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INSTITUTED.

Petitioners have established a right to evict private respondent


SALES- PRICE from the subject premises for non-payment of rentals. Since the rent was
DIZON VS. CA (1999) paid on a monthly basis, the period of lease is considered to be from
month to month in accordance with Article 1687 of the New Civil Code.
SYNOPSIS Where the rentals are paid monthly, the lease, even if verbal may be
deemed to be on a monthly basis, expiring at the end of every month
In 1974, Overland Express Lines, Inc. entered into a Contract of Lease pursuant to Article 1687, in relation to Article 1673 of the Civil Code. In
with Option to Buy with herein petitioners involving a land in Quezon City. The such case, a demand to vacate is not even necessary for judicial action
term of the lease was for one (1) year, during which period, the lessee was after the expiration of every month. When private respondent failed to
granted an option to purchase the lot for P3,000.00 per square meter. pay the increased rental, the petitioners had a cause of action to
Thereafter, the lease shall be on a per month basis with a monthly rental of institute an ejectment suit against the former with the then City Court. In
P3,000.00. Later, for failure to pay the increased rental of P8,000.00 per month this regard, the City Court (now MTC) had exclusive jurisdiction over the
effective June 1976, herein petitioners filed an action for ejectment to which ejectment suit. The filing by private respondent of a suit with the Regional
the Corporation was ordered to vacate the leased premises. The Trial Court for specific performance to enforce the option to purchase
Corporation, however, questioned the jurisdiction of the City Court over the did not divest the then City Court of its jurisdiction to take cognizance
ejectment case. Subsequently, the Corporation filed its own action for over the ejectment case. Of note is the fact that the decision of the City
specific performance and fixing the period for obligation. It sought to compel Court was affirmed by both the Intermediate Appellate Court and this
the execution of a deed of sale pursuant to the option to purchase, and the Court.
receipt of the partial payment it made and to fix the period to pay the
balance thereof. 2. ID.; ID.; ID.; FAILURE TO EXERCISE OPTION TO PURCHASE WITHIN THE
STIPULATED PERIOD; EFFECT; CASE AT BAR. Having failed to exercise the
Petitioners have established a right to evict private respondent from the option to purchase within the stipulated one year period, private
subject premises for non-payment of rentals. In this regard, the then City Court respondent cannot enforce its option to purchase anymore. Moreover,
had exclusive jurisdiction over the ejectment suit. The filing by the Corporation even assuming arguendo that the right to exercise the option still subsists
of a suit with the RTC for specific performance did not divest the City Court of at the time private respondent tendered the amount, the suit for specific
its jurisidiction over the ejectment case The decision of the City Court was performance to enforce the option to purchase was filed more than ten
affirmed by the Intermediate Appellate Court and the Supreme Court. (10) years after accrual of the cause of action as provided under Article
Having failed to exercise the option to purchase within the stipulated one-year 1144 of the New Civil Code. In this case, there was a contract of lease
period, private respondent Corporation cannot now enforce its option. An for one (1) year with option to purchase. The contract of lease expired
implied new lease on a monthly basis does not ipso facto carry with it an without the private respondent, as lessee, purchasing the property but
implied revival of the option to purchase the leased premises. The right to remained in possession thereof. Hence, there was an implicit renewal of
exercise the option to purchase expired with the termination of the original the contract of lease on a monthly basis. The other terms of the original
contract of lease for one year. The private respondent delivered a check of contract of lease which are revived in the implied new lease under
P300,000.00 to Alice Dizon who allegedly acted as agent of petitioners Article 1670 of the New Civil Code are only those terms which are
pursuant to the supposed authority given by petitioner as payee thereof does germane to the lessees right of continued enjoyment of the property
not amount to a perfected contract of sale pursuant to the contract of lease leased. Therefore, an implied new lease does not ipso facto carry with it
with option to buy. There was no valid consent by the petitioners on the any implied revival of private respondents option to purchase (as lessee
supposed sale entered into by Alice Dizon, as petitioners alleged agent, and thereof) the leased premises. The provision entitling the lessee the option
private respondent. to purchase the leased premises is not deemed incorporated in the
SYLLABUS impliedly renewed contract because it is alien to the possession of the
lessee. Private respondents right to exercise the option to purchase
1. CIVIL LAW; SPECIAL CONTRACTS; LEASE; NON-PAYMENT OF RENTALS GIVES expired with the termination of the original contract of lease for one year.
RIGHT TO EVICT, REGARDLESS OF THE ACTION FOR SPECIFIC PERFORMANCE
TO ENFORCE OPTION TO PURCHASE WHICH WAS ALSO 3. ID.; ID.; CONTRACT OF SALE; WHEN PERFECTED. Under Article 1475 of the New
Civil Code, the contract of sale is perfected at the moment there is a
1
meeting of minds upon the thing which is the object of the contract and Case No. VIII-29155) on November 10, 1976 before the then City Court (now
upon the price. From that moment, the parties may reciprocally Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982,
demand performance, subject to the provisions of the law governing the the City Court rendered judgment [2] ordering private respondent to vacate
form of contracts. Thus, the elements of a contract of sale are consent, the leased premises and to pay the sum of P624,000.00 representing rentals in
object, and price in money or its equivalent. It bears stressing that the arrears and/or as damages in the form of reasonable compensation for the
absence of any of these essential elements negates the existence of a use and occupation of the premises during the period of illegal detainer from
perfected contract of sale. Sale is a consensual contract and he who June 1976 to November 1982 at the monthly rental of P8,000.00, less payments
alleges it must show its existence by competent proof. made, plus 12% interest per annum from November 18, 1976, the date of filing
of the complaint, until fully paid, the sum of P8,000.00 a month starting
4. ID.; ID.; CONTRACT OF AGENCY; NOT APPRECIATED. There was no valid December 1982, until private respondent fully vacates the premises, and to
consent by the petitioners (as co-owners of the leased premises) on the pay P20,000.00 as and by way of attorney's fees.
supposed sale entered into by Dizon, as petitioners alleged agent, and
private respondent. The basis for agency is representation and a person Private respondent filed a certiorari petition praying for the issuance of a
dealing with an agent is put upon inquiry and must discover upon his peril restraining order enjoining the enforcement of said judgment and dismissal of
the authority of the agent. As provided in Article 1868 of the New Civil the case for lack of jurisdiction of the City Court.
Code, there was no showing that petitioners consented to the act of
Dizon nor authorized her to act on their behalf with regard to her On September 26, 1984, the then Intermediate Appellate Court [3] (now
transaction with private respondent. The most prudent thing private Court of Appeals) rendered a decision[4] stating that:
respondent should have done was to ascertain the extent of the
authority of Dizon. Being negligent in this regard, private respondent "x x x, the alleged question of whether petitioner was granted an
cannot seek relief on the basis of a supposed agency. extension of the option to buy the property; whether such option, if
any, extended the lease or whether petitioner actually paid the
MARTINEZ, J.: alleged P300,000.00 to Fidela Dizon, as representative of private
respondents in consideration of the option and, whether petitioner
Two consolidated petitions were filed before us seeking to set aside and thereafter offered to pay the balance of the supposed purchase
annul the decisions and resolutions of respondent Court of Appeals. What price, are all merely incidental and do not remove the unlawful
seemed to be a simple ejectment suit was juxtaposed with procedural detainer case from the jurisdiction of respondent court. In
intricacies which finally found its way to this Court. consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol
(supra), the above matters may be raised and decided in the
unlawful detainer suit as, to rule otherwise, would be a violation of the
principle prohibiting multiplicity of suits. (Original Records, pp. 38-39)."
G. R. NO. 122544:

The motion for reconsideration was denied. On review, this Court


On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) dismissed the petition in a resolution dated June 19, 1985 and likewise denied
entered into a Contract of Lease with Option to Buy with petitioners [1] (lessors) private respondent's subsequent motion for reconsideration in a resolution
involving a 1,755.80 square meter parcel of land situated at corner MacArthur dated September 9, 1985.[5]
Highway and South "H" Street, Diliman, Quezon City. The term of the lease was On October 7, 1985, private respondent filed before the Regional Trial
for one (1) year commencing from May 16, 1974 up to May 15, 1975. During Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific
this period, private respondent was granted an option to purchase for the Performance and Fixing of Period for Obligation with prayer for the issuance of
amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per a restraining order pending hearing on the prayer for a writ of preliminary
month basis with a monthly rental of P3,000.00. injunction. It sought to compel the execution of a deed of sale pursuant to the
For failure of private respondent to pay the increased rental of P8,000.00 option to purchase and the receipt of the partial payment, and to fix the
per month effective June 1976, petitioners filed an action for ejectment (Civil period to pay the balance. In an Order dated October 25, 1985, the trial court

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denied the issuance of a writ of preliminary injunction on the ground that the "WHEREFORE, the appealed decision in Case No. 46487 is
decision of the then City Court for the ejectment of the private respondent, AFFIRMED. The appealed decision in Case No. 45541 is, on the other
having been affirmed by the then Intermediate Appellate Court and the hand, ANNULLED and SET ASIDE. The defendants-appellees are
Supreme Court, has become final and executory. ordered to execute the deed of absolute sale of the property in
question, free from any lien or encumbrance whatsoever, in favor of
Unable to secure an injunction, private respondent also filed before the the plaintiff-appellant, and to deliver to the latter the said deed of
RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15, sale, as well as the owner's duplicate of the certificate of title to said
1985 a complaint for Annulment of and Relief from Judgment with injunction property upon payment of the balance of the purchase price by the
and damages. In its decision[6] dated May 12, 1986, the trial court dismissed plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00
the complaint for annulment on the ground of res judicata, and the writ of per month from June 1976, plus 6% interest per annum, until payment
preliminary injunction previously issued was dissolved. It also ordered private of the balance of the purchase price, as previously agreed upon by
respondent to pay P3,000.00 as attorney's fees. As a consequence of private the parties.
respondent's motion for reconsideration, the preliminary injunction was
reinstated, thereby restraining the execution of the City Court's judgment on
the ejectment case. SO ORDERED."

The two cases were thereafter consolidated before the RTC of Quezon Upon denial of the motion for partial reconsideration (Civil Case No. Q-
City, Branch 77. On April 28, 1989, a decision[7] was rendered dismissing private 45541) by respondent Court of Appeals,[10] petitioners elevated the
respondent's complaint in Civil Case No. Q-45541 (specific performance case) case via petition for certiorari questioning the authority of Alice A. Dizon as
and denying its motion for reconsideration in Civil Case No. 46487 (annulment agent of petitioners in receiving private respondent's partial payment
of the ejectment case). The motion for reconsideration of said decision was amounting to P300,000.00 pursuant to the Contract of Lease with Option to
likewise denied. Buy. Petitioners also assail the propriety of private respondent's exercise of the
option when it tendered the said amount on June 20, 1975 which purportedly
On appeal,[8] respondent Court of Appeals rendered a
resulted in a perfected contract of sale.
decision[9] upholding the jurisdiction of the City Court of Quezon City in the
ejectment case. It also concluded that there was a perfected contract of sale
between the parties on the leased premises and that pursuant to the option
to buy agreement, private respondent had acquired the rights of a vendee in G. R. NO. 124741:
a contract of sale. It opined that the payment by private respondent
of P300,000.00 on June 20, 1975 as partial payment for the leased property,
which petitioners accepted (through Alice A. Dizon) and for which an official Petitioners filed with respondent Court of Appeals a motion to remand
receipt was issued, was the operative act that gave rise to a perfected the records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan
contract of sale, and that for failure of petitioners to deny receipt thereof, Trial Court (MTC), then City Court of Quezon City, Branch 38, for execution of
private respondent can therefore assume that Alice A. Dizon, acting as agent the judgment[11] dated November 22, 1982 which was granted in a resolution
of petitioners, was authorized by them to receive the money in their dated June 29, 1992. Private respondent filed a motion to reconsider said
behalf. The Court of Appeals went further by stating that in fact, what was resolution which was denied.
entered into was a "conditional contract of sale" wherein ownership over the
leased property shall not pass to the private respondent until it has fully paid Aggrieved, private respondent filed a petition for certiorari, prohibition
the purchase price. Since private respondent did not consign to the court the with preliminary injunction and/or restraining order with this Court (G.R. Nos.
balance of the purchase price and continued to occupy the subject 106750-51) which was dismissed in a resolution dated September 16, 1992 on
premises, it had the obligation to pay the amount of P1,700.00 in monthly the ground that the same was a refiled case previously dismissed for lack of
rentals until full payment of the purchase price. The dispositive portion of said merit. On November 26, 1992, entry of judgment was issued by this Court.
decision reads:
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution
of the decision in Civil Case No. 38-29155 with the MTC of Quezon City, Branch

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38. On September 13, 1993, the trial court ordered the issuance of a third alias the status quo of the parties since the petitioners are not in possession
writ of execution. In denying private respondent's motion for reconsideration, it of the subject property. It would be unfair and unjust to deprive the
ordered the immediate implementation of the third writ of execution without private respondent of its possession of the subject property after its
delay. rights have been established in a subsequent ruling.

