Sales Cases for Atty Bautista

Nature and Form of Contract of Sale

(article 1458-1488)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-27289 April 15, 1985

JUAN AGUINALDO, Substituted by MARINA and PRIMITIVO AGUINALDO, plaintiffs-

appellants,
vs.
JOSE ESTEBAN and FRANCISCA SARMIENTO, defendants-appellees.

Crisostomo M. Diokno for plaintiff-appellants.

Andres Franco for defendants-appellees.

RELOVA, J.:

In Civil Case No. 6977, the Court of First Instance of Rizal declared the contract, entitled:
"Sanglaan ng Isang Lupa na Patuluyan Ipaaari," valid and binding contract of sale and dismissed
the complaint as well as the counterclaim with costs against the plaintiff. From said judgment of
the lower court, appeal was taken to this Court, "the same involving, as it does, a question of law."
(p. 25, Rollo)

Plaintiff Juan Aguinaldo in his complaint alleged, among others, that on June 23, 1958, defendants,
through fraud, deceit and misrepresentations and exercising undue pressure, influence and
advantage, procured the thumbmark of Jose Aguinaldo, father of plaintiff, to be affixed on subject
contract; that defendants caused the cancellation of Tax Declaration No. 4004, Rizal (1948) in the
name of Jose Aguinaldo and the issuance in lieu thereof of Tax Declaration No. 10725-Rizal in the
names of defendant spouses; that the document in question on which Jose Aguinaldo affixed his
thumbmark is not true and genuine, as the thumbmark appearing thereon is a forgery; that it
contains terms and conditions which partake the nature of "pacto comisario" which render same
null and void; that it does not fix a period for the payment of the loan nor does it state the
duration of the mortgage; that plaintiff is the sole successor-in-interest and legal heir of Jose
Aguinaldo who died intestate in October 1960; that defendants having no right to win and possess
the property in question are withholding the possession thereof from plaintiff and consequently
deprived plaintiff of the fruits of said property; and that by reason of the willfull and malevolent
acts of defendants, plaintiff suffered moral and actual damages in the amount of P4,000.00.

In their answer, defendants claim absolute ownership of subject property upon the death of Jose
Aguinaldo in October 1960 on the theory that the document in controversy is one of sale and not
one of mortgage.

The parties, through their respective counsels, agreed to submit the case for decision solely on
whether the contract in question, Annex "A" of the complaint, is one of mortgage or of sale.

When plaintiff Juan Aguinaldo died intestate on August 6, 1965, his heirs, namely: Marina and
Primitivo, both surnamed Aguinaldo, petitioned the trial court that they be substituted as party
plaintiffs in lieu of their deceased father.
It is the position of plaintiffs-appellants that the document in question, Annex "A" of the complaint,
is null and void because it contains stipulations which partake of the nature of "pacto comisario."
On the other hand, the defendants contend that the contract is a valid sale and, as such, it passed
the title to them.

Hereunder is the contract in question:

SANGLAAN NG ISANG LUPA-CANAVERAL NA PATULOYAN IPAAARI

HAYAG SA SINO MAN MAKAKABASA:

Na, ako JOSE AGUINALDO, Pilipino, balo, may karampatan gulang, tubo at naninirahan sa Bo.
Bambang, Tagig, Rizal, Kapuluan Pilipinas, sa pamamagitan nito ay

ISINASAYSAY KO AT PINAGTITIBAY:

1. Na, sarili at tunay kong pagaari dahil sa ipinagkaloob sa akin ng aking amain Martin Concepcion
(patay) ang isang parcelang lupa-canaveral, at ang lupang ito ay napagkikilala at nauligiran ng
mga pagaaring lupa ng mga kahangganan kagaya ng mga sumusunod:

Isang parcelang lupa-canaveral na nasa pook ng Bo. Bambang, Tagig, Rizal, at siyang lupang
nakatala sa Tax Declaration No. 4004-Rizal (1948), sa Tanggapan ng Tasador ng lupa sa lalawigan
ng RizaL Pasig, RizaL at valor ameliarado ng P70.00 at napaloob sa mga pagaaring lupa ng mga
kahangganan kagaya ng mga sumusunod: Sa Norte, Antonio Silvestre at Pedro Sarmiento; sa Este,
Don-lingo Luga; sa Sur, Dionisio Dionisio at Pedro Sarmiento, at sa Weste, Tomas Cruz

2. Na, alang-alang sa halagang LIMANG DAAN AT APATNAPUNG PISO (P540.00), salaping Pilipino na
sa kasalukuyan ay ating ginagamit, ay natanggap ko na, sa hindi biglaan kung hindi LIMANGPUNG
SENTIMOS (P0.50) lamang araw-araw magbuhat pa nuong Marzo 26, 1955, at ang kabuuang
halaga ng halagang nabanggit sa itaas nito, sa oras na ito, ay kusang loob kong tinanggap sa
magasawang JOSE ESTEBAN at FRANCISCA SARMIENTO, mga Pilipino, may karampatan gulang,
naninirahan at may padalahan sulat sa Bo. Bambang, Tagig, Rizal, ay ISINASANGLA AT PATULOYAN
IPAARI KO sa nasabing magasawa ang lupang nobanggit ko sa itaas, sa aming mga kasunduan
kagaya ng mga sumusunod:

NA AKO, JOSE AGUINALDO AY PAKAKANIN HABANG NABUBUHAY NG MAGASAWANG JOSE ESTEBAN

AT FRANCISCA SARMIENTO, 0 NG KANILANG KAHALILI AT TAGAPAGMANA, AT BILANG KABAYARAN
NAMAN SA HALAGANG LIMANG DAAN AT APATNAPUNG PISO (P540.00) AT PAGPAPAKAIN SA AKIN
NG MAGASAWANG JOSE ESTEBAN AT FRANCISCA SARMIENTO, ORAS NA AKO AY MAMATAY SILA
(JOSE ESTEBAN AT FRANCISCA SARMIENTO) NA ANG LUBOSAN MAGMAMAYARI NG AKING LUPANG
ISINANGLANG ITO SA KANILA, SAPAGKAT ANG LAHAT NG AKING KARAPATAN SA LUPA, NGAYON PA
AY IPINAGKAKALOOB KO SA KANILA SA ILALIM NG KASUNDUAN.

3. Na, ang lupa-canaveral na isinasangla ko sa pamamagitan ng kasulatan ito na ipaaring

patuluyan ay pinamomosiyonan ng mag-asawang Jose Esteban at Francisco Sarmiento, nuong
pang Marzo 26, 1955.

4. Na, ang lupang akin binabanggit sa kasulatan ito, ay hindi ko ipinagkakautang sa kanino man
tao, na maliban sa magasawang Jose Esteban at Francisca Samiento.

5. Na, ang lupa kong ito na siyang nakatala sa Tax Declaration No. 4004-Rizal (1948), ay hindi
nakatala sa bisa ng Batas Blg. 496 o maging sa Hipotecaria Espanola, at napagkasunduan ang
kasulatan ito, ay nais ipatala sa bisa ng Batas Blg. 3344, at sinusugan.
SA KATUNAYAN NG LAHAT KONG IPINAHAYAG SA DOKUMENTONG ITO, ay inilagda ko ang aking
pangalan at apelyedo dito sa Lunsod ng Maynila, Pilipinas, ngayong ika ______ ng Hunyo 1958, sa
harap ng dalawang saksi.

(Thumbmark)
JOSE AGUINALDO
Nagsangla

SUMASANGAYON SA MGA ALITUNTUNIN:

(Sgd.) JOSE ESTEBAN

Pinagsanglaan

(Sgd.) FRANCISCA SARMIENTO

Pinagsanglaan

MGA SAKSI:

(Sgd.) Illegible (Sgd.) Eugenia S. Relon

ACKNOWLEDGMENT

(pp. 7-1 0, Record on Appeal)

There is merit in the appeal.

On the issue as to whether or not the subject contract is one of sale or of mortgage, an inquiry into
the surrounding facts would disclose the intention of the parties and thereby determine the truth
of plaintiff-appellant's allegation that his father, Jose Aguinaldo, was misled into affixing his
thumbmark on the said contract.

