners,
paid the taxes.
The same piece of land purchased by Cecilio would, however, become the subject of protracted
litigation thirty-nine years after his death.
Two branches of Cecilio's family contested the ownership over the land-on one hand the children of
Cecilio, namely, Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo,
Nenita, Arsenia Villalon, and Felisa Claudel, and their children and descendants, now the herein
petitioners (hereinafter referred to as HEIRS OF CECILIO), and on the other, the brother and sisters
of Cecilio, namely, Macario, Esperidiona, Raymunda, and Celestina and their children and
descendants, now the herein private respondents (hereinafter referred to as SIBLINGS OF
CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Title on their shares, as follows:
TCT No. 395391 1,997 sq. m. Jose Claudel
TCT No. 395392 1,997 sq. m. Modesta Claudel and children
TCT No. 395393 1,997 sq. m. Armenia C. Villalon
TCT No. 395394 1,997 sq. m. Felisa Claudel

Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil Case
No. 5276-P as already adverted to at the outset, with the then Court of First Instance of Rizal, a
"Complaint for Cancellation of Titles and Reconveyance with Damages," alleging that 46 years
earlier, or sometime in 1930, their parents had purchased from the late Cecilio Claudel several
portions of Lot No. 1230 for the sum of P30.00. They admitted that the transaction was verbal.
However, as proof of the sale, the SIBLINGS OF CECILIO presented a subdivision plan of the said
land, dated March 25, 1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO.

LAW ON SALES SUMMER

2016
As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed the
complaint, disregarding the above sole evidence (subdivision plan) presented by the SIBLINGS OF
CECILIO, thus:
Examining the pleadings as well as the evidence presented in this case by the
parties, the Court can not but notice that the present complaint was filed in the name
of the Heirs of Macario, Espiridiona, Raymunda and Celestina, all surnamed Claudel,
without naming the different heirs particularly involved, and who wish to recover the
lots from the defendants. The Court tried to find this out from the evidence presented
by the plaintiffs but to no avail. On this point alone, the Court would not be able to
apportion the property to the real party in interest if ever they are entitled to it as the
persons indicated therein is in generic term (Section 2, Rule 3). The Court has
noticed also that with the exception of plaintiff Lampitoc and (sic) the heirs of
Raymunda Claudel are no longer residing in the property as they have (sic) left the
same in 1967. But most important of all the plaintiffs failed to present any document
evidencing the alleged sale of the property to their predecessors in interest by the
father of the defendants. Considering that the subject matter of the supposed sale is
a real property the absence of any document evidencing the sale would preclude the
admission of oral testimony (Statute of Frauds). Moreover, considering also that the
alleged sale took place in 1930, the action filed by the plaintiffs herein for the
recovery of the same more than thirty years after the cause of action has accrued
has already prescribed.
WHEREFORE, the Court renders judgment dismissing the complaint, without
pronouncement as to costs.
SO ORDERED. 5
On appeal, the following errors 6 were assigned by the SIBLINGS OF CECILIO:
1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT
DESPITE CONCLUSIVE EVIDENCE SHOWING THE PORTION SOLD TO EACH
OF PLAINTIFFS' PREDECESSORS.
2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED TO PROVE
ANY DOCUMENT EVIDENCING THE ALLEGED SALE.
3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN, EXHIBIT A,
SHOWING THE PORTIONS SOLD TO EACH OF THE PLAINTIFFS'
PREDECESSORS-IN-INTEREST.
4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS OWNERS OF
THE PORTION COVERED BY THE PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER CERTIFICATES
OF TITLE NOS. 395391, 395392, 395393 AND 395394 OF THE REGISTER OF
DEEDS OF RIZAL AS NULL AND VOID.
The Court of Appeals reversed the decision of the trial court on the following grounds:

LAW ON SALES SUMMER

2016
1. The failure to bring and prosecute the action in the name of the real party in interest, namely the
parties themselves, was not a fatal omission since the court a quo could have adjudicated the lots to
the SIBLINGS OF CECILIO, the parents of the herein respondents, leaving it to them to adjudicate
the property among themselves.
2. The fact of residence in the disputed properties by the herein respondents had been made
possible by the toleration of the deceased Cecilio.
3. The Statute of Frauds applies only to executory contracts and not to consummated sales as in the
case at bar where oral evidence may be admitted as cited in Iigo v. Estate of Magtoto 7 and Diana,
et al. v. Macalibo. 8
In addition,
. . . Given the nature of their relationship with one another it is not unusual that no
document to evidence the sale was executed, . . ., in their blind faith in friends and
relatives, in their lack of experience and foresight, and in their ignorance, men, in
spite of laws, will make and continue to make verbal contracts. . . . 9
4. The defense of prescription cannot be set up against the herein petitioners despite the lapse of
over forty years from the time of the alleged sale in 1930 up to the filing of the "Complaint for
Cancellation of Titles and Reconveyance . . ." in 1976.
According to the Court of Appeals, the action was not for the recovery of possession of real property
but for the cancellation of titles issued to the HEIRS OF CECILIO in 1973. Since the SIBLINGS OF
CECILIO commenced their complaint for cancellation of titles and reconveyance with damages on
December 7, 1976, only four years after the HEIRS OF CECILIO partitioned this lot among
themselves and obtained the corresponding Transfer Certificates of Titles, then there is no
prescription of action yet.
Thus the respondent court ordered the cancellation of the Transfer Certificates of Title Nos. 395391,
395392, 395393, and 395394 of the Register of Deeds of Rizal issued in the names of the HEIRS
OF CECILIO and corollarily ordered the execution of the following deeds of reconveyance:
To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.
To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.
To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.
To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.

10

The respondent court also enjoined that this disposition is without prejudice to the private
respondents, as heirs of their deceased parents, the SIBLINGS OF CECILIO, partitioning among
themselves in accordance with law the respective portions sold to and herein adjudicated to their
parents.

LAW ON SALES SUMMER

2016
The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927 square meters,
respectively would go to Cecilio or his heirs, the herein petitioners. Beyond these apportionments,
the HEIRS OF CECILIO would not receive anything else.
The crux of the entire litigation is whether or not the Court of Appeals committed a reversible error in
disposing the question of the true ownership of the lots.
And the real issues are:
1. Whether or not a contract of sale of land may be proven orally:
2. Whether or not the prescriptive period for filing an action for cancellation of titles
and reconveyance with damages (the action filed by the SIBLINGS OF CECILIO)
should be counted from the alleged sale upon which they claim their ownership
(1930) or from the date of the issuance of the titles sought to be cancelled in favor of
the HEIRS OF CECILIO (1976).
The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may
have been entered into. 11 For nowhere does law or jurisprudence prescribe that the contract of sale be
put in writing before such contract can validly cede or transmit rights over a certain real property between
the parties themselves.
However, in the event that a third party, as in this case, disputes the ownership of the property, the
person against whom that claim is brought can not present any proof of such sale and hence has no
means to enforce the contract. Thus the Statute of Frauds was precisely devised to protect the
parties in a contract of sale of real property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.
The provisions of the Statute of Frauds pertinent to the present controversy, state:
Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are
ratified:
xxx xxx xxx
2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases, an agreement hereafter made shall be unenforceable by action
unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:
xxx xxx xxx
e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;
xxx xxx xxx

LAW ON SALES SUMMER

2016
(Emphasis supplied.)
The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced in Writing. 12
The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence.
However when the Civil Code was re-written in 1949 (to take effect in 1950), the provisions of the
Statute of Frauds were taken out of the Rules of Evidence in order to be included under the title on
Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style but to show
that the Statute of Frauds is also a substantive law.
Therefore, except under the conditions provided by the Statute of Frauds, the existence of the
contract of sale made by Cecilio with his siblings 13 can not be proved.
On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in court
only in 1976 to enforce a light acquired allegedly as early as 1930, is difficult to comprehend.
The Civil Code states:
Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral
purchase made by their parents in 1930, then the action filed in 1976 would have clearly prescribed.
More than six years had lapsed.
We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in
favor of the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO
executed a contract of partition over the said properties.
But as we had pointed out, the law recognizes the superiority of the torrens title.
Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof
of ownership than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF
CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person
of any portion of the land could defeat the title of the registered owners thereof. 14
A torrens title, once registered, cannot be defeated, even by adverse, open and
notorious possession. A registered title under the torrens system cannot be defeated
by prescription. The title, once registered, is notice to the world. All persons must
take notice. No one can plead ignorance of the registration. 15
xxx xxx xxx

LAW ON SALES SUMMER

2016
Furthermore, a private individual may not bring an action for reversion or any action
which would have the effect of cancelling a free patent and the corresponding
certificate of title issued on the basis thereof, with the result that the land covered
thereby will again form part of the public domain, as only the Solicitor General or the
officer acting in his stead may do so. 16
It is true that in some instances, the Court did away with the irrevocability of the torrens title, but the
circumstances in the case at bar varied significantly from these cases.
In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded when the
transferee who took it had notice of the flaws in the transferor's title. No right passed to a transferee from
a vendor who did not have any in the first place. The transferees bought the land registered under the
torrens system from vendors who procured title thereto by means of fraud. With this knowledge, they can
not invoke the indefeasibility of a certificate of title against the private respondent to the extent of her
interest. This is because the torrens system of land registration, though indefeasible, should not be used
as a means to perpetrate fraud against the rightful owner of real property.
Mere registration of the sale is not good enough, good faith must concur with registration. Otherwise
registration becomes an exercise in futility. 18
In Amerol v. Bagumbaran, 19 we reversed the decision of the trial court. In this case, the title was
wrongfully registered in another person's name. An implied trust was therefore created. This trustee was
compelled by law to reconvey property fraudulently acquired notwithstanding the irrevocability of the
torrens title. 20
In the present case, however, the facts belie the claim of ownership.
For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona Raymunda, and
Celestina were living on the contested premises, they regularly paid a sum of money, designated as
"taxes" at first, to the widow of Cecilio, and later, to his heirs. 21 Why their payments were never directly
made to the Municipal Government of Muntinlupa when they were intended as payments for "taxes" is
difficult to square with their claim of ownership. We are rather inclined to consider this fact as an
admission of non-ownership. And when we consider also that the petitioners HEIRS OF CECILIO had
individually paid to the municipal treasury the taxes corresponding to the particular portions they were
occupying, 22 we can readily see the superiority of the petitioners' position.
Renato Solema and Decimina Calvez, two of the respondents who derive their right from the
SIBLINGS OF CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the HEIRS OF
CLAUDEL. 23 The Calvezes should not be paying for a lot that they already owned and if they did not
acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of the
property, they had to ask first the permission of Jose Claudel again, one of the HEIRS OF
CECILIO. 24 In fact the only reason why any of the heirs of SIBLINGS OF CECILIO could stay on the lot
was because they were allowed to do so by the HEIRS OF CECILIO. 25
In view of the foregoing, we find that the appellate court committed a reversible error in denigrating
the transfer certificates of title of the petitioners to the survey or subdivision plan proffered by the
private respondents. The Court generally recognizes the profundity of conclusions and findings of
facts reached by the trial court and hence sustains them on appeal except for strong and cogent

LAW ON SALES SUMMER

2016
reasons inasmuch as the trial court is in a better position to examine real evidence and observe the
demeanor of witnesses in a case.
No clear specific contrary evidence was cited by the respondent appellate court to justify the reversal
of the lower court's findings. Thus, in this case, between the factual findings of the trial court and the
appellate court, those of the trial court must prevail over that of the latter. 26
WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE the decision rendered in
CA-G.R. CV No. 04429, and we hereby REINSTATE the decision of the then Court of First Instance
of Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for the dismissal of the
Complaint for Cancellation of Titles and Reconveyance with Damages filed by the Heirs of Macario,
Esperidiona Raymunda, and Celestina, all surnamed CLAUDEL. Costs against the private
respondents.
SO ORDERED.

EXCEPTIONS: IMPORTANCE OF FORM:

1. FOR VALIDITY SALE OF REALTY THROUGH AN AGENT
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174978

July 31, 2013

SALLY YOSHIZAKI, Petitioner,

vs.
JOY TRAINING CENTER OF AURORA, INC., Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari 1 filed by petitioner Sally Yoshizaki to challenge the
February 14, 2006 Decision2 and the October 3, 2006 Resolution 3 of the Court of Appeals (CA) in
CA-G.R. CV No. 83773.
The Factual Antecedents
Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-stock, non-profit religious
educational institution. It was the registered owner of a parcel of land and the building thereon (real
properties) located in San Luis Extension Purok No. 1, Barangay Buhangin, Baler, Aurora. The
parcel of land was designated as Lot No. 125-L and was covered by Transfer Certificate of Title
(TCT) No. T-25334.4

LAW ON SALES SUMMER

2016
On November 10, 1998, the spouses Richard and Linda Johnson sold the real properties, a
Wrangler jeep, and other personal properties in favor of the spouses Sally and Yoshio Yoshizaki. On
the same date, a Deed of Absolute Sale5 and a Deed of Sale of Motor Vehicle6 were executed in
favor of the spouses Yoshizaki. The spouses Johnson were members of Joy Trainings board of
trustees at the time of sale. On December 7, 1998, TCT No. T-25334 was cancelled and TCT No. T260527 was issued in the name of the spouses Yoshizaki.
On December 8, 1998, Joy Training, represented by its Acting Chairperson Reuben V. Rubio, filed
an action for the Cancellation of Sales and Damages with prayer for the issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction against the spouses Yoshizaki and the
spouses Johnson before the Regional Trial Court of Baler, Aurora (RTC).8 On January 4, 1999, Joy
Training filed a Motion to Amend Complaint with the attached Amended Complaint. The amended
complaint impleaded Cecilia A. Abordo, officer-in-charge of the Register of Deeds of Baler, Aurora,
as additional defendant. The RTC granted the motion on the same date. 9
In the complaint, Joy Training alleged that the spouses Johnson sold its properties without the
requisite authority from the board of directors.10 It assailed the validity of a board resolution dated
September 1, 199811 which purportedly granted the spouses Johnson the authority to sell its real
properties. It averred that only a minority of the board, composed of the spouses Johnson and
Alexander Abadayan, authorized the sale through the resolution. It highlighted that the Articles of
Incorporation provides that the board of trustees consists of seven members, namely: the spouses
Johnson, Reuben, Carmencita Isip, Dominador Isip, Miraflor Bolante, and Abelardo Aquino. 12
Cecilia and the spouses Johnson were declared in default for their failure to file an Answer within the
reglementary period.13 On the other hand, the spouses Yoshizaki filed their Answer with Compulsory
Counterclaims on June 23, 1999. They claimed that Joy Training authorized the spouses Johnson to
sell the parcel of land. They asserted that a majority of the board of trustees approved the resolution.
They maintained that the actual members of the board of trustees consist of five members, namely:
the spouses Johnson, Reuben, Alexander, and Abelardo. Moreover, Connie Dayot, the corporate
secretary, issued a certification dated February 20, 1998 14 authorizing the spouses Johnson to act on
Joy Trainings behalf. Furthermore, they highlighted that the Wrangler jeep and other personal
properties were registered in the name of the spouses Johnson. 15 Lastly, they assailed the RTCs
jurisdiction over the case. They posited that the case is an intra-corporate dispute cognizable by the
Securities and Exchange Commission (SEC).16
After the presentation of their testimonial evidence, the spouses Yoshizaki formally offered in
evidence photocopies of the resolution and certification, among others. 17 Joy Training objected to the
formal offer of the photocopied resolution and certification on the ground that they were not the best
evidence of their contents.18 In an Order19 dated May 18, 2004, the RTC denied the admission of the
offered copies.
The RTC Ruling
The RTC ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real
properties. However, it held that the sale was valid because Joy Training authorized the spouses
Johnson to sell the real properties. It recognized that there were only five actual members of the
board of trustees; consequently, a majority of the board of trustees validly authorized the sale. It also
ruled that the sale of personal properties was valid because they were registered in the spouses
Johnsons name.20