On December 22, 1993, private respondent filed with the Regional Trial
Court (RTC) of Quezon City, Branch 104 a petition for certiorari and prohibition WHEREFORE, the motion for reconsideration is DENIED for lack of
with preliminary injunction/restraining order (SP. PROC. No. 93-18722) merit.
challenging the enforceability and validity of the MTC judgment as well as the
order for its execution. SO ORDERED."[17]

On January 11, 1994, RTC of Quezon City, Branch 104 issued an


Hence, this instant petition.
order[12] granting the issuance of a writ of preliminary injunction upon private
respondent's posting of an injunction bond of P50,000.00. We find both petitions impressed with merit.
Assailing the aforequoted order after denial of their motion for partial First. Petitioners have established a right to evict private respondent from
reconsideration, petitioners filed a petition[13] for certiorari and prohibition with the subject premises for non-payment of rentals. The term of the Contract of
a prayer for a temporary restraining order and/or preliminary injunction with Lease with Option to Buy was for a period of one (1) year (May 16, 1974 to
the Court of Appeals. In its decision,[14] the Court of Appeals dismissed the May 15, 1975) during which the private respondent was given an option to
petition and ruled that: purchase said property at P3,000.00 per square meter. After the expiration
thereof, the lease was for P3,000.00 per month.
"The avowed purpose of this petition is to enjoin the public
Admittedly, no definite period beyond the one-year term of lease was
respondent from restraining the ejectment of the private
agreed upon by petitioners and private respondent. However, since the rent
respondent. To grant the petition would be to allow the
was paid on a monthly basis, the period of lease is considered to be from
ejectment of the private respondent. We cannot do that now in
month to month in accordance with Article 1687 of the New Civil
view of the decision of this Court in CA-G.R. CV Nos. 25153-
Code.[18] Where the rentals are paid monthly, the lease, even if verbal may be
54. Petitioners' alleged right to eject private respondent has been
deemed to be on a monthly basis, expiring at the end of every month
demonstrated to be without basis in the said civil case. The
pursuant to Article 1687, in relation to Article 1673 of the Civil Code. [19] In such
petitioners have been shown, after all, to have no right to eject
case, a demand to vacate is not even necessary for judicial action after the
private respondents.
expiration of every month.[20]

WHEREFORE, the petition is DENIED due course and is When private respondent failed to pay the increased rental of P8,000.00
accordingly DISMISSED. per month in June 1976, the petitioners had a cause of action to institute an
ejectment suit against the former with the then City Court. In this regard, the
SO ORDERED."[15] City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The
filing by private respondent of a suit with the Regional Trial Court for specific
performance to enforce the option to purchase did not divest the then City
Petitioners' motion for reconsideration was denied in a resolution [16] by Court of its jurisdiction to take cognizance over the ejectment case. Of note is
the Court of Appeals stating that: the fact that the decision of the City Court was affirmed by both the
Intermediate Appellate Court and this Court.
"This court in its decision in CA-G.R. CV Nos. 25153-54 declared
that the plaintiff-appellant (private respondent herein) acquired the Second. Having failed to exercise the option within the stipulated one-
rights of a vendee in a contract of sale, in effect, recognizing the right year period, private respondent cannot enforce its option to purchase
of the private respondent to possess the subject premises. Considering anymore. Moreover, even assuming arguendo that the right to exercise the
said decision, we should not allow ejectment; to do so would disturb option still subsists at the time private respondent tendered the amount on
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June 20, 1975, the suit for specific performance to enforce the option to Under Article 1475 of the New Civil Code, the contract of sale is
purchase was filed only on October 7, 1985 or more than ten (10) years after perfected at the moment there is a meeting of minds upon the thing which is
accrual of the cause of action as provided under Article 1144 of the New Civil the object of the contract and upon the price. From that moment, the parties
Code.[21] may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts. Thus, the elements of a contract of sale are
In this case, there was a contract of lease for one (1) year with option to consent, object, and price in money or its equivalent. It bears stressing that the
purchase. The contract of lease expired without the private respondent, as absence of any of these essential elements negates the existence of a
lessee, purchasing the property but remained in possession thereof. Hence, perfected contract of sale. Sale is a consensual contract and he who alleges
there was an implicit renewal of the contract of lease on a monthly basis. The it must show its existence by competent proof.[25]
other terms of the original contract of lease which are revived in the implied
new lease under Article 1670 of the New Civil Code[22] are only those terms In an attempt to resurrect the lapsed option, private respondent
which are germane to the lessees right of continued enjoyment of the gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous
property leased.[23] Therefore, an implied new lease does not ipso facto carry presumption that the said amount tendered would constitute a perfected
with it any implied revival of private respondent's option to purchase (as lessee contract of sale pursuant to the contract of lease with option to buy. There
thereof) the leased premises. The provision entitling the lessee the option to was no valid consent by the petitioners (as co-owners of the leased premises)
purchase the leased premises is not deemed incorporated in the impliedly on the supposed sale entered into by Alice A. Dizon, as petitioners alleged
renewed contract because it is alien to the possession of the lessee. Private agent, and private respondent. The basis for agency is representation and a
respondents right to exercise the option to purchase expired with the person dealing with an agent is put upon inquiry and must discover upon his
termination of the original contract of lease for one year. The rationale of this peril the authority of the agent.[26] As provided in Article 1868 of the New Civil
Court is that: Code,[27] there was no showing that petitioners consented to the act of Alice
A. Dizon nor authorized her to act on their behalf with regard to her
This is a reasonable construction of the provision, which is based on the transaction with private respondent. The most prudent thing private
presumption that when the lessor allows the lessee to continue enjoying respondent should have done was to ascertain the extent of the authority of
possession of the property for fifteen days after the expiration of the contract Alice A. Dizon. Being negligent in this regard, private respondent cannot seek
he is willing that such enjoyment shall be for the entire period corresponding to relief on the basis of a supposed agency.
the rent which is customarily paid in this case up to the end of the month In Bacaltos Coal Mines vs. Court of Appeals,[28] we explained the rule in
because the rent was paid monthly. Necessarily, if the presumed will of the dealing with an agent:
parties refers to the enjoyment of possession the presumption covers the other
terms of the contract related to such possession, such as the amount of rental,
the date when it must be paid, the care of the property, the responsibility for Every person dealing with an agent is put upon inquiry and must discover
repairs, etc. But no such presumption may be indulged in with respect to upon his peril the authority of the agent. If he does not make such inquiry, he is
special agreements which by nature are foreign to the right of occupancy or chargeable with knowledge of the agents authority, and his ignorance of that
enjoyment inherent in a contract of lease.[24] authority will not be any excuse. Persons dealing with an assumed agent,
whether the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal, to ascertain not only the fact of the
Third. There was no perfected contract of sale between petitioners and agency but also the nature and extent of the authority, and in case either is
private respondent. Private respondent argued that it delivered the check controverted, the burden of proof is upon them to establish it.
of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to
the supposed authority given by petitioner Fidela Dizon, the payee
thereof. Private respondent further contended that petitioners filing of the For the long years that private respondent was able to thwart the
ejectment case against it based on the contract of lease with option to buy execution of the ejectment suit rendered in favor of petitioners, we now
holds petitioners in estoppel to question the authority of petitioner Fidela write finis to this controversy and shun further delay so as to ensure that this
Dizon. It insisted that the payment of P300,000.00 as partial payment of the case would really attain finality.
purchase price constituted a valid exercise of the option to buy.

5
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The
decision dated March 29, 1994 and the resolution dated October 19, 1995 in
CA-G.R. CV No. 25153-54, as well as the decision dated December 11, 1995
and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of
Appeals are hereby REVERSED and SET ASIDE.

Let the records of this case be remanded to the trial court for immediate
execution of the judgment dated November 22, 1982 in Civil Case No. VIII-
29155 of the then City Court (now Metropolitan Trial Court) of Quezon City,
Branch VIII as affirmed in the decision dated September 26, 1984 of the then
Intermediate Appellate Court (now Court of Appeals) and in the resolution
dated June 19, 1985 of this Court.

However, petitioners are ordered to REFUND to private respondent the


amount of P300,000.00 which they received through Alice A. Dizon on June 20,
1975.

SO ORDERED.

6
Conditional Sale" in favor of Bary Building Co., Inc., later
CONTRACT TO SELL known as Maritime Building Co., Inc., whereby the former sold
the same to the latter for P1,000,000.00, Philippine currency.
G.R. No. L-25885 January 31, 1972 P50,000.00 of this price was paid upon the execution of the
said contract and the parties agreed that the balance of
LUZON BROKERAGE CO., INC., plaintiff-appellee, P950,000.00 was to be paid in monthly installments at the rate
vs. of P10,000.00 with interest of 5% per annum until the same was
MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC., defendants, fully paid.
MARITIME BUILDING CO., INC., defendant-appellant.
In Par. (O), they agreed that in case of failure on the part of
REYES, J.B.L., J.:p the vendee to pay any of the installments due and payable,
the contract shall be annulled at the option of the vendor
and all payments already made by vendee shall be forfeited
Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime
and the vendor shall have right to re-enter the property and
Building Co., Inc. from a decision of the Court of First Instance of Manila (in its
take possession thereof.
Civil Case No. 47319), the dispositive part of which provides as follows:

Later, the monthly installment of P10,000.00 above-stipulated


FOR ALL THE FOREGOING CONSIDERATIONS, judgment is
with 5% interest per annum was amended or decreased to
hereby rendered declaring that the Myers Building Co., Inc. is
P5,000.00 per month and the interest was raised to 5-1/2% per
entitled to receive the rentals which the plaintiff has been
annum. The monthly installments under the contract was
paying, including those already deposited in Court, thereby
regularly paid by the Bary Building Co., Inc. and/or the
relieving the plaintiff of any obligation to pay the same to any
Maritime Co., Inc. until the end of February, 1961. It failed to
other party, and ordering the Maritime Building Co., Inc. to
pay the monthly installment corresponding to the month of
pay the commission fees paid by the Myers Building Co., Inc.
March 1961, for which the Vice-President, George Schedler,
to the Clerk of this Court, plus the sum of P3,000.00 as and for
of the Maritime Building Co., Inc., wrote a letter to the
attorney's fees.
President of Myers, Mr. C. Parsons, requesting for a
moratorium on the monthly payment of the installments until
On the cross-claim by the Myers Building Co., Inc., the the end of the year 1961, for the reason that the said
Maritima Building Co., Inc. is hereby ordered to pay the Myers company was encountering difficulties in connection with the
Building Co., Inc. the sum of P10,000.00 damages, plus the operation of the warehouse business. However, Mr. C.
sum of P30,000.00, representing rentals wrongfully collected Parsons, in behalf of the Myers Estate, answered that the
by it from the plaintiff corresponding to the months of March, monthly payments due were not payable to the Myers Estate
April and May, 1961 and the costs hereof. but to the Myers Building Co., Inc., and that the Board of
Directors of the Myers Co., Inc. refused to grant the request
The antecedents of the litigation are summarized in the appealed judgment for moratorium for suspension of payments under any
thus: condition.

This is an action for interpleading. Notwithstanding the denial of this request for moratorium by
the Myers Board of Directors the Maritime Building Co., Inc.
It appears that on April 30, 1949, in the City of Manila, the failed to pay the monthly installments corresponding to the
defendant Myers Building Co., Inc., owner of three parcels of months of March, April and May, 1961. Whereupon, on May
land in the City of Manila, together with the improvements 16, 1961, the Myers Building Co., Inc. made a demand upon
thereon, entered into a contract entitled "Deed of the Maritime Building Co., Inc., for the payment of the

7
installments that had become due and payable, which letter, Brokerage Company. Schedler contended that he was being sued for the
however, was returned unclaimed. backpay award of some P325,000, when it was a liability of Myers, or of the
latter's estate upon his death. In his letter to Myers Corporation (Exhibit "11",
Then, on June 5, 1961, the Myers Building Co., Inc. wrote the Maritime) dated 7 April 1961 (two months and ten days before the initial
Maritime Building Co., Inc. another letter advising it of the complaint in the case at bar), Schedler claimed the following:
cancellation of the Deed of Conditional Sale entered into
between them and demanding the return of the possession At all times when the F. H. Myers Estate was open in the
of the properties and holding the Maritime Building Co., Inc. Philippine Islands and open in San Francisco, the Myers Estate
liable for use and occupation of the said properties at or heirs assumed the defense of the Labor Union claims and
P10,000.00 monthly. led us to believe that they would indemnify us therefrom.

In the meantime, the Myers Building Co., Inc. demanded Recently, however, for the first time, and after both the
upon the Luzon Brokerage Co., Inc. to whom the Maritime Philippine and San Francisco F. H. Myers Estates were closed,
Building Co., Inc. leased the properties, the payment of we have been notified that the F. H. Myers indemnity on the
monthly rentals of P10,000.00 and the surrender of the same Labor Union case will not be honored, and in fact Mrs.
to it. As a consequence, the Luzon Brokerage Co., Inc. found Schedler and I have been sued in the Philippines by my
itself in a payment to the wrong party, filed this action for successor in interest, Mr. Wentholt, and have been put to
interpleader against the Maritime Building Co., Inc. considerable expense.

After the filing of this action, the Myers Building Co., Inc. in its You are advised that my wife and I, as the owners of the
answer filed a cross-claim against the Maritime Building Co., Maritime Building Company, intend to withhold any further
Inc. praying for the confirmation of its right to cancel the said payments to Myers Building Company or Estate, in order that
contract. In the meantime, the contract between the we can preserve those funds and assets to set off against the
Maritime Building Co., Inc. and the Luzon Brokerage Co., Inc. potential liability to which I am now exposed by the failure of
was extended by mutual agreement for a period of four (4) the Myers heirs to honor the indemnity agreement pertaining
more years, from April, 1964 to March 31, 1968. to the Labor claims.