Plaintiff-appellant, Juan Aguinaldo, is the son of Jose and it is indeed intriguing why defendants-
appellees, who are not related at all to the old man, would give him fifty centavos (P0.50)
everyday beginning May 26, 1955. The contract in question was executed in June 1958, or after
three (3) years from the time the daffy amount of half-a-peso was given the old man. Thereafter,
the defendants-appellees' saw to it that the recipient of the money would execute the contract,
entitled: ."Sanglaan ng isang lupang-canaveral na Patuluyang Ipaaari. "

It is significant to note that herein plaintiff-appellant was not even a witness in the document when
his father who is of low intelligence, illiterate and could not even sign his name, affixed his
thumbmark in the document in question. It would appear that the execution of the contract was
made behind his back and/or without giving notice to him. Stated differently, if the transaction was
on the level, why was not plaintiff-appellant asked to sign as a witness to the document. It may be
true that the contract was read to the old man but it is doubtful if he understood the meaning of
its contents. The contract was so written that anyone could believe he was only giving his property
by way of mortgage, not as a sale. For instance, in paragraph 2 thereof, it reads "... ay isinasangla
at patuloyan ipaaari ko sa nasabing magasawa ang lupang nabanggit ko sa itaas, ... ." In some
Tagalog provinces the word "Sangla" means "Bilihan Mabibiling Muli" or "Pacto de Retro." By this
contract, the vendee-a-retro takes possession of the property as owner until the same is
repurchased or redeemed. On the other hand, mortgage is understood as "Prenda."

In the case at bar, defendants-appellees took possession of the property on March 26, 1955 when
they started giving Jose Aguinaldo the fifty centavos (P0.50) a day. It would appear then that the
money which he has been receiving from the Estebans come from his own property. In effect, there
was no consideration for the transfer of the property-be it sale, mortgage or Pacto Comisario.
WHEREFORE, the decision of the trial court, dated August 16, 1966, is REVERSED and the contract
"Sanglaan ng Isang Lupa-Canaveral na Patuluyan Ipaaari" is declared null and void, and the
deceased plaintiff Juan Aguinaldo is declared as the true and lawful owner of subject property.

Further, defendants-appellees are hereby ordered to transfer and deliver the possession of subject
property to the said deceased plaintiff Juan Aguinaldo's heirs, Marina Aguinaldo and Primitive
Aguinaldo, who substituted him as plaintiffs in this case and/or their respective heirs and
successors; and the Provincial Assessor of Rizal is directed to cancel Tax Declaration No. 10725
(Rizal) in the name of defendants-appellees, Jose Esteban and Francisco Sarmiento, and in lieu
thereof issue another in the name of the deceased plaintiff Juan Aguinaldo's heirs, Marina
Aguinaldo and Primitivo Aguinaldo.

SO ORDERED.

Case Two

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-41847 December 12, 1986

CATALINO LEABRES, petitioner,

vs.
COURT OF APPEALS and MANOTOK REALTY, INC., respondents.

Magtanggol C. Gunigundo for petitioner.

Marcelo de Guzman for respondents.

PARAS, J.:

Before Us is a Petition for certiorari to review the decision of the Court of Appeals which is quoted
hereunder:

In Civil Case No. 64434, the Court of First Instance of Manila made the following quoted decision:

(1) Upon defendant's counterclaim, ordering plaintiff Catalino Leabres to vacate and/or surrender
possession to defendant Manotok Realty, Inc. the parcel of land subject matter of the complaint
described in paragraph 3 thereof and described in the Bill of Particulars dated March 4, 1966;

(2) To pay defendant the sum of P81.00 per month from March 20, 1959, up to the time he actually
vacates and/or surrenders possession of the said parcel of land to the defendant Manotok Realty,
Inc., and

(3) To pay attorney's fees to the defendant in the amount of P700.00 and pay the costs. (Decision,
R.A., pp. 54-55).

The facts of this case may be briefly stated as follows:

Clara Tambunting de Legarda died testate on April 22, 1950. Among the properties left by the
deceased is the "Legarda Tambunting Subdivision" located on Rizal Avenue Extension, City of
Manila, containing an area of 80,238.90 sq. m., covered by Transfer Certificates of Title No. 62042;
45142; 45149; 49578; 40957 and 59585. Shortly after the death of said deceased, plaintiff
Catalino Leabres bought, on a partial payment of Pl,000.00 a portion (No. VIII, Lot No. 1) of the
Subdivision from surviving husband Vicente J. Legarda who acted as special administrator, the
deed or receipt of said sale appearing to be dated May 2, 1950 (Annex "A"). Upon petition of
Vicente L. Legarda, who later was appointed a regular administrator together with Pacifica Price
and Augusto Tambunting on August 28, 1950, the Probate Court of Manila in the Special
Proceedings No. 10808) over the testate estate of said Clara Tambunting, authorized through its
order of November 21, 1951 the sale of the property.

In the meantime, Vicente L. Legarda was relieved as a regular Administrator and the Philippine
Trust Co. which took over as such administrator advertised the sale of the subdivision which
includes the lot subject matter herein, in the issues of August 26 and 27, September 2 and 3, and
15 and 17, 1956 of the Manila Times and Daily Mirror. In the aforesaid Special Proceedings No.
10808, no adverse claim or interest over the subdivision or any portion thereof was ever presented
by any person, and in the sale that followed, the Manotok Realty, Inc. emerged the successful
bidder at the price of P840,000.00. By order of the Probate Court, the Philippine Trust Co. executed
the Deed of Absolute Sale of the subdivision dated January 7, 1959 in favor of the Manotok Realty,
Inc. which deed was judicially approved on March 20, 1959, and recorded immediately in the
proper Register of Deeds which issued the corresponding Certificates of Title to the Manotok
Realty, Inc., the defendant appellee herein.

A complaint dated February 8, 1966, was filed by herein plaintiff, which seeks, among other things,
for the quieting of title over the lot subject matter herein, for continuing possession thereof, and
for damages. In the scheduled hearing of the case, plaintiff Catalino Leabres failed to appear
although he was duly notified, and so the trial Court, in its order dated September 14, 1967,
dismissed the complaint (Annex "E").<re||an1w> In another order of dismissal was amended
as to make the same refer only to plaintiff's complaint and the counter claim of the defendant was
reinstated and as the evidence thereof was already adduced when defendant presented its
evidence in three other cases pending in the same Court, said counterclaim was also considered
submitted for resolution. The motion for reconsideration dated January 22, 1968 (Annex " I "), was
filed by plaintiff, and an opposition thereto dated January 25, 1968, was likewise filed by defendant
but the Court a quo dismissed said motion in its order dated January 12, 1970 (Annex "K"), "for
lack of merits" (pp. 71-72, Record on Appeal).

Appealing the decision of the lower Court, plaintiff-appellant advances the following assignment of
errors:

THE LOWER COURT ERRED IN DENYING THE MOTION FOR RECONSIDERATION, DATED OCTOBER 9,
1967, THUS DEPRIVING THE PLAINTIFF-APPELLANT HIS DAY IN COURT.

II

THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT CATALINO LEABRES TO

VACATE AND/OR SURRENDER THE POSSESSION OF THE LOT SUBJECT MATTER OF THE COMPLAINT
TO DEFENDANT-APPELLEE.

III

THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT TO PAY DEFENDANT-APPELLEE

THE SUM OF P 81.00 PER MONTH FROM MARCH 20, 1969, UP TO THE TIME HE ACTUALLY VACATE
THE PARCEL OF LAND. (Appellant's Brief, p. 7)
In the First Assigned Error, it is contended that the denial of his Motion for Reconsideration dated
October 9, 1967, the plaintiff-appellant was not accorded his day in Court.

The rule governing dismissal of actions for failure to prosecute is provided for in Section 3, Rule 17
of the Rules of Court, as follows:

If the plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable
length of time, or to comply with these rules or any order of the Court, the action may be
dismissed upon motion of the defendant or upon the Court's own motion. This dismissal shall have
the effect of an adjudication upon the merits, unless otherwise provided by the Court.