LAW ON SALES SUMMER

2016
Joy Training appealed the RTC decision to the CA.
The CA Ruling
The CA upheld the RTCs jurisdiction over the case but reversed its ruling with respect to the sale of
real properties. It maintained that the present action is cognizable by the RTC because it involves
recovery of ownership from third parties.
It also ruled that the resolution is void because it was not approved by a majority of the board of
trustees. It stated that under Section 25 of the Corporation Code, the basis for determining the
composition of the board of trustees is the list fixed in the articles of incorporation. Furthermore,
Section 23 of the Corporation Code provides that the board of trustees shall hold office for one year
and until their successors are elected and qualified. Seven trustees constitute the board since Joy
Training did not hold an election after its incorporation.
The CA did not also give any probative value to the certification. It stated that the certification failed
to indicate the date and the names of the trustees present in the meeting. Moreover, the spouses
Yoshizaki did not present the minutes that would prove that the certification had been issued
pursuant to a board resolution. 21 The CA also denied22 the spouses Yoshizakis motion for
reconsideration, prompting Sally23 to file the present petition.
The Petition
Sally avers that the RTC has no jurisdiction over the case. She points out that the complaint was
principally for the nullification of a corporate act. The transfer of the SECs original and exclusive
jurisdiction to the RTC24 does not have any retroactive application because jurisdiction is a
substantive matter.
She argues that the spouses Johnson were authorized to sell the parcel of land and that she was a
buyer in good faith because she merely relied on TCT No. T-25334. The title states that the spouses
Johnson are Joy Trainings representatives.
She also argues that it is a basic principle that a party dealing with a registered land need not go
beyond the certificate of title to determine the condition of the property. In fact, the resolution and the
certification are mere reiterations of the spouses Johnsons authority in the title to sell the real
properties. She further claims that the resolution and the certification are not even necessary to
clothe the spouses Johnson with the authority to sell the disputed properties. Furthermore, the
contract of agency was subsisting at the time of sale because Section 108 of Presidential Decree
No. (PD) 1529 requires that the revocation of authority must be approved by a court of competent
jurisdiction and no revocation was reflected in the certificate of title. 25
The Case for the Respondent
In its Comment26 and Memorandum,27 Joy Training takes the opposite view that the RTC has
jurisdiction over the case. It posits that the action is essentially for recovery of property and is
therefore a case cognizable by the RTC. Furthermore, Sally is estopped from questioning the RTCs
jurisdiction because she seeks to reinstate the RTC ruling in the present case.

LAW ON SALES SUMMER

2016
Joy Training maintains that it did not authorize the spouses Johnson to sell its real properties. TCT
No. T-25334 does not specifically grant the authority to sell the parcel of land to the spouses
Johnson. It further asserts that the resolution and the certification should not be given any probative
value because they were not admitted in evidence by the RTC. It argues that the resolution is void
for failure to comply with the voting requirements under Section 40 of the Corporation Code. It also
posits that the certification is void because it lacks material particulars.
The Issues
The case comes to us with the following issues:
1) Whether or not the RTC has jurisdiction over the present case; and
2) Whether or not there was a contract of agency to sell the real properties between Joy
Training and the spouses Johnson.
3) As a consequence of the second issue, whether or not there was a valid contract of sale
of the real properties between Joy Training and the spouses Yoshizaki.
Our Ruling
We find the petition unmeritorious.
The RTC has jurisdiction over disputes concerning the application of the Civil Code
Jurisdiction over the subject matter is the power to hear and determine cases of the general class to
which the proceedings before a court belong.28 It is conferred by law. The allegations in the complaint
and the status or relationship of the parties determine which court has jurisdiction over the nature of
an action.29 The same test applies in ascertaining whether a case involves an intra-corporate
controversy.30
The CA correctly ruled that the RTC has jurisdiction over the present case. Joy Training seeks to
nullify the sale of the real properties on the ground that there was no contract of agency between Joy
Training and the spouses Johnson. This was beyond the ambit of the SECs original and exclusive
jurisdiction prior to the enactment of Republic Act No. 8799 which only took effect on August 3, 2000.
The determination of the existence of a contract of agency and the validity of a contract of sale
requires the application of the relevant provisions of the Civil Code. It is a well-settled rule that
"disputes concerning the application of the Civil Code are properly cognizable by courts of general
jurisdiction."31 Indeed, no special skill requiring the SECs technical expertise is necessary for the
disposition of this issue and of this case.
The Supreme Court may review questions of fact in a petition for review on certiorari when the
findings of fact by the lower courts are conflicting
We are aware that the issues at hand require us to review the pieces of evidence presented by the
parties before the lower courts. As a general rule, a petition for review on certiorari precludes this
Court from entertaining factual issues; we are not duty-bound to analyze again and weigh the
evidence introduced in and considered by the lower courts. However, the present case falls under
the recognized exception that a review of the facts is warranted when the findings of the lower courts

LAW ON SALES SUMMER

2016
are conflicting.32 Accordingly, we will examine the relevant pieces of evidence presented to the lower
court.
There is no contract of agency between Joy Training and the spouses Johnson to sell the parcel of
land with its improvements
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds
himself to render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter." It may be express, or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority.
As a general rule, a contract of agency may be oral. However, it must be written when the law
requires a specific form.33 Specifically, Article 1874 of the Civil Code provides that the contract of
agency must be written for the validity of the sale of a piece of land or any interest therein.
Otherwise, the sale shall be void. A related provision, Article 1878 of the Civil Code, states that
special powers of attorney are necessary to convey real rights over immovable properties.
The special power of attorney mandated by law must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the authorized act. We unequivocably declared in
Cosmic Lumber Corporation v. Court of Appeals 34 that a special power of attorneymust express the
powers of the agent in clear and unmistakable language for the principal to confer the right upon an
agent to sell real estate. When there is any reasonable doubt that the language so used conveys
such power, no such construction shall be given the document. The purpose of the law in requiring a
special power of attorney in the disposition of immovable property is to protect the interest of an
unsuspecting owner from being prejudiced by the unwarranted act of another and to caution the
buyer to assure himself of the specific authorization of the putative agent. 35
In the present case, Sally presents three pieces of evidence which allegedly prove that Joy Training
specially authorized the spouses Johnson to sell the real properties: (1) TCT No. T-25334, (2) the
resolution, (3) and the certification. We quote the pertinent portions of these documents for a
thorough examination of Sallys claim. TCT No. T-25334, entered in the Registry of Deeds on March
5, 1998, states:
A parcel of land x x x is registered in accordance with the provisions of the Property Registration
Decree in the name of JOY TRAINING CENTER OF AURORA, INC., Rep. by Sps. RICHARD A.
JOHNSON and LINDA S. JOHNSON, both of legal age, U.S. Citizen, and residents of P.O. Box
3246, Shawnee, Ks 66203, U.S.A.36(emphasis ours)
On the other hand, the fifth paragraph of the certification provides:
Further, Richard A. and Linda J. Johnson were given FULL AUTHORITY for ALL SIGNATORY
purposes for the corporation on ANY and all matters and decisions regarding the property and
ministry here. They will follow guidelines set forth according to their appointment and ministerial and
missionary training and in that, they will formulate and come up with by-laws which will address and
serve as governing papers over the center and corporation. They are to issue monthly and quarterly
statements to all members of the corporation. 37 (emphasis ours)
The resolution states:

LAW ON SALES SUMMER

2016
We, the undersigned Board of Trustees (in majority) have authorized the sale of land and building
owned by spouses Richard A. and Linda J. Johnson (as described in the title SN No. 5102156 filed
with the Province of Aurora last 5th day of March, 1998. These proceeds are going to pay
outstanding loans against the project and the dissolution of the corporation shall follow the sale. This
is a religious, non-profit corporation and no profits or stocks are issued. 38 (emphasis ours)
The above documents do not convince us of the existence of the contract of agency to sell the real
properties. TCT No. T-25334 merely states that Joy Training is represented by the spouses Johnson.
The title does not explicitly confer to the spouses Johnson the authority to sell the parcel of land and
the building thereon. Moreover, the phrase "Rep. by Sps. RICHARD A. JOHNSON and LINDA S.
JOHNSON"39 only means that the spouses Johnson represented Joy Training in land registration.
The lower courts should not have relied on the resolution and the certification in resolving the
case. The spouses Yoshizaki did not produce the original documents during trial. They also failed to
show that the production of pieces of secondary evidence falls under the exceptions enumerated in
Section 3, Rule 130 of the Rules of Court.40 Thus, the general rule that no evidence shall be
admissible other than the original document itself when the subject of inquiry is the contents of a
document applies.41
1wphi1

Nonetheless, if only to erase doubts on the issues surrounding this case, we declare that even if we
consider the photocopied resolution and certification, this Court will still arrive at the same
conclusion.
The resolution which purportedly grants the spouses Johnson a special power of attorney is negated
by the phrase "land and building owned by spouses Richard A. and Linda J. Johnson." 42 Even if we
disregard such phrase, the resolution must be given scant consideration. We adhere to the CAs
position that the basis for determining the board of trustees composition is the trustees as fixed in
the articles of incorporation and not the actual members of the board. The second paragraph of
Section 2543 of the Corporation Code expressly provides that a majority of the number of trustees as
fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate
business.
Moreover, the certification is a mere general power of attorney which comprises all of Joy Trainings
business.44Article 1877 of the Civil Code clearly states that "an agency couched in general terms
comprises only acts of administration, even if the principal should state that he withholds no power
or that the agent may execute such acts as he may consider appropriate, or even though the agency
should authorize a general and unlimited management." 45
The contract of sale is unenforceable
Necessarily, the absence of a contract of agency renders the contract of sale unenforceable; 46 Joy
Training effectively did not enter into a valid contract of sale with the spouses Yoshizaki. Sally cannot
also claim that she was a buyer in good faith. She misapprehended the rule that persons dealing
with a registered land have the legal right to rely on the face of the title and to dispense with the
need to inquire further, except when the party concerned has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry.47 This rule applies
when the ownership of a parcel of land is disputed and not when the fact of agency is contested.

LAW ON SALES SUMMER

2016
At this point, we reiterate the established principle that persons dealing with an agent must ascertain
not only the fact of agency, but also the nature and extent of the agents authority.48 A third person
with whom the agent wishes to contract on behalf of the principal may require the presentation of the
power of attorney, or the instructions as regards the agency.49 The basis for agency is representation
and a person dealing with an agent is put upon inquiry and must discover on his own peril the
authority of the agent.50 Thus, Sally bought the real properties at her own risk; she bears the risk of
injury occasioned by her transaction with the spouses Johnson.
WHEREFORE, premises considered, the assailed Decision dated February 14, 2006 and Resolution
dated October 3, 2006 of the Court of Appeals are hereby AFFIRMED and the petition is hereby
DENIED for lack of merit.
SO ORDERED.

SALE OF LARGE CATTLE (ART. 1581, SEC. 529 Admin Code)

2. For Convenience (Arts. 1357 & 1358)
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 78903 February 28, 1990
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE, JR., respondents.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent.

MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court of Appeals rendered on May 26,
1987, upholding the validity of the sale of a parcel of land by petitioner Segundo Dalion (hereafter,
"Dalion") in favor of private respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described
thus:
A parcel of land located at Panyawan, Sogod, Southern Leyte, declared in the name
of Segundo Dalion, under Tax Declaration No. 11148, with an area of 8947 hectares,
assessed at P 180.00, and bounded on the North, by Sergio Destriza and Titon
Veloso, East, by Feliciano Destriza, by Barbara Bonesa (sic); and West, by Catalino
Espina. (pp. 36-37, Rollo)

LAW ON SALES SUMMER

2016
The decision affirms in toto the ruling of the trial court 1 issued on January 17, 1984, the dispositive
portion of which provides as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby renders judgment.
(a) Ordering the defendants to deliver to the plaintiff the parcel of land subject of this
case, declared in the name of Segundo Dalion previously under Tax Declaration No.
11148 and lately under Tax Declaration No. 2297 (1974) and to execute the
corresponding formal deed of conveyance in a public document in favor of the
plaintiff of the said property subject of this case, otherwise, should defendants for any
reason fail to do so, the deed shall be executed in their behalf by the Provincial
Sheriff or his Deputy;
(b) Ordering the defendants to pay plaintiff the amount of P2,000.00 as attorney's
fees and P 500.00 as litigation expenses, and to pay the costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:
On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on a private
document of absolute sale, dated July 1, 1965 (Exhibit "A"), allegedly executed by Dalion, who,
however denied the fact of sale, contending that the document sued upon is fictitious, his signature
thereon, a forgery, and that subject land is conjugal property, which he and his wife acquired in 1960
from Saturnina Sabesaje as evidenced by the "Escritura de Venta Absoluta" (Exhibit "B"). The
spouses denied claims of Sabesaje that after executing a deed of sale over the parcel of land, they
had pleaded with Sabesaje, their relative, to be allowed to administer the land because Dalion did
not have any means of livelihood. They admitted, however, administering since 1958, five (5) parcels
of land in Sogod, Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje,
who died in 1956. They never received their agreed 10% and 15% commission on the sales of copra
and abaca, respectively. Sabesaje's suit, they countered, was intended merely to harass, preempt
and forestall Dalion's threat to sue for these unpaid commissions.
From the adverse decision of the trial court, Dalion appealed, assigning errors some of which,
however, were disregarded by the appellate court, not having been raised in the court below. While
the Court of Appeals duly recognizes Our authority to review matters even if not assigned as errors
in the appeal, We are not inclined to do so since a review of the case at bar reveals that the lower
court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have no reason to dispute the Court of
Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the same property deeded
out in Exhibit "B". The boundaries delineating it from adjacent lots are identical. Both
documents detail out the following boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;

LAW ON SALES SUMMER

2016
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of the contract of sale of a parcel of
land and b) the necessity of a public document for transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs. 21 and 23 of Rule 132 of the
Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how proved.-Before any
private writing may be received in evidence, its due execution and authenticity must
be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the handwriting of the maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. The handwriting of a person may be proved
by any witness who believes it to be the handwriting of such person, and has seen
the person write, or has seen writing purporting to be his upon which the witness has
acted or been charged, and has thus acquired knowledge of the handwriting of such
person. Evidence respecting the handwriting may also be given by a comparison,
made by the witness or the court, with writings admitted or treated as genuine by the
party against whom the evidence is offered, or proved to be genuine to the
satisfaction of the judge. (Rule 132, Revised Rules of Court)
And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject deed positively testified on the
authenticity thereof. They categorically stated that it had been executed and signed
by the signatories thereto. In fact, one of such witnesses, Gerardo M. Ogsoc,
declared on the witness stand that he was the one who prepared said deed of sale
and had copied parts thereof from the "Escritura De Venta Absoluta" (Exhibit B) by
which one Saturnina Sabesaje sold the same parcel of land to appellant Segundo
Dalion. Ogsoc copied the bounderies thereof and the name of appellant Segundo
Dalion's wife, erroneously written as "Esmenia" in Exhibit "A" and "Esmenia" in
Exhibit "B". (p. 41, Rollo)
xxx xxx xxx

LAW ON SALES SUMMER

2016
Against defendant's mere denial that he signed the document, the positive
testimonies of the instrumental Witnesses Ogsoc and Espina, aside from the
testimony of the plaintiff, must prevail. Defendant has affirmatively alleged forgery,
but he never presented any witness or evidence to prove his claim of forgery. Each
party must prove his own affirmative allegations (Section 1, Rule 131, Rules of
Court). Furthermore, it is presumed that a person is innocent of a crime or wrong
(Section 5 (a), Idem), and defense should have come forward with clear and
convincing evidence to show that plaintiff committed forgery or caused said forgery to
be committed, to overcome the presumption of innocence. Mere denial of having
signed, does not suffice to show forgery.
In addition, a comparison of the questioned signatories or specimens (Exhs. A-2 and
A-3) with the admitted signatures or specimens (Exhs. X and Y or 3-C) convinces the
court that Exhs. A-2 or Z and A-3 were written by defendant Segundo Dalion who
admitted that Exhs. X and Y or 3-C are his signatures. The questioned signatures
and the specimens are very similar to each other and appear to be written by one
person.
Further comparison of the questioned signatures and the specimens with the
signatures Segundo D. Dalion appeared at the back of the summons (p. 9, Record);
on the return card (p. 25, Ibid.); back of the Court Orders dated December 17, 1973
and July 30, 1974 and for October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and on
the open court notice of April 13, 1983 (p. 235, Ibid.) readily reveal that the
questioned signatures are the signatures of defendant Segundo Dalion.
It may be noted that two signatures of Segundo D. Dalion appear on the face of the
questioned document (Exh. A), one at the right corner bottom of the document (Exh.
A-2) and the other at the left hand margin thereof (Exh. A-3). The second signature is
already a surplusage. A forger would not attempt to forge another signature, an
unnecessary one, for fear he may commit a revealing error or an erroneous stroke.
(Decision, p. 10) (pp. 42-43, Rollo)
We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we reiterate that
Appellate courts have consistently subscribed to the principle that conclusions and
findings of fact by the trial courts are entitled to great weight on appeal and should
not be disturbed unless for strong and cogent reasons, since it is undeniable that the
trial court is in a more advantageous position to examine real evidence, as well as to
observe the demeanor of the witnesses while testifying in the case (Chase v.
Buencamino, Sr., G.R. No. L-20395, May 13, 1985, 136 SCRA 365; Pring v. Court of
Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185)
Assuming authenticity of his signature and the genuineness of the document, Dalion nonetheless
still impugns the validity of the sale on the ground that the same is embodied in a private document,
and did not thus convey title or right to the lot in question since "acts and contracts which have for
their object the creation, transmission, modification or extinction of real rights over immovable
property must appear in a public instrument" (Art. 1358, par 1, NCC).