The Maritime Building Co., Inc. now contends (1) that the The trial court found the position of Schedler indefensible, and that Maritime,
Myers Building Co., Inc. cannot cancel the contract entered by its failure to pay, committed a breach of the sale contract; that Myers
into by them for the conditional sale of the properties in Company, from and after the breach, became entitled to terminate the
question extrajudicially and (2) that it had not failed to pay contract, to forfeit the installments paid, as well as to repossess, and collect
the monthly installments due under the contract and, the rentals of, the building from its lessee, Luzon Brokerage Co., in view of the
therefore, is not guilty of having violated the same. terms of the conditional contract of sale stipulating that:

It should be further elucidated that the suspension by the appellant Maritime (d) It is hereby agreed, covenanted and stipulated by and
Building Co., Inc. (hereinafter called Maritime) of the payment of installments between the parties hereto that the Vendor will execute and
due from it to appellee Myers Building Co., Inc. (hereinafter designated as deliver to the Vendee a definite or absolute deed of sale
Myers Corporation) arose from an award of backwages made by the Court of upon the full payment by the vendee of the unpaid balance
Industrial Relations in favor of members of Luzon Labor Union who served the of the purchase price hereinabove stipulated; that should the
Fil-American forces in Bataan in early 1942 at the instance of the employer Vendee fail to pay any of the monthly installments, when
Luzon Brokerage Co. and for which F. H. Myers, former majority stockholder of due, or otherwise fail to comply with any of the terms and
the Luzon Brokerage Co., had allegedly promised to indemnify E. M. Schedler conditions herein stipulated, then this Deed of Conditional
(who controlled Maritime) when the latter purchased Myers' stock in the Sale shall automatically and without any further formality,
8
become null and void, and all sums so paid by the Vendee the interest, and the balance paid to the principal thereof;
by reason thereof, shall be considered as rentals and the and the failure to pay any installment or interest when due
Vendor shall then and there be free to enter into the shall ipso factocause the whole unpaid balance of the
premises, take possession thereof or sell the properties to any principal and interest to be and become immediately due
other party. and payable. (Contract, paragraph b; Record on Appeal,
page 63)
xxx xxx xxx
Contrary to appellant Maritime's averments, the default was not made in
(o) In case the Vendee fails to make payment or payments, good faith. The text of the letter to Myers (Exhibit "11", Maritime), heretofore
or any part thereof, as herein provided, or fails to perform any quoted, leaves no doubt that the non-payment of the installments was the
of the covenants or agreements hereof, this contract shall, at result of a deliberate course of action on the part of appellant, designed to
the option of the Vendor, be annulled and, in such event, all coerce the appellee Myers Corporation into answering for an alleged promise
payments made by the Vendee to the Vendor by virtue of of the late F. H. MYERS to indemnify E. W. Schedler, the controlling stock-holder
this contract shall be forfeited and retained by the Vendor in of appellant, for any payments to be made to the members of the Luzon
full satisfaction of the liquidated damages by said Vendor Labor Union. This is apparent also from appellant's letter to his counsel (Exhibit
sustained; and the said Vendor shall have the right to "12", Maritime):
forthwith re-enter, and take possession of, the premises
subject-matter of this contract. ... I do not wish to deposit pesos representing the months of
March, April and May, since the Myers refusal to honor the
"The remedy of forfeiture stated in the next-preceding indemnity concerning the labor claims has caused me to
paragraph shall not be exclusive of any other remedy, but disburse (sic) roughly $10,000.00 to date in fees, cost and
the Vendor shall have every other remedy granted it by virtue travel expenses. However, if the Myers people will deposit in
of this contract, by law, and by equity." trust with Mr. C. Parsons 25,000 pesos to cover my costs to
date, I will then deposit with Mr. Parsons, in trust, 15,000 pesos
for March, April and May and will also post a monthly deposit
From the judgment of the court below, the dispositive portion whereof has
of 5,000 pesos until the dispute is settled. The dispute won't be
been transcribed at the start of this opinion, Myers duly appealed to this Court.
settled in my mind, unless and until:

The main issue posed by appellant is that there has been no breach of
a) The Myers people indemnify me fully the labor cases;
contract by Maritime; and assuming that there was one, that the appellee
Myers was not entitled to rescind or resolve the contract without recoursing to
judicial process. b) The labor cases are terminated favorably to Luzon
Brokerage and no liability exists;
It is difficult to understand how appellant Maritime can seriously contend that
its failure or refusal to pay the P5,000 monthly installments corresponding to the c) The Myers people pay any judgment entered on the labor
months of March, April and May, 1961 did not constitute a breach of contract cases thereby releasing me; or
with Myers, when said agreement (transcribed in the Record on Appeal,
pages 59-71) expressly stipulated that the balance of the purchase price d) It is finally determined either in San Francisco or in the
(P950,000) Philippines by a court that the Myers heirs must honor the
indemnity which Mr. F. H. Myers promised when I purchased
shall be paid at the rate of Ten Thousand Pesos (P10,000) Luzon Brokerage Company.
monthly on or before the 10th day of each month with
interest at 5% per annum, this amount to be first applied on

9
Yet appellant Maritime (assuming that it had validly acquired the claims of its the obligation of the vendor to convey title from acquiring
president and controlling stockholder, E. M. Schedler) could not ignore the binding force, in accordance with Article 1117 of the Old Civil
fact that whatever obligation F. H. Myers or his estate had assumed in favor of Code. To argue that there was only a casual breach is to
Schedler with respect to the Luzon Brokerage labor case was not, and could proceed from the assumption that the contract is one of
not have been, an obligation of appellee corporation (Myers Building absolute sale, where non-payment is a resolutory condition,
Company). No proof exists that the board of directors of the Myers which is not the case.
Corporation had agreed to assume responsibility for the debts (if any) that the
late Myers or his heirs had incurred in favor of Schedler. Not only this, but it is But it is argued for Maritime that even if it had really violated the Contract of
apparent from the letters quoted heretofore that Schedler had allowed the Conditional Sale with Myers, the latter could not extrajudicially rescind or
estate proceedings of the late F. M. Myers to close without providing for any resolve the contract, but must first recourse to the courts. While recognizing
contingent liability in Schedler's favor; so that by offsetting the alleged debt of that paragraph (d) of the deed of conditional sale expressly provides inter
Myers to him, against the balance of the price due under the "Deed of alia
Conditional Sale", appellant Maritime was in fact attempting to burden the
Myers Building Company with an uncollectible debt, since enforcement
that should the Vendee fail to pay any of the monthly
thereof against the estate of F. H. Myers was already barred.
installments when due, or otherwise fail to comply with any of
the terms and conditions herein stipulated, then this Deed of
Under the circumstances, the action of Maritime in suspending payments to Conditional Sale shall automatically and without any further
Myers Corporation was a breach of contract tainted with fraud or malice formality, become null and void, and all sums so paid by the
(dolo), as distinguished from mere negligence (culpa), "dolo" being succinctly Vendee by reason thereof shall be considered as rentals..
defined as a "conscious and intentional design to evade the normal fulfillment (Emphasis supplied)
of existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page
38), and therefore incompatible with good faith (Castan, Derecho Civil, 7th
herein appellant Maritime avers that paragraph (e) of the deed contemplates
Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116).
that a suit should be brought in court for a judicial declaration of rescission.
The paragraph relied upon by Maritime is couched in the following, terms:
Maritime having acted in bad faith, it was not entitled to ask the court to give
it further time to make payment and thereby erase the default or breach that
(e) It is also hereby agreed, covenanted and stipulated by
it had deliberately incurred. Thus the lower court committed no error in
and between the parties hereto that should the Vendor
refusing to extend the periods for payment. To do otherwise would be to
rescind this Deed of Conditional Sale, for any of the reasons
sanction a deliberate and reiterated infringement of the contractual
stipulated in the preceding paragraph, the Vendee by these
obligations incurred by Maritime, an attitude repugnant to the stability and
presents obligates itself to peacefully deliver the properties
obligatory force of contracts.
subject of this contract to the Vendor, and in the event that
the Vendee refuses to peacefully deliver the possession of the
From another point of view, it is irrelevant whether appellant Maritime's properties subject of this contract to the Vendor in case of
infringement of its contract was casual or serious, for as pointed out by this rescission, and a suit should be brought in court by the
Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10 Vendor to seek judicial declaration of rescission and take
possession of the properties subject of this contract, the
The contention of plaintiff-appellant that Payatas Subdivision Vendee hereby obligates itself to pay all the expenses to be
Inc. had no right to cancel the contract as there was only a incurred by reason of such suit and in addition obligates itself
"casual breach" is likewise untenable. In contracts to sell, to pay the sum of P10,000.00, in concept of damages,
where ownership is retained by the seller and is not to pass penalty and attorney's fees.
until the full payment of the price, such payment, as we said,
is a positive suspensive condition, the failure of which is not a Correlation of this paragraph (e) with the preceding paragraph (d) of the
breach, casual or serious, but simply an event that prevented Deed of Conditional Sale (quoted in page 5 of this opinion) reveals no
10
incompatibility between the two; and the suit to "be brought in Court by the will be affirmed, and the consequent indemnity awarded to the
Vendor to seek judicial declaration of rescission" is provided for by party prejudiced.
paragraph(e) only in the eventuality that, notwithstanding the automatic
annulment of the deed under paragraph (d), the Vendee "refuses to In other words, the party who deems the contract violated may
peacefully deliver the possession of the properties subject of this contract". The consider it resolved or rescinded, and act accordingly, without
step contemplated is logical since the Vendor can not, by himself, dispossess previous court action, but it proceeds at its own risk. For it is only the
the Vendee manu militari, if the latter should refuse to vacate despite the final judgment of the corresponding court that will conclusively and
violation of the contract, since no party can take the law in his own hands. But finally settle whether the action taken was or was not correct in law.
the bringing of such an action in no way contradicts or restricts the automatic But the law definitely does not require that the contracting party
termination of the contract in case the Vendee (i.e., appellant Maritime) who believes itself injured must first file suit and wait for a judgment
should not comply with the agreement. before taking extrajudicial steps to protect its interest. Otherwise, the
party injured by the other's breach will have to passively sit and
Anyway, this Court has repeatedly held that watch its damages accumulate during the pendency of the suit
until the final judgment of rescission is rendered when the law itself
Well settled is, however, the rule that a judicial action for the requires that he should exercise due diligence to minimize its own
rescission of a contract is not necessary where the contract damages (Civil Code, Article 2203).
provides that it may be revoked and cancelled for violation
of any of its terms and conditions" (Lopez vs. Commissioner of Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as
Customs, L-28235, 30 January 1971, 37 SCRA 327, 334,, and entitling it to pay despite its default:
cases cited therein).1 (Emphasis supplied.)
ART. 1592. In the sale of immovable property, even though it may have
Resort to judicial action for rescission is obviously not been stipulated that upon failure to pay the price at the time agreed
contemplated.... The validity of the stipulation can not be upon the rescission of the contract shall of right take place, the
seriously disputed. It is in the nature of a facultative resolutory vendee may pay, even after the expiration of the period, as long as no
condition which in many cases has been upheld by this demand for rescission of the contract has been made upon him either
Court. (Ponce Enrile vs. Court of Appeals, L-27549, 30 Sept. judicially or by a notarial act. After the demand, the court may not
1969; 29 SCRA 504). grant him a new term.

The obvious remedy of the party opposing the rescission for any reason being Assuming arguendo that Article 1592 is applicable, the cross-claim filed by
to file the corresponding action to question the rescission and enforce the Myers against Maritime in the court below constituted a judicial demand for
agreement, as indicated in our decision in University of the Philippines vs. rescission that satisfies the requirements of said article.
Walfrido de los Angeles,
L-28602, 29 September 1970, 35 SCRA 107. But even if it were not so, appellant overlooks that its contract with appellee
Myers is not the ordinary sale envisaged by Article 1592, transferring ownership
Of course, it must be understood that the act of a party in treating a simultaneously with the delivery of the real property sold, but one in which the
contract as cancelled or resolved on account of infractions by the vendor retained ownership of the immovable object of the sale, merely
other contracting party must be made known to the other and is undertaking to convey it provided the buyer strictly complied with the terms of
always provisional, being ever subject to scrutiny and review by the the contract (see paragraph [d], ante, page 5). In suing to recover possession
proper court. If the other party denies that rescission is justified, it is of the building from Maritime, appellee Myers is not after the resolution or
free to resort to judicial action in its own behalf, and bring the matter setting aside of the contract and the restoration of the parties to the status
to court. Then, should the court, after due hearing, decide that the quo ante, as contemplated by Article 1592, but precisely enforcing the
resolution of the contract was not warranted, the responsible party provisions of the agreement that it is no longer obligated to part with the
will be sentenced to damages; in the contrary case, the resolution ownership or possession of the property because Maritime failed to comply
11
with the specified condition precedent, which is to pay the installments as possession of the premises necessarily ended its right to the rentals falling due
they fell due. thereafter. The preceding portion of our opinion is conclusive that Luzon's
doubts were grounded under the law and the jurisprudence of this Court.
The distinction between contracts of sale and contract to sell with reserved
title has been recognized by this Court in repeated decisions2 upholding the No adequate proof exists that Luzon was favoring any one of the contending
power of promisors under contracts to sell in case of failure of the other party parties. It was interested in being protected against prejudice deriving from
to complete payment, to extrajudicially terminate the operation of the the result of the controversy, regardless of who should win. For the purpose it
contract, refuse conveyance and retain the sums or installments already was simpler for Luzon to compel the disputants to litigate between themselves,
received, where such rights are expressly provided for, as in the case at bar. rather than chance being sued by Myers, and later being compelled to
proceed against Maritime to recoup its losses. In any event, Maritime
Maritime's appeal that it would be iniquituous that it should be compelled to ultimately confirmed the act of Luzon in suing for interpleader, by agreeing to
forfeit the P973,000 already paid to Myers, as a result of its failure to make renew Luzon's lease in 1963 during the pendency of the present action, and
good a balance of only P319,300.65, payable at P5,000 monthly, becomes authorizing Luzon to continue depositing the rentals in court "until otherwise
unimpressive when it is considered that while obligated to pay the price of directed by a court of competent jurisdiction" (Exhibit "18-Maritime"). The
one million pesos at P5,000 monthly, plus interest, Maritime, on the other hand, procedural objection has thus become moot.
had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid
P13,000 a month rent, from September, 1951 to August 1956, and thereafter PREMISES CONSIDERED, the appealed decision should be, and hereby is,
until 1961, at P10,000 a month, thus paying a total of around one and a half affirmed, and appellant Maritime Building Co., as well as appellee Luzon
million pesos in rentals to Maritime. Even adding to Maritime's losses of Brokerage Co., are further ordered to surrender the premises to the appellee
P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the trial Myers Building Co. Costs against appellant.
court, it is undeniable that appellant Maritime has come out of the entire
transaction still at a profit to itself.