Under the afore-cited section, it is discretionary on the part of the Court to dismiss an action for
failure to prosecute, and its action will not be reversed upon appeal in the absence of abuse. The
burden of showing abuse of this discretion is upon the appellant since every presumption is toward
the correctness of the Court's action (Smith, Bell & Co., et al vs. American Pres. Lines, Ltd., and
Manila Terminal Co., No. L-5304, April 30, 1954; Adorable vs. Bonifacio, G. R. No. L-0698, April 22,
1959); Flores vs. Phil. Alien Property Administration, G.R. No. L-12741, April 27, 1960). By the
doctrine laid down in these cases, and by the provisions of Section 5, Rules 131 of the Rules of
Court, particularly paragraphs (m) and (o) which respectively presume the regularity of official
performance and the passing upon by the Court over all issues within a case, it matters not if the
Court dismissing the action for failure to prosecute assigns any special reason for its action or not.
We take note of the fact that the Order declaring appellant in default was handed down on
September 14, 1967. Appellant took no steps to have this Order set aside. It was only on January
22, 1968, after he was furnished a copy of the Court's decision dated December 9, 1967 or about
four months later that he attached this Order and the decision of the Court. Appellant slept on his
rights-if he had any. He had a chance to have his day in Court but he passed it off. Four months
later he alleges that sudden illness had prevented him. We feel appellant took a long time too-long
in fact-to inform the Court of his sudden illness. This sudden illness that according to him
prevented him from coming to Court, and the time it took him to tell the Court about it, is familiar
to the forum as an oft repeated excuse to justify indifference on the part of litigants or outright
negligence of those who represent them which subserves the interests of justice. In the instant
case, not only did the appellant wantonly pass off his chance to have a day in Court but he has
also failed to give a convincing, just and valid reason for the new hearing he seeks. The trial court
found it so; We find it so. The trial Court in refusing to give appellant a new trial does not appear to
have abused his discretion as to justify our intervention.

The Second and Third Assignments of Error are hereby jointly treated in our discussion since the
third is but a consequence of the second.

It is argued that had the trial Court reconsidered its order dated September 14, 1967 dismissing
the complaint for failure to prosecute, plaintiff-appellant might have proved that he owns the lot
subjectmatter of the case, citing the receipt (Annex A) in his favor; that he has introduced
improvements and erected a house thereon made of strong materials; that appellee's adverse
interest over the property was secured in bad faith since he had prior knowledge and notice of
appellant's physical possession or acquisition of the same; that due to said bad faith appellant has
suffered damages, and that for all the foregoing, the judgment should be reversed and equitable
relief be given in his favor.

As above stated, the Legarda-Tambunting Subdivision which includes the lot subject matter of the
instant case, is covered by Torrens Certificates of Title. Appellant anchors his claim on the receipt
(Annex "A") dated May 2, 1950, which he claims as evidence of the sale of said lot in his favor.
Admittedly, however, Catalino Leabres has not registered his supposed interest over the lot in the
records of the Register of Deeds, nor did he present his claim for probate in the testate
proceedings over the estate of the owner of said subdivision, in spite of the notices advertised in
the papers. (Saldana vs. Phil. Trust Co., et al.; Manotok Realty, Inc., supra).
On the other hand, defendant-appellee, Manotok Realty, Inc., bought the whole subdivision which
includes the subject matter herein by order and with approval of the Probate Court and upon said
approval, the Deed of Absolute Sale in favor of appellee was immediately registered with the
proper Register of Deeds. Manotok Realty, Inc. has therefore the better right over the lot in
question because in cases of lands registered under the Torrens Law, adverse interests not therein
annotated which are without the previous knowledge by third parties do not bind the latter. As to
the improvement which appellant claims to have introduced on the lot, purchase of registered
lands for value and in good faith hold the same free from all liens and encumbrances except those
noted on the titles of said land and those burdens imposed by law. (Sec. 39, Act. 496).<re||
an1w> An occupant of a land, or a purchaser thereof from a person other than the registered
owner, cannot claim good faith so as to be entitled to retention of the parcels occupied by him
until reimbursement of the value of the improvements he introduced thereon, because he is
charged with notice of the existence of the owner's certificate of title (J.M. Tuason & Co. vs.
Lecardo, et al., CA-G.R. No. 25477-R, July 24, 1962; J.M. Tuason & Co., Inc. vs. Manuel Abundo, CA-
G.R. No. 29701-R, November 18, 1968).

Appellant has not convinced the trial Court that appellee acted in bad faith in the acquisition of the
property due to the latter's knowledge of a previous acquisition by the former, and neither are we
impressed by the claim. The purchaser of a registered land has to rely on the certificate of title
thereof. The good faith of appellee coming from the knowledge that the certificate of title covering
the entire subdivision contain no notation as to appellant's interest, and the fact that the records
of these eases like Probate Proceedings Case No. 10808, do not show the existence of appellant's
claim, strongly support the correctness of the lower Court's decision

WHEREFORE, in view of the foregoing, we find no reason to amend or set aside the decision
appealed from, as regards to plaintiff-appellant Catalino Leabres. We therefore affirm the same,
with costs against appellant. (pp. 33-38, Rollo)

Petitioner now comes to us with the following issues:

(1) Whether or not the petitioner was denied his day in court and deprived of due process of law.

(2) Whether or not the petitioner had to submit his receipt to the probate court in order that his
right over the parcel of land in dispute could be recognized valid and binding and conclusive
against the Manotok Realty, Inc.

(3) Whether or not the petitioner could be considered as a possessor in good faith and in the
concept of owner. (p. 11, Rollo)

Petitioner's contention that he was denied his day in court holds no water. Petitioner does not deny
the fact that he failed to appear on the date set for hearing on September 14, 1967 and as a
consequence of his non-appearance, the order of dismissal was issued, as provided for by Section
3, Rule 17 of the Revised Rules of Court.

Moreover, as pointed out by private respondent in its brief, the hearing on June 11, 1967 was not
ex parte. Petitioner was represented by his counsel on said date, and therefore, petitioner was
given his day in Court.

The main objection of the petition in the lower court's proceeding is the reception of respondent's
evidence without declaring petitioner in default. We find that there was no necessity to declare
petitioner in default since he had filed his answer to the counterclaim of respondent.

Petitioner anchors his main arguments on the receipt (Exh. 1) dated May 2, 1950, as a basis of a
valid sale. An examination of the receipt reveals that the same can neither be regarded as a
contract of sale or a promise to sell. There was merely an acknowledgment of the sum of One
Thousand Pesos (P1,000.00). There was no agreement as to the total purchase price of the land
nor to the monthly installment to be paid by the petitioner. The requisites of a valid Contract of
Sale namely 1) consent or meeting of the minds of the parties; 2) determinate subject matter; 3)
price certain in money or its equivalent-are lacking in said receipt and therefore the "sale" is not
valid nor enforceable. Furthermore, it is a fact that Dona Clara Tambunting died on April 22, 1950.
Her estate was thereafter under custodia legis of the Probate Court which appointed Don Vicente
Legarda as Special Administrator on August 28, 1950. Don Vicente Legarda entered into said sale
in his own personal-capacity and without court approval, consequently, said sale cannot bind the
estate of Clara Tambunting. Petitioner should have submitted the receipt of alleged sale to the
Probate Court for its approval of the transactions. Thus, the respondent Court did not err in holding
that the petitioner should have submitted his receipt to the probate court in order that his right
over the subject land could be recognized-assuming of course that the receipt could be regarded
as sufficient proof.

Anent his possession of the land, petitioner cannot be deemed a possessor in good faith in view of
the registration of the ownership of the land. To consider petitioner in good faith would be to put a
premium on his own gross negligence. The Court resolved to DENY the petition for lack of merit
and to AFFIRM the assailed judgment.

Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

Case

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 75111 November 21, 1991

MARGARITO ALMENDRA, DELIA ALMENDRA, BERNARDINA OJEDA and MELECIA CENO,

petitioners,
vs.
THE HON. INTERMEDIATE APPELLATE COURT, ANGELES ALMENDRA, ROMAN ALMENDRA
and MAGDALENO CENO, respondents.

Custodio P. Canete for petitioners.

Serafin P. Ramento and Leon T. Tumandao for private respondents.

FERNAN, C.J.:p

This is a petition for review on certiorari of the then Intermediate Appellate Court's decision and
resolution denying the motion for reconsideration of said decision which upheld the validity of
three (3) deeds of sale of real properties by a mother in favor of two of her children in total
reversal of the decision the lower court.