LAW ON SALES SUMMER

2016
This argument is misplaced. The provision of Art. 1358 on the necessity of a public document is only
for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract
of sale of a parcel of land that this be embodied in a public instrument.
A contract of sale is a consensual contract, which means that the sale is perfected by mere consent.
No particular form is required for its validity. Upon perfection of the contract, the parties may
reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold
(Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and to
execute corresponding formal deed of conveyance in a public document. Under Art. 1498, NCC,
when the sale is made through a public instrument, the execution thereof is equivalent to the delivery
of the thing. Delivery may either be actual (real) or constructive. Thus delivery of a parcel of land
may be done by placing the vendee in control and possession of the land (real) or by embodying the
sale in a public instrument (constructive).
As regards petitioners' contention that the proper action should have been one for specific
performance, We believe that the suit for recovery of ownership is proper. As earlier stated, Art. 1475
of the Civil Code gives the parties to a perfected contract of sale the right to reciprocally demand
performance, and to observe a particular form, if warranted, (Art. 1357). The trial court, aptly
observed that Sabesaje's complaint sufficiently alleged a cause of action to compel Dalion to
execute a formal deed of sale, and the suit for recovery of ownership, which is premised on the
binding effect and validity inter partes of the contract of sale, merely seeks consummation of said
contract.
... . A sale of a real property may be in a private instrument but that contract is valid
and binding between the parties upon its perfection. And a party may compel the
other party to execute a public instrument embodying their contract affecting real
rights once the contract appearing in a private instrument hag been perfected (See
Art. 1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals upholding the
ruling of the trial court is hereby AFFIRMED. No costs.
SO ORDERED.

3. FOR ENFORCEABILITY UNDER STATUTE OF FRAUDS (1403 AND

1405)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

LAW ON SALES SUMMER

2016
G.R. No. 128120

October 20, 2004

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL
SANTOS, BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ,
NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION,
JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing
himself without court sanction as "JOOST PEKELHARING)," MASSIMO ROSSI and ED
ENRIQUEZ, petitioners,
vs.
COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO
K. LITONJUA,respondents.
DECISION
TINGA, J.:
Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November 1996 2 and
31 January 1997,3 in CA-G.R. CV No. 35886, entitled "ALS Management et al., v. Swedish Match,
AB et al." The appellate court overturned the trial courts Order4 dismissing the respondents
complaint for specific performance and remanded the case to the trial court for further proceedings.
Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not
doing business in the Philippines. SMAB, however, had three subsidiary corporations in the
Philippines, all organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco), Provident
Tree Farms, Inc., and OTT/Louie (Phils.), Inc.
Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden
and the latters worldwide match, lighter and shaving products operation to Eemland Management
Services, now known as Swedish Match NV of Netherlands, (SMNV), a corporation organized and
existing under the laws of Netherlands. STORA, however, retained for itself the packaging business.
SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the
shaving business. SMNV adopted a two-pronged strategy, the first being to sell its shares in Phimco
Industries, Inc. and a match company in Brazil, which proposed sale would stave-off defaults in the
loan covenants of SMNV with its syndicate of lenders. The other move was to sell at once or in one
package all the SMNV companies worldwide which were engaged in match and lighter operations
thru a global deal (hereinafter, global deal).
Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)the
management company of the Swedish Match groupwas commissioned and granted full powers to
negotiate by SMNV, with the resulting transaction, however, made subject to final approval by the
board. Enriquez was held under strict instructions that the sale of Phimco shares should be executed
on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez came to the
Philippines in November 1989 and informed the Philippine financial and business circles that the
Phimco shares were for sale.
Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP
Retirement and Separation Benefits System, herein respondent ALS Management & Development
Corporation and respondent Antonio Litonjua (Litonjua), the president and general manager of ALS.

LAW ON SALES SUMMER

2016
In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latters
shares in Phimco and all of Phimcos shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.),
Inc. for the sum ofP750,000,000.00.5
Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December
1989, thanked respondents for their interest in the Phimco shares. Rossi informed respondents that
their price offer was below their expectations but urged them to undertake a comprehensive review
and analysis of the value and profit potentials of the Phimco shares, with the assurance that
respondents would enjoy a certain priority although several parties had indicated their interest to buy
the shares.6
Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding
the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the
disputed shares, excluding the lighter division for US$30.6 million, which per another letter of the
same date was increased to US$36 million.7 Litonjua stressed that the bid amount could be adjusted
subject to availability of additional information and audit verification of the company finances.
Responding to Litonjuas offer, Rossi sent his letter dated 11 June 1990, informing the former that
ALS should undertake a due diligence process or pre-acquisition audit and review of the draft
contract for the Match and Forestry activities of Phimco at ALS convenience. However, Rossi made
it clear that at the completion of the due diligence process, ALS should submit its final offer in US
dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to ninety-six percent
(96%) of the Match and Forestry activities of Phimco. Rossi added that in case the "global deal"
presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would
reimburse up to US$20,000.00 of ALS costs related to the due diligence process. 8
Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in
SMABs approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he was
advised that one final bidder would be selected from among the four contending groups as of that
date and that the decision would be made by 6 June 1990. He criticized SMABs decision to accept a
new bidder who was not among those who participated in the 25 May 1990 bidding. He informed
Rossi that it may not be possible for them to submit their final bid on 30 June 1990, citing the advice
to him of the auditing firm that the financial statements would not be completed until the end of July.
Litonjua added that he would indicate in their final offer more specific details of the payment
mechanics and consider the possibility of signing a conditional sale at that time. 9
Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they
would be unable to submit the final offer by 30 June 1990, considering that the acquisition audit of
Phimco and the review of the draft agreements had not yet been completed. He said, however, that
they would be able to finalize their bid on 17 July 1990 and that in case their bid would turn out
better than any other proponent, they would remit payment within ten (10) days from the execution of
the contracts.10
Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in
view of Litonjuas failure to make a firm commitment for the shares of Swedish Match in Phimco by
30 June 1990.11
In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional
contract with a local group for the disposal of Phimco. He told Litonjua that his bid would no longer

LAW ON SALES SUMMER

2016
be considered unless the local group would fail to consummate the transaction on or before 15
September1990.12
Apparently irked by SMABs decision to junk his bid, Litonjua promptly responded by letter dated 4
July 1990. Contrary to his prior manifestations, he asserted that, for all intents and purposes, the
US$36 million bid which he submitted on 21 May 1990 was their final bid based on the financial
statements for the year 1989. He pointed out that they submitted the best bid and they were already
finalizing the terms of the sale. He stressed that they were firmly committed to their bid of US$36
million and if ever there would be adjustments in the bid amount, the adjustments were brought
about by SMABs subsequent disclosures and validated accounts, such as the aspect that only
ninety-six percent (96%) of Phimco shares was actually being sold and not one-hundred percent
(100%).13
More than two months from receipt of Litonjuas last letter, Enriquez sent a fax communication to the
former, advising him that the proposed sale of SMABs shares in Phimco with local buyers did not
materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the sale of Phimco
shares. He indicated that SMAB would be prepared to negotiate with ALS on an exclusive basis for a
period of fifteen (15) days from 26 September 1990 subject to the terms contained in the letter.
Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)day period, SMAB would enter into negotiations with other buyers. 14
Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and
conditions for the sale of the Phimco shares. He emphasized that the new offer constituted an
attempt to reopen the already perfected contract of sale of the shares in his favor. He intimated that
he could not accept the new terms and conditions contained therein. 15
On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of
Pasig a complaint for specific performance with damages, with a prayer for the issuance of a writ of
preliminary injunction, against defendants, now petitioners. The individual defendants were sued in
their respective capacities as officers of the corporations or entities involved in the aborted
transaction.
Aside from the averments related to their principal cause of action for specific performance,
respondents alleged that the Phimco management, in utter bad faith, induced SMAB to violate its
contract with respondents. They contended that the Phimco management took an interest in
acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such
sale by interposing various obstacles to the completion of the acquisition audit. 16 Respondents
claimed that the Phimco management maliciously and deliberately delayed the delivery of
documents to Laya Manabat Salgado & Co. which prevented them from completing the acquisition
audit in time for the deadline on 30 June 1990 set by petitioners. 17 Respondents added that SMABs
refusal to consummate the perfected sale of the Phimco shares amounted to an abuse of right and
constituted conduct which is contrary to law, morals, good customs and public policy.18
Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or
otherwise implementing the sale or transfer thereof, in favor of any person or entity other than
respondents, and that any such sale to third parties be annulled and set aside. Respondents also
asked that petitioners be ordered to execute all documents or instruments and perform all acts
necessary to consummate the sales agreement in their favor.

LAW ON SALES SUMMER

2016
Traversing the complaint, petitioners alleged that respondents have no cause of action, contending
that no perfected contract, whether verbal or written, existed between them. Petitioners added that
respondents cause of action, if any, was barred by the Statute of Frauds since there was no written
instrument or document evidencing the alleged sale of the Phimco shares to respondents.
Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds,
which the trial court granted. Both parties agreed to adopt as their evidence in support of or against
the motion to dismiss, as the case may be, the evidence which they adduced in support of their
respective positions on the writ of preliminary injunction incident.
In its Order dated 17 April 1991, the RTC dismissed respondents complaint. 19 It ruled that there was
no perfected contract of sale between petitioners and respondents. The court a quo said that the
letter dated 11 June 1990, relied upon by respondents, showed that petitioners did not accept the bid
offer of respondents as the letter was a mere invitation for respondents to conduct a due diligence
process or pre-acquisition audit of Phimcos match and forestry operations to enable them to submit
their final offer on 30 June 1990. Assuming that respondents bid was favored by an oral acceptance
made in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory
to a formal acceptance by the SMABthe acceptance that would eventually lead to the execution
and signing of the contract of sale. Moreover, the court noted that respondents failed to submit their
final bid on the deadline set by petitioners.
Respondents appealed to the Court of Appeals, assigning the following errors:
A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT
ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN ITS
ENTIRETY FOR "LACK OF A VALID CAUSE OF ACTION" WITHOUT THE BENEFIT OF A
FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS.
B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS CAUSE OF
ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED,
INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL.
C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS CAUSE OF
ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY
PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR THE OTHER
CAUSES OF ACTION.
D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO
FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN
VIOLATION OF PLAINTIFFS-APPELLANTS RIGHT TO DUE PROCESS.20
After assessing the respective arguments of the parties, the Court of Appeals reversed the trial
courts decision. It ruled that the series of written communications between petitioners and
respondents collectively constitute a sufficient memorandum of their agreement under Article 1403 of
the Civil Code; thus, respondents complaint should not have been dismissed on the ground that it
was unenforceable under the Statute of Frauds. The appellate court opined that any document or
writing, whether formal or informal, written either for the purpose of furnishing evidence of the
contract or for another purpose which satisfies all the Statutes requirements as to contents and
signature would be

LAW ON SALES SUMMER

2016
sufficient; and, that two or more writings properly connected could be considered together. The
appellate court concluded that the letters exchanged by and between the parties, taken together,
were sufficient to establish that an agreement to sell the disputed shares to respondents was
reached.
The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby
declaring that respondents are entitled to the reliefs prayed for in their complaint, but only that the
case should not have been dismissed on the ground of unenforceability under the Statute of Frauds.
It ordered the remand of the case to the trial court for further proceedings.
Hence, this petition.
Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds
requires not just the existence of any note or memorandum but that such note or memorandum
should evidence an agreement to sell; and, that in this case, there was no word, phrase, or
statement in the letters exchanged between the two parties to show or even imply that an agreement
had been reached for the sale of the shares to respondent.
Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were
merely tentative and still subject to further negotiations between him and the seller. They point out
that there was no meeting of the minds on the essential terms and conditions of the sale because
SMAB did not accept respondents offer that consideration would be paid in Philippine pesos.
Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same time
stating that the broad terms and conditions described in their meeting were inadequate for them to
make a response at that time so much so that he would have to await the corresponding specifics.
Petitioners argue that the foregoing circumstances prove that they failed to reach an agreement on
the sale of the Phimco shares.
In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of
Frauds does not apply to the instant case. Respondents assert that the sale of the subject shares to
them was perfected as shown by the following circumstances, namely: petitioners assured them that
should they increase their bid, the sale would be awarded to them and that they did in fact increase
their previous bid of US$30.6 million to US$36 million; petitioners orally accepted their revised offer
and the acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed with
the acquisition audit and to submit a comfort letter from the United Coconut Planters Bank (UCPB);
petitioner corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June
1990; with the prior approval of petitioners, respondents engaged the services of Laya, Manabat,
Salgado & Co., an independent auditing firm, to immediately proceed with the acquisition audit; and,
petitioner corporation reiterated its commitment to be bound by the result of the acquisition audit and
promised to reimburse respondents cost to the extent of US$20,000.00. All these incidents,
according to respondents, overwhelmingly prove that the contract of sale of the Phimco shares was
perfected.
Further, respondents argued that there was partial performance of the perfected contract on their
part. They alleged that with the prior approval of petitioners, they engaged the services of Laya,
Manabat, Salgado & Co. to conduct the acquisition audit. They averred that petitioners agreed to be
bound by the results of the audit and offered to reimburse the costs thereof to the extent of
US$20,000.00. Respondents added that in compliance with their obligations under the contract, they