There remains the procedural objection raised by appellant Maritime to this


interpleader action filed by the Luzon Brokerage Co., the lessee of the building
conditionally sold by Myers to Maritime. It should be recalled that when
Maritime defaulted in its payments to Myers, and the latter notified the former
that it was cancelling the contract of conditional sale, Myers also notified
Luzon Brokerage, Maritime's lessee of the building, of the cancellation of the
sale, and demanded that Luzon should pay to Myers the rentals of the
building beginning from June, 1961, under penalty of ejectment (Record on
Appeal, pages 14-15). In doubt as to who was entitled to the rentals, Luzon
filed this action for interpleader against Myers and Maritime, and deposited
the rentals in court as they fell due. The appellant Maritime moved to dismiss
on the ground that (a) Luzon could not entertain doubts as to whom the
rentals should be paid since Luzon had leased the building from Maritime
since 1949, renewing the contract from time to time, and Myers had no right
to cancel the lease; and (b) that Luzon was not a disinterested party, since it
tended to favor appellee Myers. The court below overruled Maritime's
objections and We see no plausible reason to overturn the order. While Myers
was not a party to the lease, its cancellation of the conditional sale of the
premises to Maritime, Luzon's lessor, could not but raise reasonable doubts as
to the continuation of the lease, for the termination of the lessor's right of

12
CONTRACT TO SELL appellant discovered the second sale made by defendants-
appellants to the Cabigas spouses, plaintiff-appellant brought the
G.R. No. L-59266 February 29, 1988 present suit. (Rollo, pp. 27-28)

SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners, After due trial, the Court of first Instance of Cebu rendered its Decision on
vs. August 25,1972, the decretal portion of which reads:
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.
WHEREFORE, the Court hereby declares the deed of sale
BIDIN, J.: executed on November 25, 1965 by defendant Isabela L. de
Dignos in favor of defendant Luciano Cabigas, a citizen of the
United States of America, null and void ab initio, and the deed of
This is a petition for review on certiorari seeking the reversal of the: (1)
sale executed by defendants Silvestre T. Dignos and Isabela
Decision * of the 9th Division, Court of Appeals dated July 31,1981, affirming
Lumungsod de Dignos not rescinded. Consequently, the plaintiff
with modification the Decision, dated August 25, 1972 of the Court of First
Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen
Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T.
Thousand Pesos (P16,000.00) to the defendants-spouses upon the
Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-
execution of the Deed of absolute Sale of Lot No. 3453, Opon
in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution
Cadastre and when the decision of this case becomes final and
dated December 16, 1981, denying defendant-appellant's (Petitioner's)
executory.
motion for reconsideration, for lack of merit.

The plaintiff Atilano G. Jabil is ordered to reimburse the


The undisputed facts as found by the Court of Appeals are as follows:
defendants Luciano Cabigas and Jovita L. de Cabigas, through
their attorney-in-fact, Panfilo Jabalde, reasonable amount
The Dignos spouses were owners of a parcel of land, known as Lot corresponding to the expenses or costs of the hollow block
No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On fence, so far constructed.
June 7, 1965, appellants (petitioners) Dignos spouses sold the said
parcel of land to plaintiff-appellant (respondent Atilano J. Jabil)
It is further ordered that defendants-spouses Silvestre T. Dignos
for the sum of P28,000.00, payable in two installments, with an
and Isabela Lumungsod de Dignos should return to defendants-
assumption of indebtedness with the First Insular Bank of Cebu in
spouses Luciano Cabigas and Jovita L. de Cabigas the sum of
the sum of P12,000.00, which was paid and acknowledged by the
P35,000.00, as equity demands that nobody shall enrich himself
vendors in the deed of sale (Exh. C) executed in favor of plaintiff-
at the expense of another.
appellant, and the next installment in the sum of P4,000.00 to be
paid on or before September 15, 1965.
The writ of preliminary injunction issued on September 23, 1966,
automatically becomes permanent in virtue of this decision.
On November 25, 1965, the Dignos spouses sold the same land in
favor of defendants spouses, Luciano Cabigas and Jovita L. De
Cabigas, who were then U.S. citizens, for the price of P35,000.00. A With costs against the defendants.
deed of absolute sale (Exh. J, also marked Exh. 3) was executed
by the Dignos spouses in favor of the Cabigas spouses, and which From the foregoing, the plaintiff (respondent herein) and defendants-spouss
was registered in the Office of the Register of Deeds pursuant to (petitioners herein) appealed to the Court of Appeals, which appeal was
the provisions of Act No. 3344. docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T.
Dignos, et al."
As the Dignos spouses refused to accept from plaintiff-appellant
the balance of the purchase price of the land, and as plaintiff-
13
On July 31, 1981, the Court of Appeals affirmed the decision of the lower court TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE
except as to the portion ordering Jabil to pay for the expenses incurred by the 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF
Cabigas spouses for the building of a fence upon the land in question. The ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A
disposive portion of said decision of the Court of Appeals reads: CONTRACT OF PROMISE TO SELL.
II
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY
modification of the judgment as pertains to plaintiff-appellant APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS
above indicated, the judgment appealed from is hereby WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION,
AFFIRMED in all other respects. EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR
IS IT A NOTARIAL ACT.
III
With costs against defendants-appellants.
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE
APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND
SO ORDERED. ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND
ATTORNEY'S FEES TO PETITIONERS.
Judgment MODIFIED. IV
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN
A motion for reconsideration of said decision was filed by the defendants- DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS.
appellants (petitioners) Dignos spouses, but on December 16, 1981, a V
resolution was issued by the Court of Appeals denying the motion for lack of BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING
merit. WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE
MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS
OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO.
Hence, this petition.

The foregoing assignment of errors may be synthesized into two main issues, to
In the resolution of February 10, 1982, the Second Division of this Court denied wit:
the petition for lack of merit. A motion for reconsideration of said resolution
was filed on March 16, 1982. In the resolution dated April 26,1982, respondents
were required to comment thereon, which comment was filed on May 11, I. Whether or not subject contract is a deed of absolute sale
1982 and a reply thereto was filed on July 26, 1982 in compliance with the or a contract Lot sell.
resolution of June 16,1 982. On August 9,1982, acting on the motion for II. Whether or not there was a valid rescission thereof.
reconsideration and on all subsequent pleadings filed, this Court resolved to
reconsider its resolution of February 10, 1982 and to give due course to the There is no merit in this petition.
instant petition. On September 6, 1982, respondents filed a rejoinder to reply of
petitioners which was noted on the resolution of September 20, 1982. It is significant to note that this petition was denied by the Second Division of
this Court in its Resolution dated February 1 0, 1 982 for lack of merit, but on
Petitioners raised the following assignment of errors: motion for reconsideration and on the basis of all subsequent pleadings filed,
the petition was given due course.
I
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, I.
INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING
IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE The contract in question (Exhibit C) is a Deed of Sale, with the following
PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT conditions:

14
1. That Atilano G..Jabilis to pay the amount of Twelve By and large, the issues in this case have already been settled by this Court in
Thousand Pesos P12,000.00) Phil. Philippine Currency as analogous cases.
advance payment;
2. That Atilano G. Jabil is to assume the balance of Twelve Thus, it has been held that a deed of sale is absolute in nature although
Thousand Pesos (P12,000.00) Loan from the First Insular Bank of denominated as a "Deed of Conditional Sale" where nowhere in the contract
Cebu; in question is a proviso or stipulation to the effect that title to the property sold
3. That Atilano G. Jabil is to pay the said spouses the balance is reserved in the vendor until full payment of the purchase price, nor is there a
of Four. Thousand Pesos (P4,000.00) on or before September stipulation giving the vendor the right to unilaterally rescind the contract the
15,1965; moment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon,
4. That the said spouses agrees to defend the said Atilano G. 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA
Jabil from other claims on the said property; 305).
5. That the spouses agrees to sign a final deed of absolute
sale in favor of Atilano G. Jabil over the above-mentioned
A careful examination of the contract shows that there is no such stipulation
property upon the payment of the balance of Four Thousand
reserving the title of the property on the vendors nor does it give them the
Pesos. (Original Record, pp. 10-11)
right to unilaterally rescind the contract upon non-payment of the balance
thereof within a fixed period.
In their motion for reconsideration, petitioners reiterated their contention that
the Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute
On the contrary, all the elements of a valid contract of sale under Article 1458
sale; that the same is subject to two (2) positive suspensive conditions, namely:
of the Civil Code, are present, such as: (1) consent or meeting of the minds;
the payment of the balance of P4,000.00 on or before September 15,1965 and
(2) determinate subject matter; and (3) price certain in money or its
the immediate assumption of the mortgage of P12,000.00 with the First Insular
equivalent. In addition, Article 1477 of the same Code provides that "The
Bank of Cebu. It is further contended that in said contract, title or ownership
ownership of the thing sold shall be transferred to the vendee upon actual or
over the property was expressly reserved in the vendor, the Dignos spouses
constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental
until the suspensive condition of full and punctual payment of the balance of
Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of
the purchase price shall have been met. So that there is no actual sale until
stipulation to the contrary, the ownership of the thing sold passes to the
full payment is made (Rollo, pp. 51-52).
vendee upon actual or constructive delivery thereof.

In bolstering their contention that Exhibit "C" is merely a contract to sell,


While it may be conceded that there was no constructive delivery of the land
petitioners aver that there is absolutely nothing in Exhibit "C" that indicates that
sold in the case at bar, as subject Deed of Sale is a private instrument, it is
the vendors thereby sell, convey or transfer their ownership to the alleged
beyond question that there was actual delivery thereof. As found by the trial
vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and the
court, the Dignos spouses delivered the possession of the land in question to
absence of a formal deed of conveyance is a very strong indication that the
Jabil as early as March 27,1965 so that the latter constructed thereon Sally's
parties did not intend "transfer of ownership and title but only a transfer after
Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White
full payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on
Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on September 1,
the very terms and conditions of the contract, more particularly paragraph
1965. Such facts were admitted by petitioner spouses (Decision, Civil Case No.
four which reads, "that said spouses has agreed to sell the herein mentioned
23-L; Record on Appeal, p. 108).
property to Atilano G. Jabil ..." and condition number five which reads, "that
the spouses agrees to sign a final deed of absolute sale over the mentioned
property upon the payment of the balance of four thousand pesos." Moreover, the Court of Appeals in its resolution dated December 16,1981
found that the acts of petitioners, contemporaneous with the contract, clearly
show that an absolute deed of sale was intended by the parties and not a
Such contention is untenable.
contract to sell.

15
Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale is null
and void.

II.

Petitioners claim that when they sold the land to the Cabigas spouses, the
contract of sale was already rescinded.

Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is
on all fours with the case at bar, the contract of sale being absolute in nature
is governed by Article 1592 of the Civil Code. It is undisputed that petitioners
never notified private respondents Jabil by notarial act that they were
rescinding the contract, and neither did they file a suit in court to rescind the
sale. The most that they were able to show is a letter of Cipriano Amistad who,
claiming to be an emissary of Jabil, informed the Dignos spouses not to go to
the house of Jabil because the latter had no money and further advised
petitioners to sell the land in litigation to another party (Record on Appeal, p.
23). As correctly found by the Court of Appeals, there is no showing that
Amistad was properly authorized by Jabil to make such extra-judicial rescission
for the latter who, on the contrary, vigorously denied having sent Amistad to
tell petitioners that he was already waiving his rights to the land in question.
Under Article 1358 of the Civil Code, it is required that acts and contracts
which have for their object the extinguishment of real rights over immovable
property must appear in a public document.

Petitioners laid considerable emphasis on the fact that private respondent


Jabil had no money on the stipulated date of payment on September 15,1965
and was able to raise the necessary amount only by mid-October 1965.