The mother, Aleja Ceno, was first married to Juanso Yu Book with whom she had three children
named Magdaleno, Melecia and Bernardina, all surnamed Ceno. Sometime in the 1920's, Juanso Yu
Book took his family to China where he eventually died. Aleja and her daughter Bernardina later
returned to the Philippines.
During said marriage, Aleja acquired a parcel of land which she declared in her name under Tax
Declaration No. 11500. 1 After Juanso Yu Book's death, Bernardina filed against her mother a case
for the partition of the said property in the then Court of First Instance of Leyte. 2 On August 17,
1970, the lower court 3 rendered a "supplemental decision" 4 finding that the said property had
been subdivided into Lots Nos. 6354 (13,788 square meters), 6353 (16,604 square meters), 6352
(23,868 square meters) and 6366 (71,656 square meters). The dispositive portion of said decision
reads:

IN VIEW OF THE FOREGOING, the Court hereby renders judgment:

1. Declaring plaintiff Bernardina C. Ojeda as owner and entitled to the possession of Lot No. 6354
as described in the sketch found on page 44 of the record;

2. Declaring said plaintiff as owner and entitled to the possession of Lot 6353 as described in the
sketch, without prejudice to whatever may be the rights thereto of her sister Melecia Ceno who is
said to be presently in China;

3. Declaring defendant Aleja C. Almendra as owner and entitled to the possession of Lot No. 6366
as described in the sketch found on page 44 of the record;

4. Declaring said defendant also as owner and entitled to the possession of Lot No. 6352 as
described in the sketch, subject to whatever may be the rights thereto of her son Magdaleno Ceno
who is said to be presently in China.

No special pronouncement as to costs, except that the fees of the commissioner shall be
proportionately borne by the parties.

SO ORDERED.

Meanwhile, Aleja married Santiago Almendra with whom she had four children named Margarito,
Angeles, Roman and Delia. During said marriage Aleja and Santiago acquired a 59,196-square-
meter parcel of land in Cagbolo, Abuyog, Leyte. Original Certificate of Title No. 10094 was issued
therefor in the name of Santiago Almendra married to Aleja Ceno and it was declared for tax
purposes in his name. 5

In addition to said properties, Aleja inherited from her father, Juan Ceno, a 16,000-square-meter
parcel of land also in Cagbolo. 6 For his part, her husband Santiago inherited from his mother
Nicolasa Alvero, a 164-square-meter parcel of residential land located in Nalibunan, Abuyog, Leyte.
7

While Santiago was alive, he apportioned all these properties among Aleja's children in the
Philippines, including Bernardina, who, in turn, shared the produce of the properties with their
parents. After Santiago's death, Aleja sold to her daughter, Angeles Almendra, for P2,000 two
parcels of land more particularly described in the deed of sale dated August 10, 1973, 8 as follows:

1. Half-portion, which pertains to me as my conjugal share, with my late husband Santiago

Almendra of the land located at Bo. Cagbolo, under T/D No. 22234, covered by OCT No. P-10094 in
name of Santiago Almendra; having an area of 5.9196 hectares; with boundaries specifically
designated at the technical descriptions of the title thereof; and hence the half portion subject of
sale shall have an area of more or less 2.9598 hectares; specifically designated in the sketch
below marked as X: the hilly portion.

2. Half-portion of a parcel of land located at Bo. Cagbolo, Abuyog, Leyte under T/D No. 27190 in
the name of Aleja Ceno; having an area of 1.6000 hectares bounded as follows to wit: N. Cagbolo
creek; E. Leon Elmido; S. Magno Elmido and W., Higasan River, which portion shall have an area of
more or less 8000 hec. (sic), and designated as X in the sketch below: 9

On December 26, 1973, Aleja sold to her son, Roman Almendra, also for P2,000 a parcel of land
described in the deed of sale as located in Cagbulo (sic), Abuyog, Leyte "under T/D No. 11500
which cancelled T/D No. 9635; having an area of 6.6181 hec., assessed at P1,580.00 . . ." 10

On the same day, Aleja sold to Angeles and Roman again for P2,000 yet another parcel of land
described in the deed of sale 11 as follows:

A parcel of land designated as Lot No. 6352 in the name of Melicia Ceno, under Project PLS-645,
Abuyog, Leyte, which had been treated in the CIVIL CASE No. 4387, For PARTITION OF REAL
PROPERTY, CFI-Leyte, Tacloban City, Branch 11; Bernardina Ojeda, Plaintiff, -vs.- Aleja C. Almendra,
defendant, wherein said SUPPLEMENTAL DECISION, dated August 17th, 1970, in said case by Judge
Jesus N. Borromeo:

PART OF THE DECISION, COMMISSIONER'S REPORT:

Par. 3) That the partition, plaintiff and defendant agreed to exchange the names or owners of Lot
No. 6353 which is in the name of Magdaleno Ceno with Lot No. 6352 in the name of Melecia Ceno
as appearing in the sketch, copy of the Public Land Subdivision of Abuyog, Leyte, under Project
PLS-645 . . . .

DISPOSITIVE PORTION OF SAID DECISION:

Par. 4) Declaring said defendant (Aleja C. Almendra) also as owner and entitled to the possession
of Lot No. 6352 as described in the sketch, subject to whatever may be the rights thereto of her
son Magdaleno Ceno who is said to be presently in China.

Aleja died on May 7, 1975. On January 21, 1977 Margarito, Delia and Bernardina filed a complaint
against Angeles and Roman for the annulment of the deeds of sale in their favor, partition of the
properties subjects therein and accounting of their produce. 12 From China, their sister Melecia
signed a special power of attorney in favor of Bernardina. Magdaleno, who was still in China, was
impleaded as a defendant in the case and summons by publication was made on him. Later, the
plaintiffs informed the court that they had received a document in Chinese characters which
purportedly showed that Magdaleno had died. Said document, however, was not produced in
court. Thereafter, Magdaleno was considered as in default without prejudice to the provisions of
Section 4, Rule 18 of the Rules of Court which allows the court to decide a case wherein there
several defendants upon the evidence submitted only by the answering defendants.

On April 30, 1981, the lower court rendered a decision 13 the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered declaring the deeds of sale herein (Exhs."E",
"F"and"H") to be simulated and therefore null and void; ordering the partition of the estate of the
deceased Aleja Ceno among her heirs and assigns; appointing the Acting Clerk of Court, Atty.
Cristina T. Pontejos, as commissioner, for the purpose of said partition, who is expected to proceed
accordingly upon receipt of a copy of this decision; and to render her report on or before 30 days
from said receipt. The expenses of the commissioner shall be borne proportionately by the parties
herein.

SO ORDERED.

The defendants appealed to the then Intermediate Appellate Court which, on February 20, 1986
rendered a decision 14 finding that, in nullifying the deeds of sale in question, the lower court
totally disregarded the testimony of the notary public confirming the authenticity of the signatures
of Aleja on said deeds and the fact that Angeles and Roman actually paid their mother the
amounts stipulated in the contracts. The appellate court also stated that the uniformity in the
prices of the sale could not have nullified the sale because it had been duly proven that there was
consideration and that Angeles and Roman could afford to pay the same. Hence, it upheld validity
of the deeds of sale and ordered the partition of the "undisposed" properties left by Aleja and
Santiago Almendra and, if an extrajudicial partition can be had, that it be made within a
reasonable period of time after receipt of its decision.

The plaintiffs' motion for reconsideration having been denied, they filed the instant petition for
review on certiorari contending principally that the appellate court erred in having sanctioned the
sale of particular portions of yet undivided real properties.

While petitioners' contention is basically correct, we agree with the appellate court that there is no
valid, legal and convincing reason for nullifying the questioned deeds of sale. Petitioner had not
presented any strong, complete and conclusive proof to override the evidentiary value of the duly
notarized deeds of sale. 15 Moreover, the testimony of the lawyer who notarized the deeds of sale
that he saw not only Aleja signing and affixing her thumbmark on the questioned deeds but also
Angeles and Aleja "counting money between
them," 16 deserves more credence than the self-serving allegations of the petitioners. Such
testimony is admissible as evidence without further proof of the due execution of the deeds in
question and is conclusive as to the truthfulness of their contents in the absence of clear and
convincing evidence to the contrary. 17

The petitioners' allegations that the deeds of sale were "obtained through fraud, undue influence
and misrepresentation," and that there was a defect in the consent of Aleja in the execution of the
documents because she was then residing with Angeles, 18 had not been fully substantiated. They
failed to show that the uniform price of P2,000 in all the sales was grossly inadequate. It should be
emphasized that the sales were effected between a mother and two of her children in which case
filial love must be taken into account. 19

On the other hand, private respondents Angeles and Roman amply proved that they had the
means to purchase the properties. Petitioner Margarito Almendra himself admitted that Angeles
had a sari-sari store and was engaged in the business of buying and selling logs. 20 Roman was a
policeman before he became an auto mechanic and his wife was a school teacher 21

The unquestionability of the due execution of the deeds of sale notwithstanding, the Court may
not put an imprimatur on the intrinsic validity of all the sales. The August 10, 1973 sale to Angeles
of one-half portion of the conjugal property covered by OCT No. P-10094 may only be considered
valid as a sale of Aleja's one-half interest therein. Aleja could not have sold particular hilly portion
specified in the deed of sale in absence of proof that the conjugal partnership property had been
partitioned after the death of Santiago. Before such partition, Aleja could not claim title to any
definite portion of the property for all she had was an ideal or abstract quota or proportionate
share in the entire property. 22

However, the sale of the one-half portion of the parcel of land covered by Tax Declaration No.
27190 is valid because the said property is paraphernal being Aleja's inheritance from her own
father. 23

As regards the sale of the property covered by Tax Declaration No. 11500, we hold that, since the
property had been found in Civil Case No. 4387 to have been subdivided, Aleja could not have
intended the sale of the whole property covered by said tax declaration. She could exercise her
right of ownership only over Lot No. 6366 which was unconditionally adjudicated to her in said
case.