LAW ON SALES SUMMER

2016
have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance
the acquisition of the Phimco shares.21
The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial
courts decision dismissing the complaint for being unenforceable under the Statute of Frauds; and
(2) whether there was a perfected contract of sale between petitioners and respondents with respect
to the Phimco shares.
The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code 22 requires certain
contracts enumerated therein to be evidenced by some note or memorandum in order to be
enforceable. The term "Statute of Frauds" is descriptive of statutes which require certain classes of
contracts to be in writing. The Statute does not deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulates the formalities
of the contract necessary to render it enforceable. 23 Evidence of the agreement cannot be received
without the writing or a secondary evidence of its contents.
The Statute, however, simply provides the method by which the contracts enumerated therein may
be proved but does not declare them invalid because they are not reduced to writing. By law,
contracts are obligatory in whatever form they may have been entered into, provided all the essential
requisites for their validity are present. However, when the law requires that a contract be in some
form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable.24 Consequently, the effect of non-compliance with the
requirement of the Statute is simply that no action can be enforced unless the requirement is
complied with.25 Clearly, the form required is for evidentiary purposes only. Hence, if the parties
permit a contract to be proved, without any objection, it is then just as binding as if the Statute has
been complied with.26
The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses, by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.27
However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot
rest partly in writing and partly in parol. The note or memorandum must contain the names of the
parties, the terms and conditions of the contract, and a description of the property sufficient to render
it capable of identification.28 Such note or memorandum must contain the essential elements of the
contract expressed with certainty that may be ascertained from the note or memorandum itself, or
some other writing to which it refers or within which it is connected, without resorting to parol
evidence.29
Contrary to the Court of Appeals conclusion, the exchange of correspondence between the parties
hardly constitutes the note or memorandum within the context of Article 1403 of the Civil Code.
Rossis letter dated 11 June 1990, heavily relied upon by respondents, is not complete in itself. First,
it does not indicate at what price the shares were being sold. In paragraph (5) of the letter,
respondents were supposed to submit their final offer in U.S. dollar terms, at that after the
completion of the due diligence process. The paragraph undoubtedly proves that there was as yet
no definite agreement as to the price. Second, the letter does not state the mode of payment of the
price. In fact, Litonjua was supposed to indicate in his final offer how and where payment for the
shares was planned to be made.30

LAW ON SALES SUMMER

2016
Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the
Statute of Frauds is warranted.31
Even if we were to consider the letters between the parties as a sufficient memorandum for
purposes of taking the case out of the operation of the Statute the action for specific performance
would still fail.
A contract is defined as a juridical convention manifested in legal form, by virtue of which one or
more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of a
prestation to give, to do, or not to do.32 There can be no contract unless the following requisites
concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the
contract; (c) cause of the obligation which is established. 33Contracts are perfected by mere consent,
which is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.34
Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit:
(a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
(b) determinate subject matter, and (c) price certain in money or its equivalent. 35 Such contract is
born from the moment there is a meeting of minds upon the thing which is the object of the contract
and upon the price.36
In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and
consummation. Negotiation begins from the time the prospective contracting parties manifest their
interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the
contract takes place when the parties agree upon the essential elements of the contract.
Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof. 37
A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave
the way for the celebration of a future contract. An imperfect promise (policitacion), on the other
hand, is a mere unaccepted offer.38 Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals. At any time prior to the perfection
of the contract, either negotiating party may stop the negotiation. 39 The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and
not necessarily when the offeree learns of the withdrawal. 40
An offer would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. Consent in a contract of sale should be manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes
a counter-offer.41
Quite obviously, Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco shares
for US$36 million was merely an offer. This offer, however, in Litonjuas own words, "is understood to
be subject to adjustment on the basis of an audit of the assets, liabilities and net worth of Phimco
and its subsidiaries and on the final negotiation between ourselves." 42
Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not.

LAW ON SALES SUMMER

2016
Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30
June 1990.43With indubitable inconsistency, respondents later claimed that for all intents and
purposes, the US$36 million was their final bid. If this were so, it would be inane for Litonjua to state,
as he did, in his letter dated 28 June 1990 that they would be in a position to submit their final bid
only on 17 July 1990. The lack of a definite offer on the part of respondents could not possibly serve
as the basis of their claim that the sale of the Phimco shares in their favor was perfected, for one
essential element of a contract of sale was obviously wantingthe price certain in money or its
equivalent. The price must be certain, otherwise there is no true consent between the
parties.44 There can be no sale without a price.45 Quite recently, this Court reiterated the longstanding doctrine that the manner of payment of the purchase price is an essential element before a
valid and binding contract of sale can exist since the agreement on the manner of payment goes into
the price such that a
disagreement on the manner of payment is tantamount to a failure to agree on the price. 46
Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere
offer in the absence of evidence of its acceptance. To produce a contract, there must be acceptance,
which may be express or implied, but it must not qualify the terms of the offer.47 The acceptance of
an offer must be unqualified and absolute to perfect the contract. 48 In other words, it must be identical
in all respects with that of the offer so as to produce consent or meeting of the minds. 49
Respondents attempt to prove the alleged verbal acceptance of their US$36 million bid becomes
futile in the face of the overwhelming evidence on record that there was in the first place no meeting
of the minds with respect to the price. It is dramatically clear that the US$36 million was not the
actual price agreed upon but merely a preliminary offer which was subject to adjustment after the
conclusion of the audit of the company finances. Respondents failure to submit their final bid on the
deadline set by petitioners prevented the perfection of the contract of sale. It was not perfected due
to the absence of one essential element which was the price certain in money or its equivalent.
At any rate, from the procedural stand point, the continuing objections raised by petitioners to the
admission of parol evidence50 on the alleged verbal acceptance of the offer rendered any evidence of
acceptance inadmissible.
Respondents plea of partial performance should likewise fail. The acquisition audit and submission
of a comfort letter, even if considered together, failed to prove the perfection of the contract. Quite
the contrary, they indicated that the sale was far from concluded. Respondents conducted the audit
as part of the due diligence process to help them arrive at and make their final offer. On the other
hand, the submission of the comfort letter was merely a guarantee that respondents had the
financial capacity to pay the price in the event that their bid was accepted by petitioners.
The Statute of Frauds is applicable only to contracts which are executory and not to those which
have been consummated either totally or partially.51 If a contract has been totally or partially
performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the
defendant to keep the benefits already derived by him from the transaction in litigation, and at the
same time, evade the obligations, responsibilities or liabilities assumed or contracted by him
thereby.52 This rule, however, is predicated on the fact of ratification of the contract within the
meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of oral
evidence to prove the same, or (2) by the acceptance of benefits under them. In the instant case,
respondents failed to prove that there was partial performance of the contract within the purview of
the Statute.

LAW ON SALES SUMMER

2016
Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case,
the trial court erred in dismissing the complaint altogether. They point out that the complaint presents
several causes of action.
A close examination of the complaint reveals that it alleges two distinct causes of action, the first is
for specific performance53 premised on the existence of the contract of sale, while the other is solely
for damages, predicated on the purported dilatory maneuvers executed by the Phimco
management.54
With respect to the first cause of action for specific performance, apart from petitioners alleged
refusal to honor the contract of salewhich has never been perfected in the first place
respondents made a number of averments in their complaint all in support of said cause of action.
Respondents
claimed that petitioners were guilty of promissory estoppel, 55 warranty breaches56 and tortious
conduct57 in refusing to honor the alleged contract of sale. These averments are predicated on or at
least interwoven with the existence or perfection of the contract of sale. As there was no such
perfected contract, the trial court properly rejected the averments in conjunction with the dismissal of
the complaint for specific performance.
However, respondents second cause of action due to the alleged malicious and deliberate delay of
the Phimco management in the delivery of documents necessary for the completion of the audit on
time, not being based on the existence of the contract of sale, could stand independently of the
action for specific performance and should not be deemed barred by the dismissal of the cause of
action predicated on the failed contract. If substantiated, this cause of action would entitle
respondents to the recovery of damages against the officers of the corporation responsible for the
acts complained of.
Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an
opportunity to substantiate their allegations with respect to its cause of action for damages against
the officers of Phimco based on the latters alleged self-serving dilatory maneuvers.
WHEREFORE, the petition is in part GRANTED. The appealed Decision is
hereby MODIFIED insofar as it declared the agreement between the parties enforceable under the
Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the cause of
action for specific
Performance is concerned. The case is ordered REMANDED to the trial court for further
proceedings with respect to the cause of action for damages as above specified.
SO ORDERED.

COVERAGE / NATURE / RATIONALE

EXCEPTIONS:

LAW ON SALES SUMMER

2016
On memorandum
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-3784

October 17, 1952

ERNEST BERG, plaintiff-appellee,

vs.
MAGDALENA ESTATE, INC., defendant-appellant.
Claro M. Recto and Eusebio C. Encarnacion for appellant.
Alva Hill, Taada, Pelaez and Teehankee for appellee.
BAUTISTA ANGELO, J.:
This is an action for partition of the property known as Crystal Arcade situated in the City of Manila.
The complaint avers that plaintiff and defendant are co-owners of said property, the former being the
owner of one-third interest and the latter of the remaining two-thirds. The division is asked because
plaintiff and defendant are unable to agree upon the management of the property and upon the
partition thereof.
Defendant answered setting up a special defense and a counterclaim. As a special defense,
defendant claims that on September 22, 1943, it sold to plaintiff one-third of the property in litigation
subject to the express condition that should either vendor or vendee decide to sell his or its
undivided share, the party selling would grant to the other part first an irrevocable option to purchase
the same at the seller's price. It avers that on January 1946 plaintiff fixed the sum of P200,000 as the
price of said share and offered to sell it to defendant, which offer was accepted, and for the payment
of said price plaintiff gave defendant a period of time which, including the extensions granted, would
expire on May 31, 1947. Defendant claims that, in spite of the acceptance of the offer, plaintiff
refused to accept the payment of the price, and for this refusal defendant suffered damages in the
amount of P100,000. For these reasons, defendant asks for specific performance.
Plaintiff filed a reply setting forth therein that the transaction referred to by the defendant in its
special defense relative to the property in litigation is not supported by any note or memorandum
subscribed by the parties, as in fact no such note or memorandum has been made evidencing the
transaction, for which reason, plaintiff claims, this transaction falls under the statute of frauds and
cannot form the basis of the special defense invoked by the defendant.
After trial, at which the parties presented testimonial and documentary evidence, the lower court
found for the plaintiff holding that no agreement has been reached between the parties relative to the
purchase and sale of the property in question, and, recognizing the right of plaintiff to demand
partition under the provisions of Rule 71 of the Rules of Court, it granted the relief prayed for in the
complaint. Hence this appeal.

LAW ON SALES SUMMER

2016
The pivotal issue to be determined is whether an agreement to sell has actually been reached
between plaintiff and defendant of the share of the former in the property in litigation for the sum of
P200,000, as claimed by defendants, or whether there have been merely negotiations between them
which never ripened into an agreement, as claimed by plaintiff. And in the determination of this
issue, the preliminary question to be threshed out is the point raised by plaintiff touching on the
evidence submitted by defendant in the light of the principle underlying the statute of frauds.
It is an undisputed facts that since September 22, 1943, plaintiff and defendant were co owners pro
indiviso of the property known as Crystal Arcade in the proportion of one-third interest belonging to
the former and two-thirds to the latter. In the deed of sale executed by the parties on said date, they
stipulated that, should either of them decide to sell his or her share, the other party will have an
irrevocable option to purchase it at the seller's price. Then a disagreement ensued between the
parties as to what really occurred concerning the deal.
Thus, while Berg claims that his negotiations with Hemady ended when an offer by the latter to the
former to buy his interest for the sum of P350,000, Hemady on the other hand claims that Berg
offered to sell it to him for P200,000 subject to the condition that the necessary permit be obtained
from the United States Treasury Department.
It should be stated that, aside from the testimony of Berg and Hemady, no document has been
presented evidencing that alleged agreement to sell, and so when defendant made attempts to
prove, through the testimony of Hemady, that plaintiff made an offer to sell his interest to defendant
for the sum of P200,000, the attempt met the vigorous opposition of plaintiff invoking the rule that
such agreement can only be established by a contract in writing, or by a note or memorandum
subscribed by the party sought to be charged, as prescribed by the statute of frauds. It was then that
defendant submitted in evidence exhibits "3" and "4", contending that these documents, read in
connection with the option to sell embodied in exhibit "1", constitute a written proof contemplated by
said statute. The crux of this case, therefore, lies in the determination of whether said exhibits
partake of the nature of a note or memorandum within the purview of said statute as contended by
defendant.
It appears that right after the liberation of the Philippines, both Ernest Berg and K.H. Hemady were
accused of collaboration for which reason the Treasury Department of the United States ordered the
freezing of their properties under the law known as Trading with the Enemy Act. Under the provisions
of this Act both Berg and Hemady could not sell or dispose of their properties without first securing
the permit required by it, and so to comply this requirement, both Berg and Hemady filed separately
an application with said Department for the purchase and sale of the property in litigation. These
applications are the ones marked as exhibits "3" and "4". In the application exhibit "3", Ernest berg
stated that he desires a license in order to sell his interest in the Crystal Arcade, Escolta, Manila, for
P200,000 in cash to Magdalena Estate, Inc. asking at the same time for permission to place the
amount in an account in his name or in the name of the company he represents and to apply the
same from time to time to the payment of the obligations of Red Star Store Inc. In the application
exhibit "4", defendant in turn stated, through its president K. H. Hemady, that it desires a license in
order "to use a portion of the P400,000 requested as a loan from the National City Bank of New
York, Manila, or from any other bank in Manila, together with funds to be collected from old and new
sales of his real estate properties, for the purchase of the one-third (1/3) of the Crystal Arcade
property in the Escolta, Manila, belonging to Mr. Ernest Berg."
It is now defendant's position that if the option granted in exhibit "1" (deed of sale containing the
irrevocable option) is considered in relation to Berg's application exhibit "3" and defendant's

LAW ON SALES SUMMER

2016
application exhibit "4", these documents constitute a sufficient note or memorandum of the parties'
alleged contract of purchase and sale within the purview of the statute of frauds. This claim is
disputed by Ernest Berg, appellee herein. Which of these contentions is correct?
Before we proceed, it is important to state at this juncture some principles governing the meaning,
extent and scope of the rule underlying the statute of frauds relative to the note or memorandum that
may serve as proof to determine the existence of an oral contract or agreement contemplated by it,
and for our purpose, it suffices for us to quote the following authorities:
No particular form of language or instrument is necessary to constitute a memorandum or
note in writing under the statute of frauds; any document or writing, formal or informal,
written either for the purpose of furnishing evidence of the contract or for another purpose,
which satisfies all the requirements of the statute as to contents and signature, as discussed
respectively infra secs. 178-200, and infra secs. 201-215, is a sufficient memorandum or
note. A memorandum may be written as well as with lead pencil as with pen and ink. It may
also be filled in on a printed form (37 C.J.S., 653-654).
The note or memorandum required by the statute of fraud need not be contained in a single
document, nor, when contained in two or more papers, need each paper to be sufficient as to
contents and signature to satisfy the statute. Two or more writings properly connected may
be considered together, matters missing or uncertain in one may be supplied or rendered
certain by another, and their sufficiency will depend on whether, taken together, they meet
the requirement of the statute as to contents and the requirements of the statute as to
signature, as considered respectively infra secs. 179-200 and secs. 201-215.
Papers connected. The rule is frequently applied to two or more, or a series of letters or
telegrams, or letters and telegrams sufficiently connected to allow their consideration
together; but the rule is not confined in its application to letters and telegrams; any other
documents can be read together when one refers to the other. Thus, the rule has been
applied so as to allow the consideration together, when properly connected, of a letter and
an order of court, a letter and order for goods, a letter and a deposition, letters or telegrams
and undelivered deeds, wills, corresponding and related papers, a check and a letter, a
receipt and a check, deeds and a map, a memorandum of agreement and a deed, a
memorandum of sale and an abstract of title, a memorandum of sale and a will, a
memorandum of sale and a receipt, and a contract, deed and instruction to a depository in
escrow. The number of papers connected to make out a memorandum is immaterial. (37
C.J.S. sec. 656-659).
Bearing in mind the foregoing rules, we are of the opinion that the applications marked exhibits "3"
and "4", whether considered separately or jointly, satisfy all the requirements of the statute as to
contents and signature and, as such, they constitute sufficient proof to evidence the agreement in
question. And we say so because in both applications all the requirements of a contract are present,
namely, the parties, the price or consideration, and the subject-matter. In the application exhibit "3",
Ernest Berg appears as the seller and the Magdalena Estate Inc. as the purchaser, the former's
interest in the Crystal Arcade as the subject-matter, and the sum of P200,000 as the consideration.
As the application appears signed by Ernest Berg, the party sought to be charged by the obligation.
In other words, it can clearly be implied that between Ernest Berg and the Magdalena Estate Inc.
there has been a clear agreement to sell said property for P200,000. From the language of the
application no other logical conclusion can be drawn for if there has not been any previous
agreement between the parties it is fool hardly to suppose that Ernest Berg would take the trouble of