It has been ruled, however, that "where time is not of the essence of the
agreement, a slight delay on the part of one party in the performance of his
obligation is not a sufficient ground for the rescission of the agreement"
(Taguba v. Vda. de Leon, supra). Considering that private respondent has
only a balance of P4,000.00 and was delayed in payment only for one month,
equity and justice mandate as in the aforecited case that Jabil be given an
additional period within which to complete payment of the purchase price.

WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the
assailed decision of the Court of Appeals is Affirmed in toto.

SO ORDERED.

16
BARTER In July 1984, petitioner, as corporate secretary of the bank, asked
Remelia Dichoso and Oliva Mendoza to look for a buyer who might be
[G.R. No. 112212. March 2, 1998] interested in the Tanay property. The two found one in the person of herein
private respondent Dr. Ninevetch Cruz. It so happened that at the time,
GREGORIO FULE, petitioner, vs. COURT OF APPEALS, NINEVETCH CRUZ and JUAN petitioner had shown interest in buying a pair of emerald-cut diamond
BELARMINO, respondents. earrings owned by Dr. Cruz which he had seen in January of the same year
when his mother examined and appraised them as genuine. Dr. Cruz,
DECISION however, declined petitioners offer to buy the jewelry
for P100,000.00. Petitioner then made another bid to buy them for US$6,000.00
ROMERO, J.: at the exchange rate of $1.00 to P25.00. At this point, petitioner inspected said
jewelry at the lobby of the Prudential Bank branch in San Pablo City and then
This petition for review on certiorari questions the affirmance by the Court made a sketch thereof. Having sketched the jewelry for twenty to thirty
of Appeals of the decision[1] of the Regional Trial Court of San Pablo City, minutes, petitioner gave them back to Dr. Cruz who again refused to sell them
Branch 30, dismissing the complaint that prayed for the nullification of a since the exchange rate of the peso at the time appreciated to P19.00 to a
contract of sale of a 10-hectare property in Tanay, Rizal in consideration of the dollar.
amount of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case No.
Subsequently, however, negotiations for the barter of the jewelry and the
SP-2455). The lower courts decision disposed of the case as follows:
Tanay property ensued. Dr. Cruz requested herein private respondent Atty.
Juan Belarmino to check the property who, in turn, found out that no sale or
WHEREFORE, premises considered, the Court hereby renders judgment barter was feasible because the one-year period for redemption of the said
dismissing the complaint for lack of merit and ordering plaintiff to pay: property had not yet expired at the time.

1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral In an effort to cut through any legal impediment, petitioner executed on
damages and the sum of P100,000.00 as and for exemplary damages; October 19, 1984, a deed of redemption on behalf of Fr. Jacobe purportedly
2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral in the amount of P15,987.78, and on even date, Fr. Jacobe sold the property
damages and the sum of P150,000.00 as and for exemplary damages; to petitioner for P75,000.00. The haste with which the two deeds were
3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as executed is shown by the fact that the deed of sale was notarized ahead of
and for attorneys fees and litigation expenses; and the deed of redemption. As Dr. Cruz had already agreed to the proposed
4. The costs of suit. barter, petitioner went to Prudential Bank once again to take a look at the
jewelry.
SO ORDERED. In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at
the latters residence to prepare the documents of sale.[2] Dr. Cruz herself was
As found by the Court of Appeals and the lower court, the antecedent not around but Atty. Belarmino was aware that she and petitioner had
facts of this case are as follows: previously agreed to exchange a pair of emerald-cut diamond earrings for
the Tanay property. Atty. Belarmino accordingly caused the preparation of a
deed of absolute sale while petitioner and Dr. Cruz attended to the
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same
safekeeping of the jewelry.
time, acquired a 10-hectare property in Tanay, Rizal (hereinafter Tanay
property), covered by Transfer Certificate of Title No. 320725 which used to be The following day, petitioner, together with Dichoso and Mendoza,
under the name of Fr. Antonio Jacobe. The latter had mortgaged it earlier to arrived at the residence of Atty. Belarmino to finally execute a deed of
the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in the absolute sale. Petitioner signed the deed and gave Atty. Belarmino the
amount of P10,000.00, but the mortgage was later foreclosed and the amount of P13,700.00 for necessary expenses in the transfer of title over the
property offered for public auction upon his default. Tanay property. Petitioner also issued a certification to the effect that the
actual consideration of the sale was P200,000.00 and not P80,000.00 as

17
indicated in the deed of absolute sale. The disparity between the actual p.m., petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside
contract price and the one indicated on the deed of absolute sale was Subdivision in San Pablo City, complaining about the fake jewelry. Upon being
purportedly aimed at minimizing the amount of the capital gains tax that advised by the latter, petitioner reported the matter to the police station
petitioner would have to shoulder. Since the jewelry was appraised only where Dichoso and Mendoza likewise executed sworn statements.
at P160,000.00, the parties agreed that the balance of P40,000.00 would just
be paid later in cash. On October 26, 1984, petitioner filed a complaint before the Regional
Trial Court of San Pablo City against private respondents praying, among
As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso other things, that the contract of sale over the Tanay property be declared
and Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr. null and void on the ground of fraud and deceit.
Cruz also arrived shortly thereafter, but the cashier who kept the other key to
the deposit box had already left the bank. Dr. Cruz and Dichoso, therefore, On October 30, 1984, the lower court issued a temporary restraining order
looked for said cashier and found him having a haircut. As soon as his haircut directing the Register of Deeds of Rizal to refrain from acting on the pertinent
was finished, the cashier returned to the bank and arrived there at 5:48 p.m., documents involved in the transaction. On November 20, 1984, however, the
ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m. Dr. Cruz and the same court lifted its previous order and denied the prayer for a writ of
cashier then opened the safety deposit box, the former retrieving a preliminary injunction.
transparent plastic or cellophane bag with the jewelry inside and handing After trial, the lower court rendered its decision on March 7, 1989.
over the same to petitioner. The latter took the jewelry from the bag, went Confronting the issue of whether or not the genuine pair of earrings used as
near the electric light at the banks lobby, held the jewelry against the light consideration for the sale was delivered by Dr. Cruz to petitioner, the lower
and examined it for ten to fifteen minutes. After a while, Dr. Cruz asked, Okay court said:
na ba iyan? Petitioner expressed his satisfaction by nodding his head.

For services rendered, petitioner paid the agents, Dichoso and Mendoza, The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz
the amount of US$300.00 and some pieces of jewelry. He did not, however, delivered (the) subject jewelries (sic) into the hands of plaintiff who even
give them half of the pair of earrings in question which he had earlier raised the same nearer to the lights of the lobby of the bank near the
promised. door. When asked by Dra. Cruz if everything was in order, plaintiff even
nodded his satisfaction (Hearing of Feb. 24, 1988). At that instance, plaintiff did
Later, at about 8:00 oclock in the evening of the same day, petitioner not protest, complain or beg for additional time to examine further the
arrived at the residence of Atty. Belarmino complaining that the jewelry given jewelries (sic). Being a professional banker and engaged in the jewelry
to him was fake. He then used a tester to prove the alleged business plaintiff is conversant and competent to detect a fake diamond from
fakery. Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence the real thing. Plaintiff was accorded the reasonable time and opportunity to
of Dr. Cruz to borrow her car so that, with Atty. Belarmino, they could register ascertain and inspect the jewelries (sic) in accordance with Article 1584 of the
the Tanay property. After Dr. Cruz had agreed to lend her car, Dichoso called Civil Code. Plaintiff took delivery of the subject jewelries (sic) before 6:00 p.m.
up Atty. Belarmino. The latter, however, instructed Dichoso to proceed of October 24, 1984. When he went at 8:00 p.m. that same day to the
immediately to his residence because petitioner was there. Believing that residence of Atty. Belarmino already with a tester complaining about some
petitioner had finally agreed to give them half of the pair of earrings, Dichoso fake jewelries (sic), there was already undue delay because of the lapse of a
went posthaste to the residence of Atty. Belarmino only to find petitioner considerable length of time since he got hold of subject jewelries (sic). The
already demonstrating with a tester that the earrings were fake. Petitioner lapse of two (2) hours more or less before plaintiff complained is considered by
then accused Dichoso and Mendoza of deceiving him which they, however, the Court as unreasonable delay.[3]
denied. They countered that petitioner could not have been fooled because
he had vast experience regarding jewelry. Petitioner nonetheless took back
The lower court further ruled that all the elements of a valid contract
the US$300.00 and jewelry he had given them.
under Article 1458 of the Civil Code were present, namely: (a) consent or
Thereafter, the group decided to go to the house of a certain Macario meeting of the minds; (b) determinate subject matter, and (c) price certain in
Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one money or its equivalent. The same elements, according to the lower court,
look at the earrings, immediately declared them counterfeit.At around 9:30

18
were present despite the fact that the agreement between petitioner and Dr. contract is shown to have been consummated or fully performed by the
Cruz was principally a barter contract. The lower court explained thus: parties thereto, its existence and binding effect can no longer be disputed. It
is irrelevant and immaterial to dispute the due execution of a contract if both
x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz upon of them have in fact performed their obligations thereunder and their
the constructive delivery thereof by virtue of the Deed of Absolute Sale (Exh. respective signatures and those of their witnesses appear upon the face of
D). On the other hand, the ownership of Dra. Cruz over the subject jewelries the document (Weldon Construction v. CA G.R. No. L-35721, Oct. 12, 1987).[5]
(sic) transferred to the plaintiff upon her actual personal delivery to him at the Finally, in awarding damages to the defendants, the lower court
lobby of the Prudential Bank. It is expressly provided by law that the thing sold remarked:
shall be understood as delivered, when it is placed in the control and
possession of the vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson &
Co. 13 Phil. 26). The ownership and/or title over the jewelries (sic) was The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino
transmitted immediately before 6:00 p.m. of October 24, 1984. Plaintiff signified purports to show that the Tanay property is worth P25,000.00. However, also on
his approval by nodding his head. Delivery or tradition, is one of the modes of that same day it was executed, the propertys worth was magnified
acquiring ownership (Art. 712, Civil Code). at P75,000.00 (Exh. 3-Belarmino). How could in less than a day (Oct. 19, 1984)
the value would (sic) triple under normal circumstances? Plaintiff, with the
assistance of his agents, was able to exchange the Tanay property which his
Similarly, when Exhibit D was executed, it was equivalent to the delivery bank valued only at P25,000.00 in exchange for a genuine pair of emerald cut
of the Tanay property in favor of Dra. Cruz. The execution of the public diamond worth P200,000.00 belonging to Dra. Cruz. He also retrieved the
instrument (Exh. D) operates as a formal or symbolic delivery of the Tanay US$300.00 and jewelries (sic) from his agents. But he was not satisfied in being
property and authorizes the buyer, Dra. Cruz to use the document as proof of able to get subject jewelries for a song. He had to file a malicious and
ownership (Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does not unfounded case against Dra. Cruz and Atty. Belarmino who are well known,
contain any proviso or stipulation to the effect that title to the property is respected and held in high esteem in San Pablo City where everybody
reserved with the vendor until full payment of the purchase price, nor is there practically knows everybody. Plaintiff came to Court with unclean hands
a stipulation giving the vendor the right to unilaterally rescind the contract the dragging the defendants and soiling their clean and good name in the
moment the vendee fails to pay within a fixed period (Taguba v. Vda. De process. Both of them are near the twilight of their lives after maintaining and
Leon, 132 SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building Co. Inc. 86 nurturing their good reputation in the community only to be stunned with a
SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276). [4] court case. Since the filing of this case on October 26, 1984 up to the present
Aside from concluding that the contract of barter or sale had in fact they were living under a pall of doubt. Surely, this affected not only their
been consummated when petitioner and Dr. Cruz parted ways at the bank, earning capacity in their practice of their respective professions, but also they
the trial court likewise dwelt on the unexplained delay with which petitioner suffered besmirched reputations. Dra. Cruz runs her own hospital and
complained about the alleged fakery. Thus: defendant Belarmino is a well respected legal practitioner.

x x x. Verily, plaintiff is already estopped to come back after the lapse of The length of time this case dragged on during which period their
considerable length of time to claim that what he got was fake. He is a reputation were (sic) tarnished and their names maligned by the pendency of
Business Management graduate of La Salle University, Class 1978-79, a the case, the Court is of the belief that some of the damages they prayed for
professional banker as well as a jeweler in his own right. Two hours is more than in their answers to the complaint are reasonably proportionate to the
enough time to make a switch of a Russian diamond with the real diamond. It sufferings they underwent (Art. 2219, New Civil Code). Moreover, because of
must be remembered that in July 1984 plaintiff made a sketch of the subject the falsity, malice and baseless nature of the complaint defendants were
jewelries (sic) at the Prudential Bank. Plaintiff had a tester at 8:00 p.m. at the compelled to litigate. Hence, the award of attorneys fees is warranted under
residence of Atty. Belarmino. Why then did he not bring it out when he was the circumstances (Art. 2208, New Civil Code).[6]
examining the subject jewelries (sic) at about 6:00 p.m. in the banks
lobby? Obviously, he had no need for it after being satisfied of the From the trial courts adverse decision, petitioner elevated the matter to
genuineness of the subject jewelries (sic). When Dra. Cruz and plaintiff left the the Court of Appeals. On October 20, 1992, the Court of Appeals, however,
bank both of them had fully performed their respective prestations. Once a rendered a decision[7]affirming in toto the lower courts decision. His motion for

19
reconsideration having been denied on October 19, 1993, petitioner now files 1989. He stressed that Judge Jaramillo replaced Judge Salvador de Guzman
the instant petition alleging that: and heard only his rebuttal testimony.