Lot No. 6352 was given to Aleja in Civil Case No. 4387 "subject to whatever may be the rights
thereto of her son Magdaleno Ceno." A reading of the deed of Sale 24 covering parcel of land
would show that the sale is subject to the condition stated above; hence, the rights of Magdaleno
Ceno are amply protected. The rule on caveat emptor applies.

WHEREFORE, the decision of the then Intermediate Appellate Court is hereby affirmed subject to
the modifications herein stated. The lower court is directed to facilitate with dispatch the
preparation and approval of a project of partition of the properties considered unsold under this
decision. No costs.

SO ORDERED.

SECOND DIVISION

[G.R. No. 134718. August 20, 2001]

HEIRS OF ROMANA INGJUG-TIRO: BEDESA, PEDRO, RITA all surnamed TIRO, and BARBARA TIRO
(deceased) represented by NORMA SARAMOSING; HEIRS OF FRANCISCO INGJUG: LEONARDO, LILIA,
FERNANDA, ZENAIDA, PACITA and ANTONIO, all surnamed INGJUG; and HEIRS OF FRANCISCA
INGJUG-FUENTES: ULDARICO and GUILLERMA, all surnamed FUENTES, and PAULINA INGJUG-
FUENTES (deceased) represented by VICTOR, ELENA, SERGIA and DESIDERIO, all surnamed MUEZ,
petitioners, vs. SPOUSES LEON V. CASALS and LILIA C. CASALS, SPOUSES CARLOS L. CLIMACO and
LYDIA R. CLIMACO, SPOUSES JOSE L. CLIMACO, JR. and BLANQUITA C. CLIMACO, and CONSUELO L.
CLIMACO, respondents.

DECISION

BELLOSILLO, J.:

A 5,354-square meter parcel of land is at the epicentrum of the controversy. Originally titled in the
name of Mamerto Ingjug, the property is located in the former Municipality of Opon, Province of
Cebu (now Marigondon, Lapu-Lapu City). The claimants are the descendants of Mamerto Ingjug on
one hand who allege that they have been deprived of their successional rights through fraud and
misrepresentation, and a group of vendees on the other hand claiming to have acquired the
property for value and in good faith. The case filed by the descendants of Mamerto Ingjug was
dismissed by the trial court on the ground of prescription and laches. The dismissal was affirmed
by the Court of Appeals. The affirmance by the appellate court is now assailed in this petition for
review.

During the Second World War, or some sixty (60) years ago, Mamerto Ingjug died leaving behind
the subject parcel of land covered by Original Certificate of Title No. RO-0376 in his name as owner
in fee simple. Upon his death title thereto devolved upon his five (5) children, namely, Romana,
Francisco, Francisca, Luisa and Maria, all surnamed Ingjug. On 9 July 1965, or more than two (2)
decades later, Luisa, Maria, one Eufemio Ingjug, and Guillerma Ingjug Fuentes-Pagubo, daughter of
Francisca, sold the disputed land to herein respondents, the spouses Leon V. Casals and Lilia C.
Casals, the spouses Carlos L. Climaco and Lydia R. Climaco, the spouses Jose L. Climaco, Jr. and
Blanquita C. Climaco, and Consuelo L. Climaco. The vendors allegedly represented to the vendees
that the property was inherited by them from the late Mamerto Ingjug, and that they were his only
surviving heirs. The sale was evidenced by a Deed of Sale of Unregistered Landi[1] and an
Extrajudicial Settlement and Confirmation of Saleii[2] executed by the vendors in favor of the
vendees.

On 10 August 1992, herein petitioners as heirs of Romana Ingjug, namely, Bedesa,

Pedro, Rita and Barbara; heirs of Francisco Ingjug, namely, Leonardo, Lilia, Fernanda,
Zenaida, Pacita and Antonio; and, heirs of Francisca, namely, Uldarico, and Paulina,
challenged respondents' ownership of the property by filing a complaint for
Partition, Recovery of Ownership and Possession, Declaration of Nullity: Deed of
Sale of Unregistered Land; Extrajudicial Settlement and Confirmation of Sale,iii[3]
 against herein respondents. Petitioners alleged that they only discovered in 1990
that the property had already been sold and titled to respondents, and that
respondents refused, despite repeated demands, to deliver and return to them their
shares in the property. Petitioners also prayed that the Deed of Sale of Unregistered
Land as well as the Extrajudicial Settlement and Confirmation of Sale executed by
Luisa, Maria, Eufemio and Guillerma be nullified to the extent of petitioners' shares
in the property.

Respondents - the spouses Leon Casals and Lilia Casals, and Consuelo L. Climaco - failed to answer
within the reglementary period, hence, on motion of petitioners' counsel, they were declared in
default.iv[4] On the other hand, respondents - the spouses Carlos L. Climaco and Lydia R. Climaco,
and the spouses Jose L. Climaco, Jr. and Blanquita C. Climaco - filed a motion to dismiss, instead of
an answer, arguing that the complaint failed to state a cause of action and was barred by
prescription and laches. They further averred that the original certificate of title in the name of
Mamerto Ingjug was lost during the war, and that they bought the property from the heirs of
Mamerto Ingjug pending the reconstitution of the title; that they acquired the property in good
faith believing that the vendors were indeed the only surviving heirs of Mamerto Ingjug; that upon
the issuance of the reconstituted title the vendors executed the questioned Deed of Extrajudicial
Settlement and Confirmation of Sale in their favor; and that, on the basis of the deed, the original
certificate of title in the name of Mamerto Ingjug was cancelled and Transfer Certificate of Title No.
T-1150 was issued in their names.v[5]

On 24 February 1993 the trial court in dismissing the complaint held vi[6] -

From February 9, 1965 to October 10, 1992 when the instant action was filed in court is 27 years
and from February 2, 1967, the time the title was transferred to defendants to October 10, 1992
when plaintiffs initiated the instant case is 25 years. The possession of the property is admitted by
the plaintiffs to be with the defendants. If this is so, then the conclusion is inevitable that the
property has already been acquired by the defendants by prescription, and the action to recover
the same has already been lost x x x x Co-ownership of the lot in question was already repudiated
as early as 1965 when Luisa, Maria and Guillerma sold the land claiming they are the only heirs of
Mamerto Ingjug, and when the other compulsory heir, Francisco Ingjug confirmed said sale in
1967. From that date, plaintiffs had only 10 years to initiate an action for reconveyance which they
failed to do. Accordingly, an action for reconveyance based on implied or constructive trust
prescribes in ten years counted from the date when an adverse title is asserted by the possessor
of the property x x x moreover, "the rule in this jurisdiction is that an action to enforce an implied
trust may be barred not only by prescription but also by laches in which case repudiation is not
even required."

On 26 February 1998 the Court of Appeals, as stated earlier, affirmed the Decision of the trial
court.vii[7]

Petitioners now seek a review of the appellate court's Decision contending that: (a) the litigated
property was originally registered under the Torrens system and, as such, it cannot be acquired by
prescription or adverse possession; (b) prescription is unavailing not only against the registered
owner but also against his hereditary successors because the latter merely step into the shoes of
the former by operation of law and are merely the continuation of the personality of their
predecessors in interest; (c) the right to recover possession of a registered property is equally
imprescriptible; (d) laches too may not be considered a valid defense for claiming ownership of
land registered under the Torrens system. When prescription would not lie, neither would laches be
available; (e) respondents are not in possession of the land in the concept of owners, but are
merely holding the same in trust for petitioners; (f) neither could possession of respondents be
characterized as adverse possession in good faith; (g) Francisco Ingjug could not have been a
party to the Deed of Extrajudicial Settlement and Confirmation of Sale in 1967 because he died on
17 August 1963; and, (h) Eufemio Ingjug, one of the signatories to the Deed of Sale, was not the
son of Mamerto Ingjug but only a son-in-law, he being a Tiro and husband of Ramona Ingjug-Tiro. viii
[8]
The pivotal issue is whether petitioners' right to institute a complaint for partition and
reconveyance is effectively barred by prescription and laches.