LAW ON SALES SUMMER

2016
filling an application with the Treasury Department of the United States to secure a license to sell the
property. the claim of Ernest Berg that the negotiations he had with the Hemady ended with an offer
on his part to buy his interest for P350,000 cannot be sustained, for if such is the case it is indeed
hard to comprehend why he should state in his application that he was selling the property for
P200,000. The fact that in the same application Berg also asked for license to place the money in an
account in his name, or in the name of the company he represents, and to apply the same to the
payment of the obligations of said company is of no consequence, nor does it argue against the
purpose of the application, for that request only means that, should the sale be carried out, he would
deposit the money in the name of the company and later would apply it to the payment of its
obligations.
We do not agree with the claim that the application Exhibit "4" submitted by the Magdalena Estate
Inc. does not harmonize with the terms appearing in the application Exhibit "3", for, contrary to the
claim, those two applications, considered together, harmonize and complement each other. And we
say so because the application Exhibit "4" states specifically that a portion of the sum of P400,000
which is desired to be raised as a loan will be used for the purchase of the one-third interest of
Ernest Berg, which portion undoubtedly refers to the sum of P200,000 mentioned in the application
Exhibit "3". This can be plainly seen by harmonizing together the two applications. As the rule well
points out, the sufficiency of the two documents will depend on whether, taken together, they meet
the requirements of the statute as to contents and as to signature, and here both requirements are
met because the two documents should be consider as a whole. Whether, therefore, we consider the
two applications jointly or separately, it is safe to state that they meet the requirements of the
principle underlying the statutes of frauds.
Let us now take the terms of the agreement to sell, considering that this has been properly
established to see if defendant has complied with them and can ask now for specific performance.
We have already seen that plaintiff agreed to sell to defendant his undivided one-third interest in the
property for the sum of P200,000. The next question is: within what period shall this consideration be
paid? Here are two possible theories: one under application Exhibit "3" and the other application
Exhibit "4". If we follow the application Exhibit "3", it is clear that payment is to be made in cash, or
as soon as the license has been granted to effect the transaction. This means that it shall be
effected immediately upon obtaining the license, or within a reasonable time thereafter. It is not
disputed that this license was granted, but we find that defendant failed to make good its offer within
a reasonable time for lack of money, it being a fact that defendant was only able to raise funds for
that purpose when it succeeded in selling a portion of its real estate to a foreign corporation one year
thereafter, or on March 14, 1947. It is true that, in its answer, defendant claims that plaintiff granted
to defendant an extension of time up to May 31, 1947, within which to realize the transaction, but this
claim is not supported by any proof. In the opinion of the Court, this delay has the effect of relieving
plaintiff of his obligation under the law (Articles 1124-1451, of the old Civil Code).
Supposing that the term of payment is, as contended by defendant, until defendant has obtained the
loan of P400,000 from the National City Bank of New York, or after it has obtained funds from other
sources (considering the terms of application Exhibit "4") what is the legal effect of this alternative
clause? Can it be considered a term within the meaning of our old Civil Code? Let us analyze it.
Under article 1125 of said code, obligations, for the fulfillment of which a day certain has been fixed,
shall be demandable only when the day arrives. A day certain is understood to be that which must
necessarily arrive, even though it is not known when. In order that an obligation may be with a term,
it is, therefore, necessary that it should arrive, sooner or later; otherwise, if its arrival is uncertain, the
obligation is conditional. To constitute a term the period must end on a day certain.

LAW ON SALES SUMMER

2016
Viewing in this light the clause on which defendant relies for the enforcement of its right to buy the
property, it would seem that it is not a term, but a condition. Considering the first alternative, that is,
until defendant shall have obtained a loan from the National City Bank of New York, it is clear that
the granting of such loans is not definite and cannot be held to come within the terms "day certain"
provided for in the Civil code, for it may or it may not happen. As a matter of fact, the loan did not
materialize. And if we consider that the period given was until such time as defendant could raise
money from other sources, we also find it to be indefinite and contingent and so it is also a condition
and not a term within the meaning of the law. In any event it is apparent that the fulfillment of the
condition contained in this second alternative is made to depend upon the defendant's exclusive will,
and viewed in this light, we are of the opinion that plaintiff's obligation to sell did not arise, for, under
Article 1115 of the old Civil Code, "when the fulfillment of the condition depends upon the exclusive
will of the debtor the conditional obligation shall be void."
Having reached the foregoing conclusions, we find no legal way by which plaintiff could be
compelled to carry out the terms of his agreement to sell considering the circumstances surrounding
the transaction. To our mind, it is clear that there was an agreement to sell between the parties
under the terms appearing in the applications Exhibit "3" and "4". But it also appears that the plaintiff
has decided to agree to sell his interest because of his need of money at the time. He needed it not
only for his immediate needs but to pay the obligations of his own company, the Red Star Stores.
Inc. At that time the values of real estate were fast moving. They were growing up in a rapid fashion.
Time element was then of the essence of every transaction, and the parties knew it. When,
therefore, more than a year had transpired since the negotiations started and defendant failed to
come across, plaintiff changed his mind. The interest of defendant to purchase the share of plaintiff
in the property is understandable, not only because of the advisability to consolidate its ownership in
said property, but because it was a handsome transaction with a brighter prospect in the future. But
it is to be regretted that both Berg and Hemady who were both experienced businessmen did not put
the terms of their agreement clearly in writing. Had they done so perhaps this case would have been
avoided.
Finding no error in the decision appealed from, the same is hereby affirmed, with costs against
appellant.

On Partial Performance
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. L-51058 January 27, 1992

ASIA PRODUCTION CO., INC., WANG TA PENG and WINSTON WANG, petitioners,
vs.
HON. ERNANI CRUZ PAO, as Judge of the Court of First Instance of Rizal (Quezon City,
Branch XVIII), LOLITA LEE LE HUA and ALBERTO DY, respondents.

LAW ON SALES SUMMER

2016
Ismael J. Andres for petitioner Asia Production Co., Inc.
Burgos, Sarte, Rebueno & Sarte for petitioners.
Roman Careaga for Alberto Dy.

DAVIDE, JR. J.:

The simple issue in this case is whether or not an action for the refund of partial payments of the
purchase price of a building covered by an oral agreement to sell it with an oral promise to assign
the contract of lease on the lot where the building is constructed is barred by the Statute of Frauds.
Sometime in March 1976, private respondents, who claimed to be the owners of a building
constructed on a lot leased from Lucio San Andres and located in Valenzuela, Bulacan, offered to
sell the building to the petitioners for P170,000.00. Petitioners agreed because of private
respondents' assurance that they will also assign to the petitioners the contract of lease over the
land. The above agreement and promise were not reduced to writing. Private respondents undertook
to deliver to the petitioners the deed of conveyance over the building and the deed of assignment of
the contract of lease within sixty (60) days from the date of payment of the downpayment of
P20,000.00. The balance was to be paid in monthly installments. On 20 March 1976, petitioners paid
the downpayment and issued eight (8) postdated checks drawn against the Equitable Banking
Corporation for the payment of the eight (8) monthly installments, as follows:
Check No. Amount Due Date
10112253 P10,000.00 June 30, 1976
10112254 20,000.00 July 30, 1976
10112255 20,000.00 August 30, 1976
10112256 20,000.00 September 30, 1976
10112257 20,000.00 October 30, 1976
10112258 20,000.00 November 30, 1976
10112259 20,000.00 December 30, 1976
10112260 20,000.00 January 31, 1977
Relying on the good faith of private respondents, petitioners constructed in May 1976 a weaving
factory on the leased lot. Unfortunately, private respondents, despite extensions granted, failed to
comply with their undertaking to execute the deed to sale and to assign the contract despite the fact
that they were able to encash the checks dated 30 June and 30 July 1976 in the total amount of
P30,000.00. Worse, the lot owner made it plain to petitioners that he was unwilling to give consent to
the assignment of the lease unless petitioners agreed to certain onerous terms, such as an increase
in rental, or the purchase of the land at a very unconscionable price.
Petitioners were thus compelled to request for a stop payment order of the six (6) remaining checks.
Succeeding negotiations to save the transaction proved futile by reason of the continued failure of
private respondents to execute the deed of sale of the building and the deed of assignment of the
contract of lease.

LAW ON SALES SUMMER

2016
So, on or about 29 December 1976, upon prior agreement with private respondents, petitioners
removed all their property, machinery and equipment from the building, vacated the same and
returned its possession to private respondents. Petitioners demanded from the latter the return of
their partial payment for the purchase price of the building in the total sum of P50,000.00. Private
respondents refused to return it. Hence, petitioners, filed against private respondents a
complaint 1 for its recovery and for actual, moral and exemplary damages and attorney's fees with the
then Court of First Instance (now Regional Trial Court) of Quezon City, which was docketed as Civil Case
No. Q-23593. The case was raffled to Branch XVIII of the court which was then presided over by herein
respondent Judge.
Private respondent Lolita Lee Le Hua did not file an Answer; hence, she was declared in default.
Upon the other hand, private respondent Alberto Dy filed a motion
to dismiss the complaint on the ground that the claim on which the action is based an alleged
purchase of a building which is not evidenced by any writing cannot be proved by parol evidence
since Article 1356 in relation to Article 1358 of the Civil Code requires that it should be in writing. 2 In
their
opposition 3 to said motion, petitioners argue that their complaint is essentially for collection of a sum of
money; it does not seek to enforce the sale, but aims to compel private respondents to refund a sum of
money which was paid to them as purchase price in a sale which did not materialize by reason of their
bad faith. Furthermore, the execution of the document was an undertaking of the private respondents,
which they refused to comply with. Hence, they cannot now be heard to complain against something
which they themselves brought about.
In his Order 4 of 18 April 1979, respondent Judge granted the motion to dismiss on the ground that the
complaint is barred by the Statute of Frauds. He says:
It cannot be disputed that the contract in this case is condemned by the Statutes of
Fraud (sic) it involves not merely the sale of real property (the building), it also
includes an alleged lease agreement that must certainly be for more than one year
(See Art. 1403, No. 2, subparagraph e, New Civil Code).
Plaintiffs cannot avoid the Statutes of Fraud (sic) by saying that this is merely an
action for the collection of a sum of money. To be entitled to the sum of P50,000.00, it
is necessary to show that such contract was executed and the same was violated but
plaintiffs are prevented from proving this alleged agreement by parol evidence.
Neither may plaintiffs claim that by the payment of the sum of P50,000.00 the
contract was removed from the Statutes of Fraud (sic). This is so because plaintiffs
have not fully complied with their obligation to pay P170,000.00. If there had been full
payment of P170,000.00, the situation would have been different.
Plaintiffs knew or should have known that their contract (as described by them in
their complaint) was unenforceable; they had thereby voluntarily assumed the risks
attendant to such contract. Moreover, the primordial aim of the Statutes of Fraud (sic)
is to prevent fraud and perjury in the enforcement of obligations depending upon the
unassisted memory of witnesses (Shoemaker vs. La Tondea, 68 Phil. 24). The
Court would find it difficult to determine whether the sum of P50,000.00 was paid
because of the unenforceable contract or for some other transactions.

LAW ON SALES SUMMER

2016
Their motion for reconsideration 5 having been denied by respondent Judge in his Order 6 of 21 June
1979 for the reason that the oral contract in this case was not removed from the operation of the Statute
of Frauds because there was no full or complete performance by the petitioners of the contract as
required in Paterno vs. Jao Yan 7 and Babao vs. Perez, 8petitioners filed this petition 9 on 16 July 1979, alleging
therein as ground therefor grave abuse of discretion on the part of respondent Judge in issuing the orders
of 18 April 1979 and 21 June 1979.
After private respondent Alberto Dy filed his Comment 10 to the petition in compliance with the
resolution 11 of 23 July 1979 and petitioners filed their Reply 12 to said comment on 2 April 1980, this Court
gave due course 13 to the petition. Private respondent Lolita Lee Le Hua was considered to have waived
her right to file her comment to the petition. 14
Petitioners were subsequently required to file their Brief, which they complied with on 13 October
1981; 15 they make the following assignment of errors:
I
The lower court erred in holding that for a contract of purchase and sale to be
removed from the operation of the Statute of Frauds, there must be full and complete
payment of the purchase price.
II
The lower court erred in failing to appreciate the nature of petitioners' cause of
action.
III
The lower court erred in not finding that this case is not covered by the Statute of
Frauds.
IV
The lower court erred in not following the procedure prescribed by this Honorable
Court in cases when partial performance is alleged.
V
The lower court erred in dismissing the case.
Private respondents did not file their Brief.
We find merit in the petition. Respondent Judge committed grave abuse of discretion in dismissing
the complaint on the ground that the claim is barred by the Statute of Frauds.
Article 1403 of the Civil Code declares the following contracts, among others, as unenforceable,
unless they are ratified:
xxx xxx xxx

LAW ON SALES SUMMER

2016
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is not to be performed within a
year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at
a price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of
the amount and kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
(f) A representation to the credit of a third person.
xxx xxx xxx
The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged. 16 It was not designed to further or perpetuate fraud. Accordingly, its application is limited. It
makes only ineffective actions for specific performance of the contracts covered by it; it does not declare
them absolutely void and of no effect. As explicitly provided for in the above-quoted paragraph (2), Article
1403 of the Civil Code, the contracts concerned are simply "unenforceable" and the requirement that they
or some note or memorandum thereof be in writing refers only to the manner they are to be proved.
It goes without saying then, as held in the early case of Almirol, et al. vs. Monserrat, 17 that the statute will
apply only to executory rather than executed contracts. Partial execution is even enough to bar the
application of the statute. In Carbonnel vs. Poncio, et al., 18 this Court held:
. . . It is well-settled in this jurisdiction that the Statute of Frauds is applicable only to
executory contracts (Facturan vs. Sabanal, 81 Phil. 512), not to contracts that are
totally or partially performed (Almirol, et al. vs. Monserrat, 48 Phil. 67, 70; Robles vs.
Lizarraga Hermanos, 50 Phil. 387; Diana vs. Macalibo, 74 Phil. 70).