I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS COMPLAINT AND This allegation is obviously no more than a desperate effort on the part of
IN HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A GENUINE petitioner to disparage the lower courts findings of fact in order to convince
PAIR OF EMERALD CUT DIAMOND EARRING(S) FROM DEFENDANT this Court to review the same. It is noteworthy that Atty. Belarmino clarified
CRUZ x x x; that Judge Jaramillo had issued the first order in the case as early as March 9,
1987 or two years before the rendition of the decision. In fact, Atty. Belarmino
II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY terminated presentation of evidence on October 13, 1987, while Dr. Cruz
DAMAGES AND ATTORNEYS FEES IN FAVOR OF DEFENDANTS AND finished hers on February 4, 1989, or more than a month prior to the rendition
AGAINST THE PLAINTIFF IN THIS CASE; and of the judgment. The March 6, 1989 hearing was conducted solely for the
III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF SALE OF presentation of petitioner's rebuttal testimony.[13] In other words, Judge
THE TANAY PROPERTY (EXH. `D) AS NULL AND VOID OR IN NOT Jaramillo had ample time to study the case and write the decision because
ANNULLING THE SAME, AND IN FAILING TO GRANT REASONABLE the rebuttal evidence would only serve to confirm or verify the facts already
DAMAGES IN FAVOR OF THE PLAINTIFF.[8] presented by the parties.

As to the first allegation, the Court observes that petitioner is essentially The Court finds nothing anomalous in the said situation. No proof has
raising a factual issue as it invites us to examine and weigh anew the facts been adduced that Judge Jaramillo was motivated by a malicious or sinister
regarding the genuineness of the earrings bartered in exchange for the Tanay intent in disposing of the case with dispatch. Neither is there proof that
property. This, of course, we cannot do without unduly transcending the limits someone else wrote the decision for him. The immediate rendition of the
of our review power in petitions of this nature which are confined merely to decision was no more than Judge Jaramillos compliance with his duty as a
pure questions of law. We accord, as a general rule, conclusiveness to a lower judge to dispose of the courts business promptly and decide cases within the
courts findings of fact unless it is shown, inter alia, that: (1) the conclusion is a required periods.[14] The two-year period within which Judge Jaramillo
finding grounded on speculations, surmises or conjectures; (2) the inference handled the case provided him with all the time to study it and even write
is manifestlymistaken, absurd and impossible; (3) when there is a grave abuse down its facts as soon as these were presented to court. In fact, this Court
of discretion; (4) when the judgment is based on a misapprehension of facts; does not see anything wrong in the practice of writing a decision days before
(5) when the findings of fact are conflicting; and (6) when the Court of the scheduled promulgation of judgment and leaving the dispositive portion
Appeals, in making its findings, went beyond the issues of the case and the for typing at a time close to the date of promulgation, provided that no
same is contrary to the admission of both parties.[9] We find nothing, however, malice or any wrongful conduct attends its adoption. [15] The practice serves
that warrants the application of any of these exceptions. the dual purposes of safeguarding the confidentiality of draft decisions and
rendering decisions with promptness. Neither can Judge Jaramillo be made
Consequently, this Court upholds the appellate courts findings of fact administratively answerable for the immediate rendition of the decision. The
especially because these concur with those of the trial court which, upon a acts of a judge which pertain to his judicial functions are not subject to
thorough scrutiny of the records, are firmly grounded on evidence presented disciplinary power unless they are committed with fraud, dishonesty,
at the trial.[10] To reiterate, this Courts jurisdiction is only limited to reviewing corruption or bad faith.[16] Hence, in the absence of sufficient proof to the
errors of law in the absence of any showing that the findings complained of contrary, Judge Jaramillo is presumed to have performed his job in
are totally devoid of support in the record or that they are glaringly erroneous accordance with law and should instead be commended for his close
as to constitute serious abuse of discretion.[11] attention to duty.
Nonetheless, this Court has to closely delve into petitioners allegation that Having disposed of petitioners first contention, we now come to the core
the lower courts decision of March 7, 1989 is a ready-made one because it issue of this petition which is whether the Court of Appeals erred in upholding
was handed down a day after the last date of the trial of the the validity of the contract of barter or sale under the circumstances of this
case.[12] Petitioner, in this regard, finds it incredible that Judge J. Ausberto case.
Jaramillo was able to write a 12-page single-spaced decision, type it and
release it on March 7, 1989, less than a day after the last hearing on March 6,
20
The Civil Code provides that contracts are perfected by mere property was worth exchanging for her jewelry as he represented that its value
consent. From this moment, the parties are bound not only to the fulfillment of was P400,000.00 or more than double that of the jewelry which was valued
what has been expressly stipulated but also to all the consequences which, only at P160,000.00. If indeed petitioners property was truly worth that much, it
according to their nature, may be in keeping with good faith, usage and was certainly contrary to the nature of a businessman-banker like him to have
law.[17] A contract of sale is perfected at the moment there is a meeting of the parted with his real estate for half its price. In short, it was in fact petitioner who
minds upon the thing which is the object of the contract and upon the resorted to machinations to convince Dr. Cruz to exchange her jewelry for the
price.[18] Being consensual, a contract of sale has the force of law between Tanay property.
the contracting parties and they are expected to abide in good faith by their
respective contractual commitments. Article 1358 of the Civil Code which Moreover, petitioner did not clearly allege mistake as a ground for
requires the embodiment of certain contracts in a public instrument, is only for nullification of the contract of sale. Even assuming that he did, petitioner
convenience,[19] and registration of the instrument only adversely affects third cannot successfully invoke the same. To invalidate a contract, mistake must
parties.[20] Formal requirements are, therefore, for the benefit of third parties. refer to the substance of the thing that is the object of the contract, or to
Non-compliance therewith does not adversely affect the validity of the those conditions which have principally moved one or both parties to enter
contract nor the contractual rights and obligations of the parties thereunder. into the contract.[25] An example of mistake as to the object of the contract is
the substitution of a specific thing contemplated by the parties with
It is evident from the facts of the case that there was a meeting of the another.[26] In his allegations in the complaint, petitioner insinuated that an
minds between petitioner and Dr. Cruz. As such, they are bound by the inferior one or one that had only Russian diamonds was substituted for the
contract unless there are reasons or circumstances that warrant its jewelry he wanted to exchange with his 10-hectare land. He, however, failed
nullification. Hence, the problem that should be addressed in this case is to prove the fact that prior to the delivery of the jewelry to him, private
whether or not under the facts duly established herein, the contract can be respondents endeavored to make such substitution.
voided in accordance with law so as to compel the parties to restore to each
other the things that have been the subject of the contract with their fruits, Likewise, the facts as proven do not support the allegation that petitioner
and the price with interest.[21] himself could be excused for the mistake. On account of his work as a banker-
jeweler, it can be rightfully assumed that he was an expert on matters
Contracts that are voidable or annullable, even though there may have regarding gems. He had the intellectual capacity and the business acumen
been no damage to the contracting parties are: (1) those where one of the as a banker to take precautionary measures to avert such a mistake,
parties is incapable of giving consent to a contract; and (2) those where the considering the value of both the jewelry and his land. The fact that he had
consent is vitiated by mistake, violence, intimidation, undue influence or seen the jewelry before October 24, 1984 should not have precluded him from
fraud.[22] Accordingly, petitioner now stresses before this Court that he entered having its genuineness tested in the presence of Dr. Cruz. Had he done so, he
into the contract in the belief that the pair of emerald-cut diamond earrings could have avoided the present situation that he himself brought
was genuine. On the pretext that those pieces of jewelry turned out to be about. Indeed, the finger of suspicion of switching the genuine jewelry for a
counterfeit, however, petitioner subsequently sought the nullification of said fake inevitably points to him. Such a mistake caused by manifest negligence
contract on the ground that it was, in fact, tainted with fraud[23] such that his cannot invalidate a juridical act.[27] As the Civil Code provides, (t)here is no
consent was vitiated. mistake if the party alleging it knew the doubt, contingency or risk affecting
the object of the contract.[28]
There is fraud when, through the insidious words or machinations of one
of the contracting parties, the other is induced to enter into a contract which, Furthermore, petitioner was afforded the reasonable opportunity
without them, he would not have agreed to.[24] The records, however, are required in Article 1584 of the Civil Code within which to examine the jewelry
bare of any evidence manifesting that private respondents employed such as he in fact accepted them when asked by Dr. Cruz if he was satisfied with
insidious words or machinations to entice petitioner into entering the contract the same.[29] By taking the jewelry outside the bank, petitioner executed an
of barter. Neither is there any evidence showing that Dr. Cruz induced act which was more consistent with his exercise of ownership over it. This gains
petitioner to sell his Tanay property or that she cajoled him to take the earrings credence when it is borne in mind that he himself had earlier delivered the
in exchange for said property. On the contrary, Dr. Cruz did not initially Tanay property to Dr. Cruz by affixing his signature to the contract of sale. That
accede to petitioners proposal to buy the said jewelry. Rather, it appears that after two hours he later claimed that the jewelry was not the one he intended
it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay in exchange for his Tanay property, could not sever the juridical tie that now
21
bound him and Dr. Cruz. The nature and value of the thing he had taken he pleads for the total deletion of the award as regards private respondent
preclude its return after that supervening period within which anything could Belarmino whom he considers a mere nominal party because no specific
have happened, not excluding the alteration of the jewelry or its being claim for damages against him was alleged in the complaint. When he filed
switched with an inferior kind. the case, all that petitioner wanted was that Atty. Belarmino should return to
him the owners duplicate copy of TCT No. 320725, the deed of sale executed
Both the trial and appellate courts, therefore, correctly ruled that there by Fr. Antonio Jacobe, the deed of redemption and the check alloted for
were no legal bases for the nullification of the contract of sale. Ownership expenses. Petitioner alleges further that Atty. Belarmino should not have
over the parcel of land and the pair of emerald-cut diamond earrings had delivered all those documents to Dr. Cruz because as the lawyer for both the
been transferred to Dr. Cruz and petitioner, respectively, upon the actual and seller and the buyer in the sale contract, he should have protected the rights
constructive delivery thereof.[30] Said contract of sale being absolute in nature, of both parties. Moreover, petitioner asserts that there was no firm basis for
title passed to the vendee upon delivery of the thing sold since there was no damages except for Atty. Belarminos uncorroborated testimony. [34]
stipulation in the contract that title to the property sold has been reserved in
the seller until full payment of the price or that the vendor has the right to Moral and exemplary damages may be awarded without proof of
unilaterally resolve the contract the moment the buyer fails to pay within a pecuniary loss. In awarding such damages, the court shall take into account
fixed period.[31] Such stipulations are not manifest in the contract of sale. the circumstances obtaining in the case and assess damages according to its
discretion.[35] To warrant the award of damages, it must be shown that the
While it is true that the amount of P40,000.00 forming part of the person to whom these are awarded has sustained injury. He must likewise
consideration was still payable to petitioner, its nonpayment by Dr. Cruz is not establish sufficient data upon which the court can properly base its estimate
a sufficient cause to invalidate the contract or bar the transfer of ownership of the amount of damages.[36] Statements of facts should establish such data
and possession of the things exchanged considering the fact that their rather than mere conclusions or opinions of witnesses.[37] Thus:
contract is silent as to when it becomes due and demandable.[32]
x x x. For moral damages to be awarded, it is essential that the
Neither may such failure to pay the balance of the purchase price result claimant must have satisfactorily proved during the trial the
in the payment of interest thereon. Article 1589 of the Civil Code prescribes existence of the factual basis of the damages and its causal
the payment of interest by the vendee for the period between the delivery of connection with the adverse partys acts. If the court has no proof or
the thing and the payment of the price in the following cases: evidence upon which the claim for moral damages could be based,
(1) Should it have been so stipulated; such indemnity could not be outrightly awarded. The same holds
true with respect to the award of exemplary damages where it must
(2) Should the thing sold and delivered produce fruits or income; be shown that the party acted in a wanton, oppressive or
malevolent manner.[38]
(3) Should he be in default, from the time of judicial or extrajudicial
demand for the payment of the price. In this regard, the lower court appeared to have awarded damages on
a ground analogous to malicious prosecution under Article 2219(8) of the Civil
Not one of these cases obtains here. This case should, of course, be Code[39] as shown by (1) petitioners wanton bad faith in bloating the value of
distinguished from De la Cruz v. Legaspi,[33] where the court held that failure to the Tanay property which he exchanged for a genuine pair of emerald-cut
pay the consideration after the notarization of the contract as previously diamond worth P200,000.00; and (2) his filing of a malicious and unfounded
promised resulted in the vendees liability for payment of interest. In the case at case against private respondents who were well known, respected and held
bar, there is no stipulation for the payment of interest in the contract of sale in high esteem in San Pablo City where everybody practically knows
nor proof that the Tanay property produced fruits or income. Neither did everybody and whose good names in the twilight of their lives were soiled by
petitioner demand payment of the price as in fact he filed an action to nullify petitioners coming to court with unclean hands, thereby affecting their
the contract of sale. earning capacity in the exercise of their respective professions and
All told, petitioner appears to have elevated this case to this Court for the besmirching their reputation.
principal reason of mitigating the amount of damages awarded to both For its part, the Court of Appeals affirmed the award of damages to
private respondents which petitioner considers as exorbitant. He contends private respondents for these reasons:
that private respondents do not deserve at all the award of damages. In fact,
22
The malice with which Fule filed this case is apparent. Having taken person a tester which he later used to prove the alleged fakery but which he
possession of the genuine jewelry of Dra. Cruz, Fule now wishes to did not use at the time when it was most needed. Furthermore, it took him two
return a fake jewelry to Dra. Cruz and, more than that, get back the more hours of unexplained delay before he complained that the jewelry he
real property, which his bank owns. Fule has obtained a genuine received were counterfeit. Hence, we stated earlier that anything could have
jewelry which he could sell anytime, anywhere and to anybody, happened during all the time that petitioner was in complete possession and
without the same being traced to the original owner for practically control of the jewelry, including the possibility of substituting them with fake
nothing.This is plain and simple, unjust enrichment. [40] ones, against which respondents would have a great deal of difficulty
defending themselves. The truth is that petitioner even failed to successfully
While, as a rule, moral damages cannot be recovered from a person prove during trial that the jewelry he received from Dr. Cruz were not
who has filed a complaint against another in good faith because it is not genuine. Add to that the fact that he had been shrewd enough to bloat the
sound policy to place a penalty on the right to litigate,[41] the same, however, Tanay propertys price only a few days after he purchased it at a much lower
cannot apply in the case at bar. The factual findings of the courts a quo to value. Thus, it is our considered view that if this slew of circumstances were
the effect that petitioner filed this case because he was the victim of fraud; connected, like pieces of fabric sewn into a quilt, they would sufficiently
that he could not have been such a victim because he should have demonstrate that his acts were not merely negligent but rather studied and
examined the jewelry in question before accepting delivery thereof, deliberate.
considering his exposure to the banking and jewelry businesses; and that he
filed the action for the nullification of the contract of sale with unclean hands, We do not have here, therefore, a situation where petitioners complaint
all deserve full faith and credit to support the conclusion that petitioner was was simply found later to be based on an erroneous ground which, under
motivated more by ill will than a sincere attempt to protect his rights in settled jurisprudence, would not have been a reason for awarding moral and
commencing suit against respondents. exemplary damages.[42] Instead, the cause of action of the instant case
appears to have been contrived by petitioner himself. In other words, he was
As pointed out earlier, a closer scrutiny of the chain of events placed in a situation where he could not honestly evaluate whether his cause
immediately prior to and on October 24, 1984 itself would amply demonstrate of action has a semblance of merit, such that it would require the expertise of
that petitioner was not simply negligent in failing to exercise due diligence to the courts to put it to a test. His insistent pursuit of such case then coupled with
assure himself that what he was taking in exchange for his property were circumstances showing that he himself was guilty in bringing about the
genuine diamonds. He had rather placed himself in a situation from which it supposed wrongdoing on which he anchored his cause of action
preponderantly appears that his seeming ignorance was actually just a ruse. would render him answerable for all damages the defendant may suffer
Indeed, he had unnecessarily dragged respondents to face the travails of because of it. This is precisely what took place in the petition at bar and we
litigation in speculating at the possible favorable outcome of his complaint find no cogent reason to disturb the findings of the courts below that
when he should have realized that his supposed predicament was his own respondents in this case suffered considerable damages due to petitioners
making. We, therefore, see here no semblance of an honest and sincere unwarranted action.
belief on his part that he was swindled by respondents which would entitle him
to redress in court. It must be noted that before petitioner was able to WHEREFORE, the decision of the Court of Appeals dated October 20,
convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner 1992 is hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay petitioner
took pains to thoroughly examine said jewelry, even going to the extent of the balance of the purchase price of P40,000.00 within ten (10) days from the
sketching their appearance. Why at the precise moment when he was about finality of this decision. Costs against petitioner.
to take physical possession thereof he failed to exert extra efforts to check
their genuineness despite the large consideration involved has never been SO ORDERED.
explained at all by petitioner. His acts thus failed to accord with what an
ordinary prudent man would have done in the same situation. Being an
experienced banker and a businessman himself who deliberately skirted a
legal impediment in the sale of the Tanay property and to minimize the
capital gains tax for its exchange, it was actually gross recklessness for him to
have merely conducted a cursory examination of the jewelry when every
opportunity for doing so was not denied him. Apparently, he carried on his
23
CONTRACT FOR A PIECE OF WORK sash factories receive orders for doors and windows of special design
only in particular cases but the bulk of their sales is derived from a
G.R. No. L-8506 August 31, 1956 ready-made doors and windows of standard sizes for the average
home. Moreover, as shown from the investigation of petitioner's book
of accounts, during the period from January 1, 1952 to September 30,
CELESTINO CO & COMPANY, petitioner,
1952, it sold sash, doors and windows worth P188,754.69. I find it
vs.
difficult to believe that this amount which runs to six figures was
COLLECTOR OF INTERNAL REVENUE, respondent.
derived by petitioner entirely from its few customers who made
special orders for these items.
BENGZON, J.:
Even if we were to believe petitioner's claim that it does not
Appeal from a decision of the Court of Tax Appeals. manufacture ready-made sash, doors and windows for the public
and that it makes these articles only special order of its customers,
Celestino Co & Company is a duly registered general copartnership doing that does not make it a contractor within the purview of section 191 of
business under the trade name of "Oriental Sash Factory". From 1946 to 1951 it the national Internal Revenue Code. there are no less than fifty
paid percentage taxes of 7 per cent on the gross receipts of its sash, door and occupations enumerated in the aforesaid section of the national
window factory, in accordance with section one hundred eighty-six of the Internal Revenue Code subject to percentage tax and after reading
National Revenue Code imposing taxes on sale of manufactured articles. carefully each and every one of them, we cannot find under which
However in 1952 it began to claim liability only to the contractor's 3 per cent the business of manufacturing sash, doors and windows upon special
tax (instead of 7 per cent) under section 191 of the same Code; and having order of customers fall under the category of "road, building,
failed to convince the Bureau of Internal Revenue, it brought the matter to the navigation, artesian well, water workers and other construction work
Court of Tax Appeals, where it also failed. Said the Court: contractors" are those who alter or repair buildings, structures, streets,
highways, sewers, street railways railroads logging roads, electric lines
To support his contention that his client is an ordinary contractor . . . or power lines, and includes any other work for the construction,
counsel presented . . . duplicate copies of letters, sketches of doors altering or repairing for which machinery driven by mechanical power
and windows and price quotations supposedly sent by the manager is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).
of the Oriental Sash Factory to four customers who allegedly made
special orders to doors and window from the said factory. The Having thus eliminated the feasibility off taxing petitioner as a
conclusion that counsel would like us to deduce from these few contractor under 191 of the national Internal Revenue Code, this
exhibits is that the Oriental Sash Factory does not manufacture ready- leaves us to decide the remaining issue whether or not petitioner
made doors, sash and windows for the public but only upon special could be taxed with lesser strain and more accuracy as seller of its
order of its select customers. . . . I cannot believe that petitioner manufactured articles under section 186 of the same code, as the
company would take, as in fact it has taken, all the trouble and respondent Collector of Internal Revenue has in fact been doing the
expense of registering a special trade name for its sash business and Oriental Sash Factory was established in 1946.
then orders company stationery carrying the bold print "Oriental Sash
Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, The percentage tax imposed in section 191 of our Tax Code is
Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, generally a tax on the sales of services, in contradiction with the tax
sashes, furniture, etc. used season-dried and kiln-dried lumber, of the imposed in section 186 of the same Code which is a tax on the
best quality workmanships" solely for the purpose of supplying the original sales of articles by the manufacturer, producer or importer.
needs for doors, windows and sash of its special and limited (Formilleza's Commentaries and Jurisprudence on the National
customers. One ill note that petitioner has chosen for its tradename Internal Revenue Code, Vol. II, p. 744). The fact that the articles sold
and has offered itself to the public as a "Factory", which means it is out are manufactured by the seller does not exchange the contract from
to do business, in its chosen lines on a big scale. As a general rule,