We grant the petition. It should be noted that the trial court dismissed the complaint based on
prescription and laches alone without taking into consideration the other issues raised by
petitioners concerning the validity of the contract and its bearing on the matter of prescription.
The Court of Appeals likewise skirted the other issues and sustained the trial court's theory that
herein petitioners' cause of action - which is essentially one for reconveyance based upon a
constructive or implied trust resulting from fraud - had been effectively lost through prescription
and laches.

A cursory reading of the complaint, however, reveals that the action filed by petitioners was for
partition, recovery of ownership and possession, declaration of nullity of a deed of sale of
unregistered land and extrajudicial settlement and confirmation of sale. Petitioners'
causes of action are premised on their claim that: (a) the Deed of Sale of Unregistered Land is void
and of no effect since their respective shares in the inheritance were included in the sale without
their knowledge and consent, and one of the vendor-signatories therein, Eufemio Ingjug (Eufemio
Tiro,ix[9] husband of Romana Ingjugx[10]), was not even a direct and compulsory heir of the
decedent; and (b) the Extrajudicial Settlement and Confirmation of Sale is simulated and therefore
null and void ab initio, as it was purportedly executed in 1967 by, among others, Eufemio Tiro who
was not an heir, and by Francisco Ingjug who died in 1963. Also, the prayer in the same complaint
expressly asks that all those transactions be declared null and void. In other words, it is the nullity
of the deeds of sale and the extrajudicial settlement and confirmation of the sale which is the
basic hypothesis upon which the instant civil action rests. Thus, it appears that we are dealing
here not with simple voidable contracts tainted with fraud, but with contracts that are altogether
null and void ab initio.

Assuming petitioners' allegations to be true, without however prejudging the validity or invalidity
of the contract of sale and the extrajudicial settlement which will ultimately be determined by the
trial court, Romana, Francisco, Francisca, Luisa and Maria, succeeded to the possession and
ownership of the land from the time of the death of their father Mamerto Ingjug. The property
should have been divided equally among them, but prior to its partition these heirs of Mamerto
Ingjug owned the property in common. It follows then that Luisa, Maria and Guillerma (daughter of
Francisca) and Eufemio Ingjug could not, by themselves, validly dispose of the entire litigated
property to the exclusion of and without the knowledge and consent of the other heirs since Luisa,
Maria, Guillerma and Eufemio are not the exclusive owners thereof. More so in the case of Eufemio,
who is claimed to be a total stranger to and therefore has no legal interest whatsoever in the
inherited property not being a direct heir.

Article 1458 of the New Civil Code provides: "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." It is essential that the vendors be the
owners of the property sold otherwise they cannot dispose that which does not belong to them. As
the Romans put it: "Nemo dat quod non habet." No one can give more than what he has. The sale
of the realty to respondents is null and void insofar as it prejudiced petitioners' interests and
participation therein. At best, only the ownership of the shares of Luisa, Maria and Guillerma in the
disputed property could have been transferred to respondents.

Consequently, respondents could not have acquired ownership over the land to the extent of the
shares of petitioners. The issuance of a certificate of title in their favor could not vest upon them
ownership of the entire property; neither could it validate the purchase thereof which is null and
void. Registration does not vest title; it is merely the evidence of such title. Our land registration
laws do not give the holder any better title than what he actually has. xi[11] Being null and void, the
sale to respondents of petitioners' shares produced no legal effects whatsoever.

Similarly, the claim that Francisco Ingjug died in 1963 but appeared to be a party to the
Extrajudicial Settlement and Confirmation of Sale executed in 1967 would be fatal to the validity of
the contract, if proved by clear and convincing evidence. Contracting parties must be juristic
entities at the time of the consummation of the contract. Stated otherwise, to form a valid and
legal agreement it is necessary that there be a party capable of contracting and a party capable of
being contracted with. Hence, if any one party to a supposed contract was already dead at the
time of its execution, such contract is undoubtedly simulated and false and therefore null and void
by reason of its having been made after the death of the party who appears as one of the
contracting parties therein.xii[12] The death of a person terminates contractual capacity.

In actions for reconveyance of property predicated on the fact that the conveyance complained of
was null and void ab initio, a claim of prescription of action would be unavailing. xiii[13] The action
or defense for the declaration of the inexistence of a contract does not prescribe." xiv[14] Neither
could laches be invoked in the case at bar. Laches is a doctrine in equity and our courts are
basically courts of law and not courts of equity. Equity, which has been aptly described as "justice
outside legality," should be applied only in the absence of, and never against, statutory law.
Aequetas nunguam contravenit legis. The positive mandate of Art. 1410 of the New Civil Code
conferring imprescriptibility to actions for declaration of the inexistence of a contract should pre-
empt and prevail over all abstract arguments based only on equity. Certainly, laches cannot be set
up to resist the enforcement of an imprescriptible legal right, and petitioners can validly vindicate
their inheritance despite the lapse of time.

Considering the foregoing, the trial court judge should not have summarily dismissed petitioners'
complaint; instead, he should have required the defendants to answer the complaint, deferred
action on the special defenses of prescription and laches, and ordered the parties to proceed with
the trial on the merits. Verily, the dismissal of the case on the ground of prescription and laches
was premature. The summary or outright dismissal of an action is not proper where there are
factual matters in dispute which need presentation and appreciation of evidence. Here, petitioners
still had to prove the following: first, that they were the coheirs and co-owners of the inherited
property; second, that their coheirs-co-owners sold their hereditary rights thereto without their
knowledge and consent; third, that forgery, fraud and deceit were committed in the execution of
the Deed of Extrajudicial Settlement and Confirmation of Sale since Francisco Ingjug who allegedly
executed the deed in 1967 actually died in 1963, hence, the thumbprint found in the document
could not be his; fourth, that Eufemio Ingjug who signed the deed of sale is not the son of Mamerto
Ingjug, and therefore not an heir entitled to participate in the disposition of the inheritance; fifth,
that respondents have not paid the taxes since the execution of the sale in 1965 until the present
date and the land in question is still declared for taxation purposes in the name of Mamerto Ingjug,
the original registered owner, as of 1998; sixth, that respondents had not taken possession of the
land subject of the complaint nor introduced any improvement thereon; and seventh, that
respondents are not innocent purchasers for value.

Without any evidence on record relating to these points, this Court cannot affix its imprimatur to
the peremptory dismissal of the complaint in light of the pleas of petitioners for their just share in
the inheritance and for the partition of their common predecessor's estate. Indeed, it is but fair
and just that, without prejudging the issues, the parties be allowed to substantiate their respective
claims and defenses in a full-blown trial, and secure a ruling on all the issues presented in their
respective pleadings.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
REVERSED and SET ASIDE, and the case is REMANDED to the RTC-Br. 27, Lapu-Lapu City, for trial
and judgment on the merits. No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
 EN BANC

G.R. No. L-9935 February 1, 1915

YU TEK and CO., plaintiff-appellant,

vs.
BASILIO GONZALES, defendant-appellant.

Beaumont, Tenney and Ferrier for plaintiff.

Buencamino and Lontok for defendant.

TRENT, J.:

The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which follow:

1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000 Philippine currency
from Messrs. Yu Tek and Co., and that in consideration of said sum be obligates himself to deliver
to the said Yu Tek and Co., 600 piculs of sugar of the first and second grade, according to the result
of the polarization, within the period of three months, beginning on the 1st day of January, 1912,
and ending on the 31st day of March of the same year, 1912.

2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs. Yu Tek and Co.,
of this city the said 600 piculs of sugar at any place within the said municipality of Santa Rosa
which the said Messrs. Yu Tek and Co., or a representative of the same may designate.

3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and Co. the 600
piculs of sugar within the period of three months, referred to in the second paragraph of this
document, this contract will be rescinded and the said Mr. Basilio Gonzales will then be obligated
to return to Messrs. Yu Tek and Co. the P3,000 received and also the sum of P1,200 by way of
indemnity for loss and damages.

Plaintiff proved that no sugar had been delivered to it under this contract nor had it been able to
recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for P1,200 under
paragraph 4, supra. Judgment was rendered for P3,000 only, and from this judgment both parties
appealed.