LAW ON SALES SUMMER

2016
Subject to a rule to the contrary followed in a few jurisdictions, it is the
accepted view that part performance of a parol contract for the sale of
real estate has the effect, subject to certain conditions concerning the
nature and extent of the acts constituting performance and the right
to equitable relief generally, of taking such contract from the operation
of the statute of frauds, so that chancery may decree its specific
performance or grant other equitable relief. It is well settled in Great
Britain and in this country, with the exception of a few states, that a
sufficient part performance by the purchaser under a parol contract
for the sale of real estate removes the contract form the operation of
the statute of frauds (49 Am. Jur. 722-723).
In the words of former Chief Justice Moran: "The reason is simple. In executory
contracts there is a wide field for fraud because unless they be in writing there is no
palpable evidence of the intention of the contracting parties. The statute has
precisely been enacted to prevent fraud." (Comments on the Rules of Court, by
Moran, Vol. III [1957 ed.] p. 178). However, if a contract has been totally or partially
performed, the exclusion of parol evidence would promote fraud or bad faith, for it
would enable the defendant to keep the benefits already derived by him form the
transaction in litigation, and, at the same time, evade the obligations, responsibilities
or liabilities assumed or contracted by him thereby.
It follows then that the statute applies only to executory contracts and in actions for their
specific performance. It does not apply to actions which are neither for violation of a contract
nor for the performance thereof. 19
There can be no dispute that the instant case is not for specific performance of the agreement to sell
the building and to assign the leasehold right. Petitioners merely seek to recover their partial
payment for the agreed purchase price of the building, which was to be paid on installments, with the
private respondents promising to execute the corresponding deed of conveyance, together with the
assignment of the leasehold rights, within two (2) months from the payment of the agreed
downpayment of P20,000.00. By their motion to dismiss, private respondents theoretically or
hypothetically admitted the truth of the allegations of fact in the complaint. 20 Among the allegations
therein are:
(1) that the P50,000.00 sought to be recovered represents the downpayment of P20,000.00 and two (2)
monthly installments of the purchase price, and (2) that petitioners decided, in effect, to withdraw from the
agreement by ordering the stop payment of the remaining six (6) checks and to return the possession of
the building to private respondents because of the latter's failure to comply with their agreement. The
action is definitely not one for specific performance, hence the Statute of Frauds does not apply. And even
if it were for specific performance, partial execution thereof by petitioners effectively bars the private
respondents from invoking it. Since it is for refund of what petitioners had paid under the agreement,
originally unenforceable under the statute, because petitioners had withdrawn therefrom due to the "bad
faith" of the private respondents, the latter cannot be allowed to take shelter under the statute and keep
the P50,000.00 for themselves. If this were the case, the statute would only become a shield for fraud,
allowing private respondents not only to escape performance of their obligations, but also to keep what
they had received from petitioners, thereby unjustly enriching themselves.
Besides, even if the action were for specific performance, it was premature for the respondent Judge
to dismiss the complaint by reason of the Statute of Frauds despite the explicit allegations of partial
payment. As this Court stated in Carbonnel vs. Poncio, et al.: 21

LAW ON SALES SUMMER

2016
For obvious reasons, it is not enough for a party to allege partial performance in
order to hold that there has been such performance and
to render a decision declaring that the Statute of Frauds is inapplicable. But neither is
such party required to establish such partial performance
by documentaryproof before he could have the opportunity to introduce oral
testimony on the transaction. Indeed, such oral testimony would usually be
unnecessary if there were documents proving partial performance. Thus, the
rejection of any and all testimonial evidence on partial performance, would nullify the
rule that the Statute of Frauds is inapplicable to contracts which have been partly
executed, and lead to the very evils that the statute seeks to prevent.
xxx xxx xxx
When the party concerned has pleaded partial performance, such party is entitled to
a reasonable chance to establish by parol evidence the truth of this allegation, as
well as the contract itself. "The recognition of the exceptional effect of part
performance in taking an oral contract out of the statute of frauds involves the
principle that oral evidence is admissible in such cases to prove both the contract
and the part performance of the contract" (49 Am. Jur. 927).
We thus rule that an action by a withdrawing party to recover his partial payment of the consideration
of a contract, which is otherwise unenforceable under the Statute of Frauds, by reason of the failure
of the other contracting party to comply with his obligation, is not covered by the Statute of Frauds.
WHEREFORE, the petition is hereby GRANTED. The challenged Orders of 18 April 1979 and 21
June 1979 in Civil Case No. Q-23593 of the court below are hereby ANNULLED and SET ASIDE,
and the complaint in said case is hereby ordered REINSTATED. The default order against private
respondent Lolita Lee Le Hua shall stand and private respondent Alberto Dy is ordered to file his
Answer to the complaint with the court below within ten (10) days from receipt of this decision. This
decision shall be immediately executory.
Costs against private respondents.
IT IS SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 141877

August 13, 2004

GREGORIO F. AVERIA and SYLVANNA A. VERGARA, representing the absentee heir TERESA
AVERIA,petitioners,
vs.
DOMINGO AVERIA, ANGEL AVERIA, FELIPE AVERIA, and the Heirs of FELIMON F.
AVERIA, respondents.

LAW ON SALES SUMMER

2016

DECISION

CARPIO-MORALES, J.:
Macaria Francisco (Macaria) and Marcos Averia contracted marriage which bore six issues, namely:
Gregorio, Teresa, Domingo, Angel, Felipe and Felimon.
Macaria was widowed and she contracted a second marriage with Roberto Romero (Romero) which
bore no issue.
Romero died on February 28, 1968,1 leaving three adjoining residential lots located at Sampaloc,
Manila.
In a Deed of Extrajudicial Partition and Summary Settlement of the Estate of Romero, the house and
lot containing 150 square meters at 725 Extremadura Street, Sampaloc was apportioned to Macaria.
Transfer Certificate of Title (TCT) No. 93310 covering the Extremadura property was accordingly
issued in the name of Macaria.2
Alleging that fraud was employed by her co-heirs in the partition of the estate of Romero, Macaria
filed on June 1, 1970 an action for annulment of title and damages before the Court of First Instance
of Manila against her co-heirs Domingo Viray, et al., docketed as Civil Case No. 79955. Macaria was
represented in the case by Atty. Mario C. R. Domingo. The case was pending litigation for about ten
years until the decision of the Court of Appeals which adjudged Macaria as entitled to an additional
30 square meters of the estate of Romero became final and executory.
Macarias son Gregorio and his family and daughter Teresas family lived with her at Extremadura
until her death on March 28, 1983.3
Close to six years after Macarias demise or on January 19, 1989, her children Domingo, Angel and
Felipe, along with Susan Pelayo vda. de Averia (widow of Macarias deceased son Felimon), filed
before the Regional Trial Court (RTC) of Manila a complaint against their brother Gregorio and niece
Sylvanna Vergara "representing her absentee mother" Teresa Averia, for judicial partition of the
Extremadura property inclusive of the 30 square meters judicially awarded. 4 The case which was
docketed as Civil Case No. 89-47554 is now the subject of the present decision.
The defendants Gregorio and Sylvanna Vergara, in their February 8, 1989 Answer to the Complaint,
countered that Gregorio and his late wife Agripina spent for the litigation expenses in Civil Case No.
79955, upon the request of Macaria, and the couple spent not less P20,000.00 for the purpose
"which amount due to the inflation of the Philippine peso is now equivalent to more or
less P200,000.00;" that from 1974 to 1983, Macaria was bedridden and it was Gregorios wife
Agripina who nursed and took care of her; that before Macaria died, she in consideration of the court
and other expenses which were defrayed by Gregorio and his wife in prosecuting Civil Case No.

LAW ON SALES SUMMER

2016
79955 and of "the kindness of the said couple in caring for her," verbally sold to the spouses
Gregorio and Agripina one-half () of her Extremadura property.
Gregorio and Sylvanna further countered that the plaintiff Domingo sold and assigned to the
spouses Gregorio and Agripina his one sixth (1/6) share in the remaining portion of the
Extremadura property.
Gregorio and Sylvanna concluded in their Answer that the plaintiffs are not co-owners of the
Extremadura property as thereof is solely owned by Gregorio and 1/6 of the other half representing
Domingos share thereof had already been sold and assigned by him (Domingo) to Gregorio and his
wife who died on May 20, 1987.5
During the pendency of the case or on June 7, 1989, Macarias son Felipe executed a WaiverAffidavit6 waiving his "share" in the property subject of litigation in favor of his co-heirs.
After trial, the trial court, Branch 31 RTC of Manila, rendered a decision of July 19, 1991 7 crediting
the version of the defendants in this wise, quoted verbatim:
The defendant Gregorio Averia, Sr. had established that he had paid plaintiff Domingo Averia
P10,000.00 although denied by the latter but Domingo Averia did not deny receiving the
amount of P5,000.00 on July 10, 1983 given by Gregorio Averias wife Agrifina. According to
the testimony of defendants witness, plaintiff Domingo Averia sold on July 10, 1983 his
inheritance share in the property [consisting of a] house and lot located at 725 Extremadura
because he was in . . . need of money and that he was paid P5,000.00 on July 10, 1983 by
Agrifina Averia and another P5,000.00 by Major Gregorio Averia inside his room at the
Makati Police Department three (3) days later. The reason why Domingo Averia became
insistent in claiming his inheritance is the fact that Gregorio Averia refused the request of
Domingo Averia and his children to occupy the portion of subject house which was sold to
him by their mother and it was for this reason that they sought the assistance of the Citizens
Legal Assistance Office (CLAO), Atty. Benjamin Roxas in writing defendant Gregorio Averia
to allow him (Domingo Averia) to occupy a portion of subject house but plaintiff Domingo
Averia did not tell his brothers and sisters that he had already sold his 1/6 share of the
inheritance although verbally in favor of Gregorio Averia and his wife.
In the light of the foregoing, the Court, after a circumspect assessment of the evidence presented by
both parties, hereby declares, that defendant Gregorio Averia then a major of police precinct in
Makati was the person responsible for the expenses in litigation in Civil Case No. 79955, involving
the property and their mother had indeed awarded him with portion of the property and that
Domingo Averia sold 1/6 of [his] share of the remaining portion of the property to defendant
Gregorio. (Underscoring supplied)
Accordingly, the trial court disposed as follows, quoted verbatim:
WHEREFORE, the remaining 5/6 of of the property may still be subject of partition among
the remaining heirs but the summary settlement of the remaining estate of the 5/6 remaining
portion of the estate . . . may be sold and the proceeds thereof be distributed among the
heirs in accordance with the aliquot portions of each and every heir of the deceased Macaria
Francisco.

LAW ON SALES SUMMER

2016
Both parties are hereby ordered to shoulder their respective expenses for attorneys fees and
litigation costs. (Underscoring supplied)
On appeal to the Court of Appeals (CA) wherein the plaintiffs Domingo et al. assigned two errors, to
wit:
A. THE TRIAL COURT ERRED IN ITS FINDING THAT THERE WAS A SALE OF ONEHALF OF THE DECEASED MACARIA F. AVERIAS INTEREST AND OWNERSHIP OVER
THE SUBJECT PROPERTY IN FAVOR OF DEFENDANT-APPELLEE GREGORIO AVERIA.
B. THE TRIAL COURT ERRED IN ALLOWING THE RECEPTION OF PAROL EVIDENCE
TO THE EFFECT THAT PLAINTIFF-APPELLANT DOMINGO AVERIA HAD ALREADY
DISPOSED OF HIS ONE SIXTH (1/6) SHARE OF THE SUBJECT PROPERTY IN FAVOR
OF DEFENDANT-APPELLEE GREGORIO AVERIA8(Emphasis supplied),
the appellate court reversed the decision of the trial court.
In reversing the trial court, the appellate court, noting that the alleged transfers made by Macaria and
Domingo in favor of Gregorio were bereft of any written memoranda, held that it was error for the
trial court to rely solely on the evidence adduced by the defendants consisting of the testimonies of
Gregorio, Veronica Bautista, Sylvanna Vergara Clutario, Atty. Mario C.R. Domingo, Felimon
Dagondon and Gregorio Averia, Jr. The CA explained its ruling in this wise:
[T]he alleged conveyances purportedly made by Macaria Francisco and plaintiff-appellant
Domingo Averia are unenforceable as the requirements under the Statute of Frauds have not
been complied with. Article 1403, 2(e) of the New Civil Code is explicit:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) x x x
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement thereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing and subscribed
by the party charged, or by this agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its contents:
(a) x x x;
(b) x x x;
(e) an agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;
(f) x x x"
The two (2) transactions in question being agreements for the sale of real property or of an
interest therein are in clear contravention of the prescription that it must be in writing and

LAW ON SALES SUMMER

2016
subscribed by the party charged or by an agent thereof. Hence, the strong insistence by
defendants-appellees on the verbal conveyances cannot be made the basis for the alleged
ownership over the undivided interests claimed by Gregorio Averia.
The parol evidence upon which the trial court anchored its award in favor of defendantappellee Gregorio Averia is irregular as such kind of evidence is foreclosed by Article 1403 of
the Civil Code that no evidence of the alleged agreements can be received without the
writing of secondary evidence which embodies the sale of the real property. The introduction
of the testimonies of Gregorio Averias witnesses were timely objected to by plaintiffsappellants. Since the testimonies of defendants-appellees witnesses are inadmissible, then
such exclusion has pulled the rug under the assailed decision of the trial court and it has no
more leg to stand on.
In the vain attempt to salvage the situation, defendants-appellees however argue that the
Article 1403 or the Statute of Frauds does not apply because the same only refers to purely
executory contracts and not to partially or completely executed contracts.
This contention is untenable. It was not amply demonstrated how such alleged transfers
were executed since plaintiffs-appellants have vigorously objected and opposed the claims
of ownership by defendants-appellees. He who asserts a fact or the affirmative of an issue
has the burden of proving it. Defendants-appellees miserably failed in this respect.
While this Court cannot discount the fact that either defendant-appellee Gregorio Averia or
plaintiff-appellant Domingo Averia may have valid claims against the estate of Macaria
Francsico, such matter can best be threshed out in the proceedings for partition before the
court a quo bearing in mind that such partition is subject to the payment of the debts of the
deceased under Article 1078 of the Civil Code.9(Citations omitted; Emphasis and
underscoring supplied)
The appellate court thus remanded the case to the trial court.
WHEREFORE, the decision dated July 19, 1991 is reversed and set aside. The case
is remanded to the court a quo which is directed to effect the partition of the subject property
or if not, possible, sell the entire lot and distribute the proceeds of the sale based on equal
shares among the children of the late Macaria Francisco after debts of the said deceased
are paid or settled pursuant to Article 1078 of the Civil Code.10(Underscoring supplied)
Gregorio and Sylvannas motion for reconsideration having been denied by the appellate court, they
lodged the Petition for Review on Certiorari at bar upon the following assignment of errors:
I. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THERE
WAS NO SALEOF ONE-HALF (1/2) OF THE DECEASED MACARIA F. AVERIAS
INTEREST AND OWNERSHIP OVER THE SUBJECT PROPERTY IN FAVOR OF
PETITIONER GREGORIO F. AVERIA.
II. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THE
RECEPTION OF PAROL EVIDENCE TO THE EFFECT THAT RESPONDENT DOMINGO
AVERIA HAD ALREADY SOLD HIS ONE SIXTH (1/6) SHARE IN THE SUBJECT

LAW ON SALES SUMMER

2016
PROPERTY IN FAVOR OF PETITIONER GREGORIO AVERIAIS NOT IN ACCORDANCE
WITH LAW.11
Petitioners contend that contrary to the findings of the Court of Appeals, they were able to amply
establish, by the testimonies of credible witnesses, the conveyances to Gregorio of of the
Sampaloc property and 1/6 of the remaining half representing the share of Domingo. 12
With respect to the application by the appellate court of the Statute of Frauds, petitioners contend
that the same refers only to purely executory contracts and not to partially or completely executed
contracts as in the instant case. The finding of the CA that the testimonies of petitioners witnesses
were timely objected to by respondents is not, petitioners insist, borne out in the records of the case
except with respect to the testimony of Gregorio.13
Petitioners thus conclude that respondents waived any objection to the admission of parol evidence,
hence, it is admissible and enforceable14 following Article 140515 of the Civil Code.16
The Court finds for petitioner.
Indeed, except for the testimony of petitioner Gregorio bearing on the verbal sale to him by Macaria
of the property, the testimonies of petitioners witnesses Sylvanna Vergara Clutario and Flora Lazaro
Rivera bearing on the same matter were not objected to by respondents. Just as the testimonies of
Gregorio, Jr. and Veronica Bautista bearing on the receipt by respondent Domingo on July 23, 1983
from Gregorios wife of P5,000.00 representing partial payment of the P10,000.00 valuation of his
(Domingos) 1/6 share in the property, and of thetestimony of Felimon Dagondon bearing on the
receipt by Domingo of P5,000.00 from Gregorio were not objected to. Following Article 1405 of the
Civil Code,17 the contracts which infringed the Statute of Frauds were ratified by the failure to object
to the presentation of parol evidence, hence, enforceable.
ARTICLE 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
xxx
(e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;
x x x (Emphasis and underscoring supplied),
Contrary then to the finding of the CA, the admission of parol evidence upon which the trial court
anchored its decision in favor of respondents is not irregular and is not foreclosed by Article 1405.