24
the purview of section 186 of the National Internal Revenue Code as would be no different from a purchasers of manufactured goods held is stock
a sale of articles. for sale; they are bought because they meet the specifications desired by the
purchaser.
There was a strong dissent; but upon careful consideration of the whole matter
are inclines to accept the above statement of the facts and the law. The Nobody will say that when a sawmill cuts lumber in accordance with the
important thing to remember is that Celestino Co & Company habitually peculiar specifications of a customer-sizes not previously held in stock for sale
makes sash, windows and doors, as it has represented in its stationery and to the public-it thereby becomes an employee or servant of the
advertisements to the public. That it "manufactures" the same is practically customer,1 not the seller of lumber. The same consideration applies to this sash
admitted by appellant itself. The fact that windows and doors are made by it manufacturer.
only when customers place their orders, does not alter the nature of the
establishment, for it is obvious that it only accepted such orders as called for The Oriental Sash Factory does nothing more than sell the goods that it mass-
the employment of such material-moulding, frames, panels-as it ordinarily produces or habitually makes; sash, panels, mouldings, frames, cutting them
manufactured or was in a position habitually to manufacture. to such sizes and combining them in such forms as its customers may desire.

Perhaps the following paragraph represents in brief the appellant's position in On the other hand, petitioner's idea of being a contractor doing construction
this Court: jobs is untenable. Nobody would regard the doing of two window panels a
construction work in common parlance.2
Since the petitioner, by clear proof of facts not disputed by the
respondent, manufacturers sash, windows and doors only for special Appellant invokes Article 1467 of the New Civil Code to bolster its contention
customers and upon their special orders and in accordance with the that in filing orders for windows and doors according to specifications, it did
desired specifications of the persons ordering the same and not for not sell, but merely contracted for particular pieces of work or "merely sold its
the general market: since the doors ordered by Don Toribio Teodoro & services".
Sons, Inc., for instance, are not in existence and which never would
have existed but for the order of the party desiring it; and since
Said article reads as follows:
petitioner's contractual relation with his customers is that of a contract
for a piece of work or since petitioner is engaged in the sale of
services, it follows that the petitioner should be taxed under section A contract for the delivery at a certain price of an article which the
191 of the Tax Code and NOT under section 185 of the same Code." vendor in the ordinary course of his business manufactures or procures
(Appellant's brief, p. 11-12). for the general market, whether the same is on hand at the time or
not, is a contract of sale, but if the goods are to be manufactured
specially for the customer and upon his special order, and not for the
But the argument rests on a false foundation. Any builder or homeowner, with
general market, it is contract for a piece of work.
sufficient money, may order windows or doors of the kind manufactured by
this appellant. Therefore it is not true that it serves special customers only or
confines its services to them alone. And anyone who sees, and likes, the doors It is at once apparent that the Oriental Sash Factory did not merely sell its
ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant services to Don Toribio Teodoro & Co. (To take one instance) because it also
doors of the same kind, provided he pays the price. Surely, the appellant will sold the materials. The truth of the matter is that it sold materials ordinarily
not refuse, for it can easily duplicate or even mass-produce the same doors-it manufactured by it sash, panels, mouldings to Teodoro & Co., although
is mechanically equipped to do so. in such form or combination as suited the fancy of the purchaser. Such new
form does not divest the Oriental Sash Factory of its character as
manufacturer. Neither does it take the transaction out of the category of sales
That the doors and windows must meet desired specifications is neither here
under Article 1467 above quoted, because although the Factory does not, in
nor there. If these specifications do not happen to be of the kind habitually
the ordinary course of its business, manufacture and keep on stock doors of
manufactured by appellant special forms for sash, mouldings of panels it
would not accept the order and no sale is made. If they do, the transaction
25
the kind sold to Teodoro, it could stock and/or probably had in stock the sash,
mouldings and panels it used therefor (some of them at least).

In our opinion when this Factory accepts a job that requires the use of
extraordinary or additional equipment, or involves services not generally
performed by it-it thereby contracts for a piece of work filing special orders
within the meaning of Article 1467. The orders herein exhibited were not shown
to be special. They were merely orders for work nothing is shown to call
them special requiring extraordinary service of the factory.

The thought occurs to us that if, as alleged-all the work of appellant is only to
fill orders previously made, such orders should not be called special work, but
regular work. Would a factory do business performing only special,
extraordinary or peculiar merchandise?

Anyway, supposing for the moment that the transactions were not sales, they
were neither lease of services nor contract jobs by a contractor. But as the
doors and windows had been admittedly "manufactured" by the Oriental Sash
Factory, such transactions could be, and should be taxed as "transfers" thereof
under section 186 of the National Revenue Code.

The appealed decision is consequently affirmed. So ordered.