The points raised by the defendant will be considered first. He alleges that the court erred in
refusing to permit parol evidence showing that the parties intended that the sugar was to be
secured from the crop which the defendant raised on his plantation, and that he was unable to
fulfill the contract by reason of the almost total failure of his crop. This case appears to be one to
which the rule which excludes parol evidence to add to or vary the terms of a written contract is
decidedly applicable. There is not the slightest intimation in the contract that the sugar was to be
raised by the defendant. Parties are presumed to have reduced to writing all the essential
conditions of their contract. While parol evidence is admissible in a variety of ways to explain the
meaning of written contracts, it cannot serve the purpose of incorporating into the contract
additional contemporaneous conditions which are not mentioned at all in the writing, unless there
has been fraud or mistake. In an early case this court declined to allow parol evidence showing
that a party to a written contract was to become a partner in a firm instead of a creditor of the
firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern Mining Co. (14 Phil. Rep.,
509) a contract of employment provided that the plaintiff should receive from the defendant a
stipulated salary and expenses. The defendant sought to interpose as a defense to recovery that
the payment of the salary was contingent upon the plaintiff's employment redounding to the
benefit of the defendant company. The contract contained no such condition and the court
declined to receive parol evidence thereof.
In the case at bar, it is sought to show that the sugar was to be obtained exclusively from the crop
raised by the defendant. There is no clause in the written contract which even remotely suggests
such a condition. The defendant undertook to deliver a specified quantity of sugar within a
specified time. The contract placed no restriction upon the defendant in the matter of obtaining
the sugar. He was equally at liberty to purchase it on the market or raise it himself. It may be true
that defendant owned a plantation and expected to raise the sugar himself, but he did not limit his
obligation to his own crop of sugar. Our conclusion is that the condition which the defendant seeks
to add to the contract by parol evidence cannot be considered. The rights of the parties must be
determined by the writing itself.

The second contention of the defendant arises from the first. He assumes that the contract was
limited to the sugar he might raise upon his own plantation; that the contract represented a
perfected sale; and that by failure of his crop he was relieved from complying with his undertaking
by loss of the thing due. (Arts. 1452, 1096, and 1182, Civil Code.) This argument is faulty in
assuming that there was a perfected sale. Article 1450 defines a perfected sale as follows:

The sale shall be perfected between vendor and vendee and shall be binding on both of them, if
they have agreed upon the thing which is the object of the contract and upon the price, even when
neither has been delivered.

Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has been
perfected, be governed by the provisions of articles 1096 and 1182."

This court has consistently held that there is a perfected sale with regard to the "thing" whenever
the article of sale has been physically segregated from all other articles Thus, a particular tobacco
factory with its contents was held sold under a contract which did not provide for either delivery of
the price or of the thing until a future time. McCullough vs. Aenlle and Co. (3 Phil. Rep., 295). Quite
similar was the recent case of Barretto vs. Santa Marina (26 Phil. Rep., 200) where specified shares
of stock in a tobacco factory were held sold by a contract which deferred delivery of both the price
and the stock until the latter had been appraised by an inventory of the entire assets of the
company. In Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific house was held perfected
between the vendor and vendee, although the delivery of the price was withheld until the
necessary documents of ownership were prepared by the vendee. In Tan Leonco vs. Go Inqui (8
Phil. Rep., 531) the plaintiff had delivered a quantity of hemp into the warehouse of the defendant.
The defendant drew a bill of exchange in the sum of P800, representing the price which had been
agreed upon for the hemp thus delivered. Prior to the presentation of the bill for payment, the
hemp was destroyed. Whereupon, the defendant suspended payment of the bill. It was held that
the hemp having been already delivered, the title had passed and the loss was the vendee's. It is
our purpose to distinguish the case at bar from all these cases.

In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of sugar
of the first and second classes. Was this an agreement upon the "thing" which was the object of
the contract within the meaning of article 1450, supra? Sugar is one of the staple commodities of
this country. For the purpose of sale its bulk is weighed, the customary unit of weight being
denominated a "picul." There was no delivery under the contract. Now, if called upon to designate
the article sold, it is clear that the defendant could only say that it was "sugar." He could only use
this generic name for the thing sold. There was no "appropriation" of any particular lot of sugar.
Neither party could point to any specific quantity of sugar and say: "This is the article which was
the subject of our contract." How different is this from the contracts discussed in the cases
referred to above! In the McCullough case, for instance, the tobacco factory which the parties dealt
with was specifically pointed out and distinguished from all other tobacco factories. So, in the
Barretto case, the particular shares of stock which the parties desired to transfer were capable of
designation. In the Tan Leonco case, where a quantity of hemp was the subject of the contract, it
was shown that that quantity had been deposited in a specific warehouse, and thus set apart and
distinguished from all other hemp.
A number of cases have been decided in the State of Louisiana, where the civil law prevails, which
confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122 La., 145; 47
Sou., 444). In this case a contract was entered into by a traveling salesman for a quantity of shoes,
the sales having been made by sample. The court said of this contract:

But it is wholly immaterial, for the purpose of the main question, whether Mitchell was authorized
to make a definite contract of sale or not, since the only contract that he was in a position to make
was an agreement to sell or an executory contract of sale. He says that plaintiff sends out 375
samples of shoes, and as he was offering to sell by sample shoes, part of which had not been
manufactured and the rest of which were incorporated in plaintiff's stock in Lynchburg, Va., it was
impossible that he and Seegars and Co. should at that time have agreed upon the specific objects,
the title to which was to pass, and hence there could have been no sale. He and Seegars and Co.
might have agreed, and did (in effect ) agree, that the identification of the objects and their
appropriation to the contract necessary to make a sale should thereafter be made by the plaintiff,
acting for itself and for Seegars and Co., and the legend printed in red ink on plaintiff's billheads
("Our responsibility ceases when we take transportation Co's. receipt `In good order'" indicates
plaintiff's idea of the moment at which such identification and appropriation would become
effective. The question presented was carefully considered in the case of State vs. Shields, et al.
(110 La., 547, 34 Sou., 673) (in which it was absolutely necessary that it should be decided), and it
was there held that in receiving an order for a quantity of goods, of a kind and at a price agreed
on, to be supplied from a general stock, warehoused at another place, the agent receiving the
order merely enters into an executory contract for the sale of the goods, which does not divest or
transfer the title of any determinate object, and which becomes effective for that purpose only
when specific goods are thereafter appropriated to the contract; and, in the absence of a more
specific agreement on the subject, that such appropriated takes place only when the goods as
ordered are delivered to the public carriers at the place from which they are to be shipped,
consigned to the person by whom the order is given, at which time and place, therefore, the sale is
perfected and the title passes.

This case and State vs. Shields, referred to in the above quotation are amply illustrative of the
position taken by the Louisiana court on the question before us. But we cannot refrain from
referring to the case of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann., 242) which is
summarized by the court itself in the Shields case as follows:

. . . It appears that the defendants had made a contract for the sale, by weight, of a lot of cotton,
had received $3,000 on account of the price, and had given an order for its delivery, which had
been presented to the purchaser, and recognized by the press in which the cotton was stored, but
that the cotton had been destroyed by fire before it was weighed. It was held that it was still at the
risk of the seller, and that the buyer was entitled to recover the $3,000 paid on account of the
price.

We conclude that the contract in the case at bar was merely an executory agreement; a promise of
sale and not a sale. At there was no perfected sale, it is clear that articles 1452, 1096, and 1182
are not applicable. The defendant having defaulted in his engagement, the plaintiff is entitled to
recover the P3,000 which it advanced to the defendant, and this portion of the judgment appealed
from must therefore be affirmed.

The plaintiff has appealed from the judgment of the trial court on the ground that it is entitled to
recover the additional sum of P1,200 under paragraph 4 of the contract. The court below held that
this paragraph was simply a limitation upon the amount of damages which could be recovered and
not liquidated damages as contemplated by the law. "It also appears," said the lower court, "that
in any event the defendant was prevented from fulfilling the contract by the delivery of the sugar
by condition over which he had no control, but these conditions were not sufficient to absolve him
from the obligation of returning the money which he received."

The above quoted portion of the trial court's opinion appears to be based upon the proposition that
the sugar which was to be delivered by the defendant was that which he expected to obtain from
his own hacienda and, as the dry weather destroyed his growing cane, he could not comply with
his part of the contract. As we have indicated, this view is erroneous, as, under the contract, the
defendant was not limited to his growth crop in order to make the delivery. He agreed to deliver
the sugar and nothing is said in the contract about where he was to get it.