LAW ON SALES SUMMER

2016
In any event, the Statute of Frauds applies only to executory contracts and not to contracts which
are either partially or totally performed. 18 In the case at bar, petitioners claimed that there was total
performance of the contracts, full payment of the objects thereof having already been made and the
vendee Gregorio having, even after Macarias death in 1983, continued to occupy the property until
and after the filing on January 19, 1989 of the complaint subject of the case at bar as in fact he is still
occupying it.
In proving the fact of partial or total performance, oral evidence may be received as what the trial
court in the case at bar did. Noted civilist Arturo M. Tolentino elucidates on the matter:
The statute of frauds is not applicable to contracts which are either totally or partially
performed, on the theory that there is a wide field for the commission of frauds in executory
contracts which can only be prevented by requiring them to be in writing, a fact which is
reduced to a minimum in executed contracts because the intention of the parties becomes
apparent by their execution, and execution concludes, in most cases, the rights of the
parties. However it is not enough for a party to allege partial performancein order to
render the Statute of Frauds inapplicable; such partial performance must be duly
proved. But neither is such party required to establish such partial performance by
documentary proof before he could have the opportunity to introduce oral testimony
on the transaction. The partial performance may be proved by either
documentary or oral evidence.19 (Emphasis, underscoring and italics supplied)
The testimonies of petitioners witnesses being credible and straightforward, the trial court did not err
in giving them credence.
The testimony of Sylvana Vergara Clutario, daughter of Teresa, in fact was more than sufficient to
prove the conveyance of half of the subject property by Macaria to Gregorio.
ATTY. DOMINGO:
Q: Are you the same Sylvana Vergara representing the defendant Teresa Averia in this case?
WITNESS:
A: Yes, sir.
Q: Now on February 28, 1972, about 5:30 in the afternoon, where were you?
A: As far as I can remember, I was inside my residence at 725 Extremadura at that date, and
time.
Q: On that date and time, where were you residing?
A: At said address, 725 Extremadura Street, that time and date at 5:30 in the afternoon.
Q: Who were your companions if you have any?

LAW ON SALES SUMMER

2016
A: I was there with my brothers and sisters and Uncle Gregorio and Auntie Agripina and the
children and my grand mother and also the lady who is leading in the prayers because on
that date it is the anniversary of the death of my grandfather.
Q: What is the name of your grandmother?
A: Macaria Averia, sir.
Q: Now, this Gregorio Averia whom you identified to be your Uncle, is he the same Gregorio
Averia who is also the defendant in this case?
WITNESS:
A: The same, sir.
Q: What is the name of your grandfather whom you said whose death anniversary you are
then celebrating on that date?
A: Roberto Romero, sir.
Q: What actually you were doing that time 5:30?
A: We had a gathering and merienda in recollection of the celebration (sic) of the death of my
grandfather, sir.
Q: When you said you were eating then, where were you eating then?
A: It was beside my grandmother.
Q: Where?
A: At the dining room, sir.
Q: So you were sitting at the dining table all of you?
A: Yes, sir the others were a little bit near the table.
Q: Who were seated in the dining table?
A: The Spouses Gregorio and Agripina, my sister Beth and my cousins and my Lola Macaria.
Q: When you were then seated in taking that ginatan as you stated what transpired?
A: Somebody called up and the one who called up was the Secretary of a lawyer and they
were asking for [payment of] expenses in connection with . . . [Criminal Case No. 79955].

LAW ON SALES SUMMER

2016
Q: You said that it was Agripina who was the one who answered that telephone call. After
answering it, what did she say to anyone seated in that table?
A: Agripina said if Gregorio has some money, he will pay them but Gregorio said he will be
responsible for the expenses.
Q: Did you come to know how much was amount being asked?
A: P500.00, sir.
Q: What else happened after Gregorio said that he would answer for the expenses to be sent
to the lawyer?
A: My Lola said that she was embarrassed and ashame[d] because at that time she d[id] not
have any money and it was the couple who was taking the expenses of the case.
Q: When you said "Lola," you are referring to Macaria Averia?
A: Yes, sir.
Q: What else transpired?
A: Because of her embarrassment, she told [them that] one half (1/2) of the House and Lot
will be given to the couple to cover the expenses of the case.
ATTY. DOMINGO:
Q: To whom did your grandmother say this?
A: Well, she said that to Gregorio and Agripina and Gregorio told her, if that is what you wish,
I will agree to your proposal.
Q: What was the reply of your grand mother?
A: My Lola told Gregorio that since you agree, you better prepare all the documents and we
will make ready the documents for the division or partition.
Q: Do you know what House and Lot one half (1/2) of which your grand mother was given
(sic) to your Uncle and Auntie . . .?
A: She is referring to the House and Lot where I used to live before.
Q: You are referring to the House and Lot located at 725 Extremadura Street, Sampaloc,
Manila.
A: Yes, sir.
x x x20 (Emphasis and underscoring supplied)

LAW ON SALES SUMMER

2016
Not only on account of Sylvanas manner of testifying that her testimony should be given weight. Her
testimony was against the interest of her mother Teresa whom she represented, her mother being
also an heir of Macaria. If the transfer by Macaria to Gregorio of of the property is upheld as valid
and enforceable, then the share of the other heirs including Sylvannas mother would considerably
be reduced.
That Atty. Mario C. R. Domingo who was admittedly Macarias counsel in Civil Case No. 79955
(which, as priorly reflected, entailed a period of ten years in court), affirmed on the witness stand that
Gregorio and his wife were the ones who paid for his attorneys fees amounting
to P16,000.0021 should no doubt strongly lend credence to Gregorios claim to that effect.
As to the sale of Domingos 1/6 share to Gregorio, petitioners were able to establish said transaction
by parol evidence, consisting of the testimonies of Gregorio Averia, Jr.,22 Veronica Averia23 and
Felimon Dagondon24 the presentation of which was, it bears repeating, not objected to.
Albeit Domingo never denied having received the total amount of P10,000.00 from Gregorio and his
wife, he denied having sold to Gregorio his interest over the property. Such disclaimer cannot,
however, prevail over the categorical, positive statements of petitioners above-named witnesses.
In sum, not only did petitioners witnesses prove, by their testimonies, the forging of the contracts of
sale or assignment. They proved the full performance or execution of the contracts as well.
WHEREFORE, the petition is hereby GRANTED. The January 31, 2000 Decision of the Court of
Appeals in CA-G.R. No. 44704 is hereby SET ASIDE.
The case is hereby remanded to the trial court, Branch 31 of the RTC of Manila, for appropriate
action, following Section 2 of Rule 69 of the Rules of Civil Procedure.
SO ORDERED.
On waiver
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 118509 December 1, 1995

LIMKETKAI SONS MILLING, INC., petitioner,
vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK
STORE, respondents.

LAW ON SALES SUMMER

2016
MELO, J.:
The issue in the petition before us is whether or not there was a perfected contract between
petitioner Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering
the sale of a parcel of land, approximately 3.3 hectares in area, and located in Barrio Bagong Ilog,
Pasig City, Metro Manila.
Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig
ruled that there was a perfected contract of sale between petitioner and BPI. It stated that there was
mutual consent between the parties; the subject matter is definite; and the consideration was
determined. It concluded that all the elements of a consensual contract are attendant. It ordered the
cancellation of a sale effected by BPI to respondent National Book Store (NBS) while the case was
pending and the nullification of a title issued in favor of said respondent NBS.
Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected
because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil
Code. The decision of the trial court was reversed and the complaint dismissed.
Hence, the instant petition.
Shorn of the interpretations given to the acts of those who participated in the disputed sale, the
findings of facts of the trial court and the Court of Appeals narrate basically the same events and
occurrences. The records show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI
as its trustee to manage, administer, and sell its real estate property. One such piece of property
placed under trust was the disputed lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig,
Metro Manila covered by Transfer Certificate of Title No. 493122.
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI
to sell the lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of
the Philippine Remnants.
Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8,
1988, petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant
Vice-President, to enter and view the property they were buying.
On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On
July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale.
They were entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner
asked that the price of P1,000.00 per square meter be reduced to P900.00 while Albano stated the
price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per square
meter to be paid in cash. Since the authority to sell was on a first come, first served and nonexclusive basis, it may be mentioned at this juncture that there is no dispute over petitioner's being
the first comer and the buyer to be first served.
Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso
Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in
trying to ask for payment on terms because in previous transactions, the same had been allowed. It
was the understanding, however, that should the term payment be disapproved, then the price shall
be paid in cash.

LAW ON SALES SUMMER

2016
It was Albano who dictated the terms under which the installment payment may be approved, and
acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano
embodying the payment initially of 10% and the remaining 90% within a period of 90 days.
Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim
went to BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The
payment was refused because Albano stated that the authority to sell that particular piece of
property in Pasig had been withdrawn from his unit. The same check was tendered to BPI VicePresident Nelson Bona who also refused to receive payment.
An action for specific performance with damages was thereupon filed on August 25, 1988 by
petitioner against BPI. In the course of the trial, BPI informed the trial court that it had sold the
property under litigation to NBS on July 14, 1989. The complaint was thus amended to include NBS.
On June 10, 1991, the trial court rendered judgment in the case as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendants Bank of the Philippine Islands and National Book Store, Inc.:
1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the
name of the Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig,
Metro Manila, in favor of National Book Store, Inc., null and void;
2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer
Certificate of Title which may have been issued in favor of National Book Store, Inc.
by virtue of the aforementioned Deed of Sale dated July 14, 1989;
3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of
P33,056,000.00, to execute a Deed of Sale in favor of plaintiff of the aforementioned
property at the price of P1,000.00 per square meter; in default thereof, the Clerk of
this Court is directed to execute the said deed;
4. Ordering the Register of Deeds of Pasig, upon registration of the said deed,
whether executed by defendant BPI or the Clerk of Court and payment of the
corresponding fees and charges, to cancel said T.C.T. No. 493122 and to issue, in
lieu thereof, another transfer certificate of title in the name of plaintiff;
5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and
severally, to the plaintiff the sums of P10,000,000.00 as actual and consequential
damages and P150,000.00 as attorney's fees and litigation expenses, both with
interest at 12% per annum from date hereof;
6. On the cross-claim of defendant bank against National Book Store, ordering the
latter to indemnify the former of whatever amounts BPI shall have paid to the plaintiff
by reason hereof; and
7. Dismissing the counterclaims of the defendants against the plaintiff and National
Book Store's cross-claim against defendant bank.

LAW ON SALES SUMMER

2016
Costs against defendants.
(pp. 44-45, Rollo.)
As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and
Mabutas,JJ.), on August 12, 1994, reversed the trial court's decision and dismissed petitioner's
complaint for specific performance and damages.
The issues raised by the parties revolve around the following four questions:
(1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the
subject matter of the contract and the cause of the obligation?
(2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned
contract?
(3) Is there competent and admissible evidence to support the alleged meeting of the minds?
(4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith?
There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine
Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square
meter; (b) that Philippine Remnants confirmed the authority to sell of Revilla and the price at which
he may sell the lot; (c) that petitioner and Revilla agreed on the former buying the property; (d) that
BPI Assistant Vice-President Rolando V. Aromin allowed the broker and the buyer to inspect the
property; and (e) that BPI was formally informed about the broker having procured a buyer.
The controversy revolves around the interpretation or the significance of the happenings or events at
this point.
Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top
officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando
V. Aromin at the BPI offices.
Respondents, however, contend that what transpired on this date were part of continuing
negotiations to buy the land and not the perfection of the sale. The arguments of respondents center
on two propositions (1) Vice-Presidents Aromin and Albano had no authority to bind BPI on this
particular transaction and (2) the subsequent attempts of petitioner to pay under terms instead of full
payment in cash constitutes a counter-offer which negates the existence of a perfected contract.
The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the
record.
At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed
lot. Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where
is basis the property located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that
the authority given to him was to sell and not merely to look for a buyer, as contended by
respondents.

LAW ON SALES SUMMER

2016
Revilla testified that at the time he perfected the agreement to sell the litigated property, he was
acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up
the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the
authority to sell to a licensed broker, we see no reason to doubt the authority to sell of the two BPI
Vice-Presidents whose precise job in the Bank was to manage and administer real estate property.
Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made
up of top bank officials. It appears from the record that this trust committee meets rather infrequently
and it does not have to pass on regular transactions.
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI
Real Property Management Unit. He had been in the Real Estate Division since 1985 and was the
head supervising officer of real estate matters. Aromin had been with the BPI Trust Department since
1968 and had been involved in the handling of properties of beneficial owners since 1975 (tsn.,
December 3, 1990, p. 5).
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon, while
purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin was in
charge of Torrens titles, lease contracts, problems of tenants, insurance policies, installment
receivables, management fees, quitclaims, and other matters involving real estate transactions. His
immediate superior, Vice-President Merlin Albano had been with the Real Estate Division for only
one week but he was present and joined in the discussions with petitioner.
There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident.
Revilla brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a
perfectly natural manner on the transaction before him with not the slightest indication that he was
acting ultra vires. This shows that BPI held Aromin out to the public as the officer routinely handling
real estate transactions and, as Trust Officer, entering into contracts to sell trust properties.
Respondents state and the record shows that the authority to buy and sell this particular trust
property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any
authority to act as alleged, there was no need to withdraw authority which he never possessed.
Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank
vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co.
(52 ND 752, 204 NW 818, 40 ALR 1021), to wit:
Accordingly a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a fraud upon his principal
or some other person for his own ultimate benefit.
(at pp. 652-653.)
In the present case, the position and title of Aromin alone, not to mention the testimony and
documentary evidence about his work, leave no doubt that he had full authority to act for BPI in the
questioned transaction. There is no allegation of fraud, nor is there the least indication that Aromin
was acting for his own ultimate benefit. BPI later dismissed Aromin because it appeared that a top

LAW ON SALES SUMMER

2016
official of the bank was personally interested in the sale of the Pasig property and did not like
Aromin's testimony. Aromin was charged with poor performance but his dismissal was only
sometime after he testified in court. More than two long years after the disputed transaction, he was
still Assistant Vice-President of BPI.
The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine
Remnants Co. regarding the sale of the firm's property was addressed to Aromin. The P1,000.00
figure on the first page of broker Revilla's authority to sell was changed to P1,100.00 by Aromin. The
price was later brought down again to P1,000.00, also by Aromin. The permission given to petitioner
to view the lot was signed by Aromin and honored by the BPI guards. The letter dated July 9, 1988
from broker Revilla informing BPI that he had a buyer was addressed to Aromin. The conference on
July 11, 1988 when the contract was perfected was with Aromin and Vice-President Albano. Albano
and Aromin were the ones who assured petitioner Limketkai's officers that term payment was
possible. It was Aromin who called up Miguel Bicharra of Philippine Remnants to state that the BPI
rejected payment on terms and it was to Aromin that Philippine Remnants gave the go signal to
proceed with the cash sale. Everything in the record points to the full authority of Aromin to bind the
bank, except for the self-serving memoranda or letters later produced by BPI that Aromin was an
inefficient and undesirable officer and who, in fact, was dismissed after he testified in this case. But,
of course, Aromin's alleged inefficiency is not proof that he was not fully clothed with authority to bind
BPI.
Respondents' second contention is that there was no perfected contract because petitioner's request
to pay on terms constituted a counter-offer and that negotiations were still in progress at that point.
Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among
his statements is one to the effect that
. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano
counter-offered to sell the property at P1,100.00 per square meter but after the usual
haggling, we finally agreed to sell the property at the price of P1,000.00 per square
meter . . .
(tsn, 12-3-90, p. 17; Emphasis supplied.)
Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of
P1,000.00 per square meter, Aromin answered:
Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price
is concerned, sir.
(ibid, p. 17.)
The requirements in the payment of the purchase price on terms instead of cash were suggested by
BPI Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the
possibility of paying on terms was referred to the Trust Committee but with the mutual agreement
that "if the proposed payment on terms will not be approved by our Trust Committee, Limketkai
should pay in cash . . . the amount was no longer subject to the approval or disapproval of the
Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly established in the following
testimony of Aromin:

LAW ON SALES SUMMER

2016
A. After you were able to agree on the price of P1,000.00/sq. m.,
since the letter or authority says the payment must be in cash basis,
what transpired later on?
B. After we have agreed on the price, the Lim brothers inquired on
how to go about submitting the covering proposal if they will be
allowed to pay on terms. They requested us to give them a guide on
how to prepare the corresponding letter of proposal. I recall that,
upon the request of Mr. Albino Limketkai, we dictated a guide on how
to word a written firm offer that was to be submitted by Mr. Lim to the
bank setting out the terms of payment but with the mutual agreement
that if his proposed payment on terms will not be approved by our
trust committee, Limketkai should pay the price in cash.
Q And did buyer Limketkai agree to pay in cash in case the offer of
terms will be cash (disapproved).
A Yes, sir.
Q At the start, did they show their willingness to pay in cash?
A Yes, sir.
Q You said that the agreement on terms was to be submitted to the
trust committee for approval, are you telling the Court that what was
to be approved by the trust committee was the provision on the
payment on terms?
A Yes, sir.
Q So the amount was no longer subject to the approval or
disapproval of the committee, it is only on the terms?
A Yes, sir.
(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)
The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But
because petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent
to higher officials. Immediately upon learning that payment on terms was frozen and/or denied,
Limketkai exercised his right within the period given to him and tendered payment in full. The BPI
rejected the payment.
In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of
Appeals (238 SCRA 602 [1994]) to bolster its case. Contrarywise, it would seem that the legal
principles found in said case strengthen and support petitioner's submission that the contract was
perfected upon the meeting of the minds of the parties.

LAW ON SALES SUMMER

2016
The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI
to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to
broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property
and finally (d) the negotiations with Aromin and Albano at the BPI offices.
The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and
Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at
P1,000.00 per square meter. Aside from this there was the earlier agreement between petitioner and
the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the
cause thereof.
The phases that a contract goes through may be summarized as follows:
a. preparation, conception or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties;
b. perfection or birth of the contract, which is the moment when the parties come to
agree on the terms of the contract; and
c. consummation or death, which is the fulfillment or performance of the terms
agreed upon in the contract (Toyota Shaw, Inc. vs. Court of Appeals, G.R. No.
116650, May 23, 1995).
But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:
. . . A contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the time
the prospective contracting parties indicate interest in the contract to the time the
contract is concluded (perfected). Theperfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which is consensual as to
perfection is so established upon a mere meeting of minds, i.e., the concurrence of
offer and acceptance, on the object and on the cause thereof. A contract which
requires, in addition to the above, the delivery of the object of the agreement, as in a
pledge orcommodatum, is commonly referred to as a real contract. In
a solemn contract, compliance with certain formalities prescribed by law, such as in a
donation of real property, is essential in order to make the act valid, the prescribed
form being thereby an essential element thereof. The stage of consummation begins
when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which the
latter agrees.
(238 SCRA 602; 611 [1994].)

LAW ON SALES SUMMER

2016
In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual antecendents
similar to this case, the Court, through Justice Aquino (later to be Chief Justice), quoting authorities,
upheld the perfection of the contract of sale thusly:
The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. From that moment, the
parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts. (Art. 1475,Ibid.)
xxx xxx xxx
Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer (Art. 1319,
Civil Code). "An acceptance may be express or implied." (Art. 1320, Civil Code).
xxx xxx xxx
It is true that an acceptance may contain a request for certain changes in the terms
of the offer and yet be a binding acceptance. "So long as it is clear that the meaning
of the acceptance is positively and unequivocally to accept the offer, whether such
request is granted or not, a contract is formed." (Stuart vs. Franklin Life Ins. Co., 105
Fed. 2nd 965, citing Sec. 79, Williston on Contracts).
xxx xxx xxx
. . . the vendor's change in a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a rejection of the offer
and the tender or a counter-offer. (Stuart vs. Franklin Life Ins. Co., supra.)
(at pp. 362-363; 365-366.)
In the case at bench, the allegation of NBS that there was no concurrence of the offer and
acceptance upon the cause of the contract is belied by the testimony of the very BPI official with
whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The fact that the
deed of sale still had to be signed and notarized does not mean that no contract had already been
perfected. A sale of land is valid regardless of the form it may have been entered into (Claudel vs.
Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the Civil
Code is merely for greater efficacy or convenience and the failure to comply therewith does not
affect the validity and binding effect of the act between the parties (Vitug, Compendium of Civil Law
and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a document or other special
form, as in the sale of real property, the contracting parties may compel each other to observe that
form, once the contract has been perfected. Their right may be exercised simultaneously with action
upon the contract (Article 1359, Civil Code).
Regarding the admissibility and competence of the evidence adduced by petitioner, respondent
Court of Appeals ruled that because the sale involved real property, the statute of frauds is
applicable.

LAW ON SALES SUMMER

2016
In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that
contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks
questions on cross-examination. The succinct words of Justice Araullo still ring in judicial cadence:
As no timely objection or protest was made to the admission of the testimony of the
plaintiff with respect to the contract; and as the motion to strike out said evidence
came too late; and, furthermore, as the defendants themselves, by the crossquestions put by their counsel to the witnesses in respect to said contract, tacitly
waived their right to have it stricken out, that evidence, therefore, cannot be
considered either inadmissible or illegal, and court, far from having erred in taking it
into consideration and basing his judgment thereon, notwithstanding the fact that it
was ordered to be stricken out during the trial, merely corrected the error he
committed in ordering it to be so stricken out and complied with the rules of
procedure hereinbefore cited.
(at p. 748.)
In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the
contract itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla,
and other details of the litigated contract. Under the Abrenica rule (reiterated in a number of cases,
among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence
was initially inadmissible, the same became competent and admissible because of the crossexamination, which elicited evidence proving the evidence of a perfected contract. The crossexamination on the contract is deemed a waiver of the defense of the Statute of Frauds (Vitug,
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563).
The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were
stricken out, the cross-examination could have no object whatsoever, and if the questions were put
to the witnesses and answered by them, they could only be taken into account by connecting them
with the answers given by those witnesses on direct examination" (pp. 747-748).
Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts
pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing the
contract. The memorandum may be found in several writings, not necessarily in one document. The
memorandum or memoranda is/are written evidence that such a contract was entered into.
We cite the findings of the trial court on this matter:
In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a
written contract of the sale is not necessary so long as the agreement to sell real
property is evidenced by a written note or memorandum, embodying the essentials of
the contract and signed by the party charged or his agent. Thus, it has been held:
The Statute of Frauds, embodied in Article 1403 of the Civil Code of
the Philippines,does not require that the contract itself be written. The
plain test of Article 1403, Paragraph (2) is clear that a written note or
memorandum, embodying the essentials of the contract and signed
by the party charged, or his agent suffices to make the verbal

LAW ON SALES SUMMER

2016
agreement enforceable, taking it out of the operation of the statute.
(Emphasis supplied)
xxx xxx xxx
In the case at bar, the complaint in its paragraph 3 pleads that the
deal had been closed by letter and telegram (Record on Appeal, p.
2), and the letter referred to was evidently the one copy of which was
appended as Exhibit A to plaintiffs opposition to the motion to dismiss.
The letter, transcribed above in part, together with the one marked as
Appendix B, constitute an adequate memorandum of the transaction.
They are signed by the defendant-appellant; refer to the property sold
as a Lot in Puerto Princesa, Palawan, covered by T.C.T. No. 62, give
its area as 1,825 square meters and the purchase price of four
(P4.00) pesos per square meter payable in cash. We have in them,
therefore, all the essential terms of the contract and they satisfy the
requirements of the Statute of Frauds.
(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).
While there is no written contract of sale of the Pasig property executed by BPI in
favor of plaintiff, there are abundant notes and memoranda extant in the records of
this case evidencing the elements of a perfected contract. There is Exhibit P, the
letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the sale of
the subject property at the price of P1,000.00 per square meter giving 2%
commission to the broker and instructing that the sale be on cash basis.
Concomitantly, on the basis of the instruction of Mr. Awad, (Exh. P), an authority to
sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co.,
authorizing the latter to sell the property at the initial quoted price of P1,000.00 per
square meter which was altered on an unaccepted offer by Technoland. After the
letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin
allowing the buyer to enter the premises of the property to inspect the same (Exh. C).
On July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI
informing it that he had procured a buyer in the name of Limketkai Sons Milling, Inc.
with offices at Limketkai Bldg., Greenhills, San Juan, Metro Manila, represented by
its Exec. Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the plaintiff, through
Alfonso Lim, wrote a letter to the bank, through Merlin Albano, confirming their
transaction regarding the purchase of the subject property (Exh. E). On July 18,
1988, the plaintiff tendered upon the officials of the bank a check for P33,056,000.00
covered by Check No. CA510883, dated July 18, 1988. On July 1, 1988, Alfonso
Zamora instructed Mr. Aromin in a letter to resubmit new offers only if there is no
transaction closed with Assetrade Co. (Exh. S). Combining all these notes and
memoranda, the Court is convinced of the existence of perfected contract of sale.
Aptly, the Supreme Court, citing American cases with approval, held:
No particular form of language or instrument is necessary to
constitute a memorandum or note in writing under the statute of
frauds; any document or writing, formal or informal, written either for
the purpose of furnishing evidence of the contract or for another
purpose, which satisfies all the requirements of the statute as to

LAW ON SALES SUMMER

2016
contents and signature, as discussed respectively infra secs. 178200, and infra secs. 201-205, is a sufficient memorandum or note. A
memorandum may be written as well with lead pencil as with pen and
ink. It may also be filled in on a printed form. (37 C.J.S., 653-654).
The note or memorandum required by the statute of frauds need not
be contained in a single document, nor, when contained in two or
more papers, need each paper be sufficient as to contents and
signature to satisfy the statute. Two or more writings properly
connected may be considered together, matters missing or uncertain
in one may be supplied or rendered certain by another, and their
sufficiency will depend on whether, taken together, they meet the
requirements of the statute as to contents and the requirements of
the statutes as to signature, as considered respectively infra secs.
179-200 and secs. 201-215.
(pp. 460-463, Original RTC Record).
The credibility of witnesses is also decisive in this case. The trial court directly observed the
demeanor and manner of testifying of the witnesses while the Court of Appeals relied merely on the
transcript of stenographic notes.
In this regard, the court of origin had this to say:
Apart from weighing the merits of the evidence of the parties, the Court had occasion
to observe the demeanor of the witnesses they presented. This is one important
factor that inclined the Court to believe in the version given by the plaintiff because
its witnesses, including hostile witness Roland V. Aromin, an assistant vice-president
of the bank, were straightforward, candid and unhesitating in giving their respective
testimonies. Upon the other hand, the witnesses of BPI were evasive, less than
candid and hesitant in giving their answers to cross examination questions.
Moreover, the witnesses for BPI and NBS contradicted each other. Fernando Sison
III insisted that the authority to sell issued to Mr. Revilla was merely an evidence by
which a broker may convince a prospective buyer that he had authority to offer the
property mentioned therein for sale and did not bind the bank. On the contrary,
Alfonso Zamora, a Senior Vice-President of the bank, admitted that the authority to
sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the bank
being signed by two class "A" signatories and that the bank cannot back out from its
commitment in the authority to sell to Mr. Revilla.
While Alfredo Ramos of NBS insisted that he did not know personally and was not
acquainted with Edmundo Barcelon, the latter categorically admitted that Alfredo
Ramos was his friend and that they have even discussed in one of the luncheon
meetings the matter of the sale of the Pasig property to NBS. George Feliciano
emphatically said that he was not a consultant of Mr. Ramos nor was he connected
with him in any manner, but his calling card states that he was a consultant to the
chairman of the Pacific Rim Export and Holdings Corp. whose chairman is Alfredo
Ramos. This deliberate act of Mr. Feliciano of concealing his being a consultant to
Mr. Alfredo Ramos evidently was done by him to avoid possible implication that he

LAW ON SALES SUMMER

2016
committed some underhanded maneuvers in manipulating to have the subject
property sold to NBS, instead of being sold to the plaintiff.
(pp. 454-455, Original RTC Record.)
On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals
and the trial court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of
Appeals (196 SCRA 107 [1991]) bears stressing:
It is a settled principle of civil procedure that the conclusions of the trial court
regarding the credibility of witnesses are entitled to great respect from the appellate
courts because the trial court had an opportunity to observe the demeanor of
witnesses while giving testimony which may indicate their candor or lack thereof.
While the Supreme Court ordinarily does not rule on the issue of credibility of
witnesses, that being a question of fact not properly raised in a petition under Rule
45, the Court has undertaken to do so in exceptional situations where, for instance,
as here, the trial court and the Court of Appeals arrived at divergent conclusions on
questions of fact and the credibility of witnesses.
(at p. 110.)
On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows
that it is not. It acted in bad faith.
Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It
was the willingness and design of NBS to buy property already sold to another party which led BPI to
dishonor the contract with Limketkai.
Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner
from paying the agreed price and getting possession of the property:
1. The sale was supposed to be done through an authorized broker, but top officials of BPI
personally and directly took over this particular sale when a close friend became interested.
2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was
his friend; that they had lunch meetings before this incident and discussed NBS's purchase of the lot.
Barcelon's father was a business associate of Ramos.
3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop
the case and give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but
failed to convince him inspite of various and increasing offers.
4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse
marked by easy portability. The warehouse is bolted to its foundations and can easily be dismantled.
It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly
negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting that the
vendor guarantee its title to the land and recognize the right of the vendee to proceed against the
vendor if the title to the land turns out to be defective as when the land belongs to another person,

LAW ON SALES SUMMER

2016
the reverse is found in the deed of sale between BPI and NBS. Any losses which NBS may incur in
the event the title turns out to be vested in another person are to be borne by NBS alone. BPI is
expressly freed under the contract from any recourse of NBS against it should BPI's title be found
defective.
NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply
cites the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the
enumeration there is exclusive. The decision in said case plainly states "the following are some of
the circumstances attending sales which have been denominated by courts (as) badges of fraud."
There are innumerable situations where fraud is manifested. One enumeration in a 1912 decision
cannot possibly cover all indications of fraud from that time up to the present and into the future.
The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the
amended complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses
of Cebu-based counsel. Petitioner also claimed, and the trial court awarded, damages for the profits
and opportunity losses caused to petitioner's business in the amount of P10,000,000.00.
We rule that the profits and the use of the land which were denied to petitioner because of the noncompliance or interference with a solemn obligation by respondents is somehow made up by the
appreciation in land values in the meantime.
Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner
Limketkai; that the BPI officials who transacted with petitioner had full authority to bind the bank; that
the evidence supporting the sale is competent and admissible; and that the sale of the lot to NBS
during the trial of the case was characterized by bad faith.
WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET
ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National
Capital Judicial Region stationed in Pasig, Metro Manila is REINSTATED except for the award of Ten
Million Pesos (P10,000,000.00) damages which is hereby DELETED.
SO ORDERED.