We think is a clear case of liquidated damages. The contract plainly states that if the defendant
fails to deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded and
he will be obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for loss and
damages. There cannot be the slightest doubt about the meaning of this language or the intention
of the parties. There is no room for either interpretation or construction. Under the provisions of
article 1255 of the Civil Code contracting parties are free to execute the contracts that they may
consider suitable, provided they are not in contravention of law, morals, or public order. In our
opinion there is nothing in the contract under consideration which is opposed to any of these
principles.

For the foregoing reasons the judgment appealed from is modified by allowing the recovery of
P1,200 under paragraph 4 of the contract. As thus modified, the judgment appealed from is
affirmed, without costs in this instance.

Case
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iiiRepublic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11491 August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.

Crossfield & O'Brien for appellee.

AVANCEA, J.:

On January 24, 1911, in this city of manila, a contract in the following

tenor was entered into by and between the plaintiff, as party of the first
part, and J. Parsons (to whose rights and obligations the present
defendant later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.

PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds
in the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for
the latter's establishment in Iloilo, and shall invoice them at the same
price he has fixed for sales, in Manila, and, in the invoices, shall make
and allowance of a discount of 25 per cent of the invoiced prices, as
commission on the sale; and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received,
within a period of sixty days from the date of their shipment.

(C) The expenses for transportation and shipment shall be borne by M.

Quiroga, and the freight, insurance, and cost of unloading from the
vessel at the point where the beds are received, shall be paid by Mr.
Parsons.

(D) If, before an invoice falls due, Mr. Quiroga should request its
payment, said payment when made shall be considered as a prompt
payment, and as such a deduction of 2 per cent shall be made from the
amount of the invoice.

The same discount shall be made on the amount of any invoice which Mr.
Parsons may deem convenient to pay in cash.

(E) Mr. Quiroga binds himself to give notice at least fifteen days before
hand of any alteration in price which he may plan to make in respect to
his beds, and agrees that if on the date when such alteration takes
effect he should have any order pending to be served to Mr. Parsons,
such order shall enjoy the advantage of the alteration if the price
thereby be lowered, but shall not be affected by said alteration if the
price thereby be increased, for, in this latter case, Mr. Quiroga assumed
the obligation to invoice the beds at the price at which the order was
given.

(F) Mr. Parsons binds himself not to sell any other kind except the
"Quiroga" beds.

ART. 2. In compensation for the expenses of advertisement which, for

the benefit of both contracting parties, Mr. Parsons may find himself
obliged to make, Mr. Quiroga assumes the obligation to offer and give
the preference to Mr. Parsons in case anyone should apply for the
exclusive agency for any island not comprised with the Visayan group.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for the
sale of "Quiroga" beds in all the towns of the Archipelago where there
are no exclusive agents, and shall immediately report such action to Mr.
Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be
terminated by either of the contracting parties on a previous notice of
ninety days to the other party.

Of the three causes of action alleged by the plaintiff in his complaint,

only two of them constitute the subject matter of this appeal and both
substantially amount to the averment that the defendant violated the
following obligations: not to sell the beds at higher prices than those of
the invoices; to have an open establishment in Iloilo; itself to conduct
the agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. As may be seen, with the exception of the
obligation on the part of the defendant to order the beds by the dozen
and in no other manner, none of the obligations imputed to the
defendant in the two causes of action are expressly set forth in the
contract. But the plaintiff alleged that the defendant was his agent for
the sale of his beds in Iloilo, and that said obligations are implied in a
contract of commercial agency. The whole question, therefore, reduced
itself to a determination as to whether the defendant, by reason of the
contract hereinbefore transcribed, was a purchaser or an agent of the
plaintiff for the sale of his beds.

In order to classify a contract, due regard must be given to its essential

clauses. In the contract in question, what was essential, as constituting
its cause and subject matter, is that the plaintiff was to furnish the
defendant with the beds which the latter might order, at the price
stipulated, and that the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one determined by the
plaintiff for the sale of these beds in Manila, with a discount of from 20
to 25 per cent, according to their class. Payment was to be made at the
end of sixty days, or before, at the plaintiff's request, or in cash, if the
defendant so preferred, and in these last two cases an additional
discount was to be allowed for prompt payment. These are precisely the
essential features of a contract of purchase and sale. There was the
obligation on the part of the plaintiff to supply the beds, and, on the
part of the defendant, to pay their price. These features exclude the
legal conception of an agency or order to sell whereby the mandatory or
agent received the thing to sell it, and does not pay its price, but
delivers to the principal the price he obtains from the sale of the thing
to a third person, and if he does not succeed in selling it, he returns it.
By virtue of the contract between the plaintiff and the defendant, the
latter, on receiving the beds, was necessarily obliged to pay their price
within the term fixed, without any other consideration and regardless as
to whether he had or had not sold the beds.

It would be enough to hold, as we do, that the contract by and between

the defendant and the plaintiff is one of purchase and sale, in order to
show that it was not one made on the basis of a commission on sales, as
the plaintiff claims it was, for these contracts are incompatible with each
other. But, besides, examining the clauses of this contract, none of them
is found that substantially supports the plaintiff's contention. Not a
single one of these clauses necessarily conveys the idea of an agency.
The words commission on sales used in clause (A) of article 1 mean
nothing else, as stated in the contract itself, than a mere discount on the
invoice price. The word agency, also used in articles 2 and 3, only
expresses that the defendant was the only one that could sell the
plaintiff's beds in the Visayan Islands. With regard to the remaining
clauses, the least that can be said is that they are not incompatible with
the contract of purchase and sale.

The plaintiff calls attention to the testimony of Ernesto Vidal, a former

vice-president of the defendant corporation and who established and
managed the latter's business in Iloilo. It appears that this witness, prior
to the time of his testimony, had serious trouble with the defendant, had
maintained a civil suit against it, and had even accused one of its
partners, Guillermo Parsons, of falsification. He testified that it was he
who drafted the contract Exhibit A, and, when questioned as to what
was his purpose in contracting with the plaintiff, replied that it was to
be an agent for his beds and to collect a commission on sales. However,
according to the defendant's evidence, it was Mariano Lopez Santos, a
director of the corporation, who prepared Exhibit A. But, even supposing
that Ernesto Vidal has stated the truth, his statement as to what was his
idea in contracting with the plaintiff is of no importance, inasmuch as
the agreements contained in Exhibit A which he claims to have drafted,
constitute, as we have said, a contract of purchase and sale, and not one
of commercial agency. This only means that Ernesto Vidal was mistaken
in his classification of the contract. But it must be understood that a
contract is what the law defines it to be, and not what it is called by the
contracting parties.

The plaintiff also endeavored to prove that the defendant had returned
beds that it could not sell; that, without previous notice, it forwarded to
the defendant the beds that it wanted; and that the defendant received
its commission for the beds sold by the plaintiff directly to persons in
Iloilo. But all this, at the most only shows that, on the part of both of
them, there was mutual tolerance in the performance of the contract in
disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it.
Only the acts of the contracting parties, subsequent to, and in
connection with, the execution of the contract, must be considered for
the purpose of interpreting the contract, when such interpretation is
necessary, but not when, as in the instant case, its essential agreements
are clearly set forth and plainly show that the contract belongs to a
certain kind and not to another. Furthermore, the return made was of
certain brass beds, and was not effected in exchange for the price paid
for them, but was for other beds of another kind; and for the letter
Exhibit L-1, requested the plaintiff's prior consent with respect to said
beds, which shows that it was not considered that the defendant had a
right, by virtue of the contract, to make this return. As regards the
shipment of beds without previous notice, it is insinuated in the record
that these brass beds were precisely the ones so shipped, and that, for
this very reason, the plaintiff agreed to their return. And with respect to
the so-called commissions, we have said that they merely constituted a
discount on the invoice price, and the reason for applying this benefit to
the beds sold directly by the plaintiff to persons in Iloilo was because, as
the defendant obligated itself in the contract to incur the expenses of
advertisement of the plaintiff's beds, such sales were to be considered
as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only

one expressly imposed by the contract, the effect of its breach would
only entitle the plaintiff to disregard the orders which the defendant
might place under other conditions; but if the plaintiff consents to fill
them, he waives his right and cannot complain for having acted thus at
his own free will.

For the foregoing reasons, we are of opinion that the contract by and
between the plaintiff and the defendant was one of purchase and sale,
and that the obligations the breach of which is alleged as a cause of
action are not imposed upon the defendant, either by agreement or by
law.

The judgment appealed from is affirmed, with costs against the

appellant. So ordered.

Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

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.

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 t
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