26
CONTRACT FOR A PIECE OF WORK taxes due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR
record Vol. I). Engineering was likewise denounced to the Central Bank (CB)
G.R. No. L-27044 June 30, 1975 for alleged fraud in obtaining its dollar allocations. Acting on these
denunciations, a raid and search was conducted by a joint team of Central
Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
Revenue (BIR) agents on September 27, 1956, on which occasion voluminous
vs.
records of the firm were seized and confiscated. (pp. 173-177 T.S.N.)
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX
APPEALS, respondents.
On September 30, 1957, revenue examiners Quesada and Catudan reported
and recommended to the then Collector, now Commissioner, of Internal
G.R. No. L-27452 June 30, 1975
Revenue (hereinafter referred to as Commissioner) that Engineering be
assessed for P480,912.01 as deficiency advance sales tax on the theory that it
ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner, misdeclared its importation of air conditioning units and parts and accessories
vs. thereof which are subject to tax under Section 185(m)1 of the Tax Code,
THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This
APPEALS, respondent. assessment was revised on January 23, 1959, in line with the observation of the
Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General advance sales tax and manufacturers sales tax, inclusive of the 25% and 50%
Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel surcharges. (pp. 72-80 BIR rec. Vol. I)
H. Montalino for Commissioner of Internal Revenue, etc.
On March 3, 1959. the Commissioner assessed against, and demanded upon,
Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and Engineering payment of the increased amount and suggested that P10,000
J.R. Balonkita for Engineering and Supply Company. be paid as compromise in extrajudicial settlement of Engineering's penal
liability for violation of the Tax Code. The firm, however, contested the tax
ESGUERRA, J.: assessment and requested that it be furnished with the details and particulars
of the Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I)
The Commissioner replied that the assessment was in accordance with law
Petition for review on certiorari of the decision of the Court of Tax Appeals in and the facts of the case.
CTA Case No. 681, dated November 29, 1966, assessing a compensating tax
of P174,441.62 on the Engineering Equipment and Supply Company.
On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals
and during the pendency of the case the investigating revenue examiners
As found by the Court of Tax Appeals, and as established by the evidence on reduced Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86
record, the facts of this case are as follows: (Exhs. "R" and "9" pp. 162-170, BIR rec.), based on findings after conferences
had with Engineering's Accountant and Auditor.
Engineering Equipment and Supply Co. (Engineering for short), a domestic
corporation, is an engineering and machinery firm. As operator of an On November 29, 1966, the Court of Tax Appeals rendered its decision, the
integrated engineering shop, it is engaged, among others, in the design and dispositive portion of which reads as follows:
installation of central type air conditioning system, pumping plants and steel
fabrications. (Vol. I pp. 12-16 T.S.N. August 23, 1960)
For ALL THE FOREGOING CONSIDERATIONS, the decision of
respondent appealed from is hereby modified, and petitioner,
On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now as a contractor, is declared exempt from the deficiency
Commissioner, of Internal Revenue denouncing Engineering for tax evasion by manufacturers sales tax covering the period from June 1, 1948.
misdeclaring its imported articles and failing to pay the correct percentage to September 2, 1956. However, petitioner is ordered to pay
27
respondent, or his duly authorized collection agent, the sum of 30% compensating tax and 25% surcharge instead of completely
P174,141.62 as compensating tax and 25% surcharge for the absolving it from the deficiency assessment of the Commissioner.
period from 1953 to September 1956. With costs against
petitioner. The Commissioner on the other hand claims that the Court of Tax Appeals
erred:
The Commissioner, not satisfied with the decision of the Court of Tax Appeals,
appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the other 1. In holding that the respondent company is a contractor and not a
hand, Engineering, on January 4, 1967, filed with the Court of Tax Appeals a manufacturer.
motion for reconsideration of the decision abovementioned. This was denied
on April 6, 1967, prompting Engineering to file also with this Court its appeal,
2. In holding respondent company liable to the 3% contractor's tax
docketed as G.R. No. L-27452.
imposed by Section 191 of the Tax Code instead of the 30% sales tax
prescribed in Section 185(m) in relation to Section 194(x) both of the
Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same same Code;
parties and issues, We have decided to consolidate and jointly decide them.
3. In holding that the respondent company is subject only to the 30%
Engineering in its Petition claims that the Court of Tax Appeals committed the compensating tax under Section 190 of the Tax Code and not to the
following errors: 30% advance sales tax imposed by section 183 (b), in relation to
section 185(m) both of the same Code, on its importations of parts
1. That the Court of Tax Appeals erred in holding Engineering and accessories of air conditioning units;
Equipment & Supply Company liable to the 30% compensating tax
on its importations of equipment and ordinary articles used in the 4. In not holding the company liable to the 50% fraud surcharge
central type air conditioning systems it designed, fabricated, under Section 183 of the Tax Code on its importations of parts and
constructed and installed in the buildings and premises of its accessories of air conditioning units, notwithstanding the finding of
customers, rather than to the compensating tax of only 7%; said court that the respondent company fraudulently misdeclared
the said importations;
2. That the Court of Tax Appeals erred in holding Engineering
Equipment & Supply Company guilty of fraud in effecting the said 5. In holding the respondent company liable for P174,141.62 as
importations on the basis of incomplete quotations from the compensating tax and 25% surcharge instead of P740,587.86 as
contents of alleged photostat copies of documents seized illegally deficiency advance sales tax, deficiency manufacturers tax and
from Engineering Equipment and Supply Company which should 25% and 50% surcharge for the period from June 1, 1948 to
not have been admitted in evidence; December 31, 1956.

3. That the Court of Tax Appeals erred in holding Engineering The main issue revolves on the question of whether or not Engineering is a
Equipment & Supply Company liable to the 25% surcharge manufacturer of air conditioning units under Section 185(m), supra, in relation
prescribed in Section 190 of the Tax Code; to Sections 183(b) and 194 of the Code, or a contractor under Section 191 of
the same Code.
4. That the Court of Tax Appeals erred in holding the assessment as
not having prescribed; The Commissioner contends that Engineering is a manufacturer and seller of
air conditioning units and parts or accessories thereof and, therefore, it is
5. That the Court of Tax Appeals erred in holding Engineering subject to the 30% advance sales tax prescribed by Section 185(m) of the Tax
Equipment & Supply Company liable for the sum of P174,141.62 as Code, in relation to Section 194 of the same, which defines a manufacturer as
follows:
28
Section 194. Words and Phrases Defined. In applying the sale to some other persons even if the order had not been given.2 If the article
provisions of this Title, words and phrases shall be taken in the sense ordered by the purchaser is exactly such as the plaintiff makes and keeps on
and extension indicated below: hand for sale to anyone, and no change or modification of it is made at
defendant's request, it is a contract of sale, even though it may be entirely
xxx xxx xxx made after, and in consequence of, the defendants order for it.3

(x) "Manufacturer" includes every person who by physical or Our New Civil Code, likewise distinguishes a contract of sale from a contract
chemical process alters the exterior texture or form or inner for a piece of work thus:
substance of any raw material or manufactured or partially
manufactured products in such manner as to prepare it for a Art. 1467. A contract for the delivery at a certain price of an article
special use or uses to which it could not have been put in its which the vendor in the ordinary course of his business manufactures
original condition, or who by any such process alters the quality of or procures for the general market, whether the same is on hand at
any such material or manufactured or partially manufactured the time or not, is a contract of sale, but if the goods are to be
product so as to reduce it to marketable shape, or prepare it for manufactured specially for the customer and upon his special order
any of the uses of industry, or who by any such process combines and not for the general market, it is a contract for a piece of work.
any such raw material or manufactured or partially manufactured
products with other materials or products of the same or of The word "contractor" has come to be used with special reference to a person
different kinds and in such manner that the finished product of who, in the pursuit of the independent business, undertakes to do a specific
such process of manufacture can be put to special use or uses to job or piece of work for other persons, using his own means and methods
which such raw material or manufactured or partially without submitting himself to control as to the petty details. (Araas,
manufactured products in their original condition could not have Annotations and Jurisprudence on the National Internal Revenue Code, p.
been put, and who in addition alters such raw material or 318, par. 191 (2), 1970 Ed.) The true test of a contractor as was held in the
manufactured or partially manufactured products, or combines cases of Luzon Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807-808, and La
the same to produce such finished products for the purpose of their Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819, would seem to be that he
sale or distribution to others and not for his own use or renders service in the course of an independent occupation, representing the
consumption. will of his employer only as to the result of his work, and not as to the means by
which it is accomplished.
In answer to the above contention, Engineering claims that it is not a
manufacturer and setter of air-conditioning units and spare parts or With the foregoing criteria as guideposts, We shall now examine whether
accessories thereof subject to tax under Section 185(m) of the Tax Code, but Engineering really did "manufacture" and sell, as alleged by the Commissioner
a contractor engaged in the design, supply and installation of the central to hold it liable to the advance sales tax under Section 185(m), or it only had
type of air-conditioning system subject to the 3% tax imposed by Section 191 its services "contracted" for installation purposes to hold it liable under section
of the same Code, which is essentially a tax on the sale of services or labor of 198 of the Tax Code.
a contractor rather than on the sale of articles subject to the tax referred to in
Sections 184, 185 and 186 of the Code.
I

The arguments of both the Engineering and the Commissioner call for a
After going over the three volumes of stenographic notes and the voluminous
clarification of the term contractor as well as the distinction between a
record of the BIR and the CTA as well as the exhibits submitted by both parties,
contract of sale and contract for furnishing services, labor and materials. The
We find that Engineering did not manufacture air conditioning units for sale to
distinction between a contract of sale and one for work, labor and materials is
the general public, but imported some items (as refrigeration compressors in
tested by the inquiry whether the thing transferred is one not in existence and
complete set, heat exchangers or coils, t.s.n. p. 39) which were used in
which never would have existed but for the order of the party desiring to
executing contracts entered into by it. Engineering, therefore, undertook
acquire it, or a thing which would have existed and has been the subject of
29
negotiations and execution of individual contracts for the design, supply and ... there is a great variety of equipment in use to do this job (of air
installation of air conditioning units of the central type (t.s.n. pp. 20-36; Exhs. "F", conditioning). Some devices are designed to serve a specific
"G", "H", "I", "J", "K", "L", and "M"), taking into consideration in the process such type of space; others to perform a specific function; and still
factors as the area of the space to be air conditioned; the number of persons others as components to be assembled into a tailor-made system
occupying or would be occupying the premises; the purpose for which the to fit a particular building. Generally, however, they may be
various air conditioning areas are to be used; and the sources of heat gain or grouped into two classifications unitary and central system.
cooling load on the plant such as sun load, lighting, and other electrical
appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I) Engineering The unitary equipment classification includes those designs such
also testified during the hearing in the Court of Tax Appeals that relative to the as room air conditioner, where all of the functional components
installation of air conditioning system, Engineering designed and engineered are included in one or two packages, and installation involves
complete each particular plant and that no two plants were identical but only making service connection such as electricity, water and
each had to be engineered separately. drains. Central-station systems, often referred to as applied or
built-up systems, require the installation of components at
As found by the lower court, which finding4 We adopt different points in a building and their interconnection.

Engineering, in a nutshell, fabricates, assembles, supplies and installs The room air conditioner is a unitary equipment designed
in the buildings of its various customers the central type air specifically for a room or similar small space. It is unique among air
conditioning system; prepares the plans and specifications therefor conditioning equipment in two respects: It is in the electrical
which are distinct and different from each other; the air conditioning appliance classification, and it is made by a great number of
units and spare parts or accessories thereof used by petitioner are manufacturers.
not the window type of air conditioner which are manufactured,
assembled and produced locally for sale to the general market; and There is also the testimony of one Carlos Navarro, a licensed Mechanical and
the imported air conditioning units and spare parts or accessories Electrical Engineer, who was once the Chairman of the Board of Examiners for
thereof are supplied and installed by petitioner upon previous orders Mechanical Engineers and who was allegedly responsible for the preparation
of its customers conformably with their needs and requirements. of the refrigeration and air conditioning code of the City of Manila, who said
that "the central type air conditioning system is an engineering job that
The facts and circumstances aforequoted support the theory that Engineering requires planning and meticulous layout due to the fact that usually architects
is a contractor rather than a manufacturer. assign definite space and usually the spaces they assign are very small and of
various sizes. Continuing further, he testified:
The Commissioner in his Brief argues that "it is more in accord with reason and
sound business management to say that anyone who desires to have air I don't think I have seen central type of air conditioning machinery
conditioning units installed in his premises and who is in a position and willing room that are exactly alike because all our buildings here are
to pay the price can order the same from the company (Engineering) and, designed by architects dissimilar to existing buildings, and usually
therefore, Engineering could have mass produced and stockpiled air they don't coordinate and get the advice of air conditioning and
conditioning units for sale to the public or to any customer with enough refrigerating engineers so much so that when we come to design, we
money to buy the same." This is untenable in the light of the fact that air have to make use of the available space that they are assigning to
conditioning units, packaged, or what we know as self-contained air us so that we have to design the different component parts of the air
conditioning units, are distinct from the central system which Engineering dealt conditioning system in such a way that will be accommodated in the
in. To Our mind, the distinction as explained by Engineering, in its Brief, quoting space assigned and afterwards the system may be considered as a
from books, is not an idle play of words as claimed by the Commissioner, but a definite portion of the building. ...
significant fact which We just cannot ignore. As quoted by Engineering
Equipment & Supply Co., from an Engineering handbook by L.C. Morrow, and Definitely there is quite a big difference in the operation because the
which We reproduce hereunder for easy reference: window type air conditioner is a sort of compromise. In fact it cannot
30
control humidity to the desired level; rather the manufacturers, by hit testified to in previous hearing, would you say that the covering
and miss, were able to satisfy themselves that the desired comfort contracts for these different projects listed ... referred to in the list,
within a room could be made by a definite setting of the machine as Exh. "F" are identical in every respect? I mean every plan or
it comes from the factory; whereas the central type system definitely system covered by these different contracts are identical in
requires an intelligent operator. (t.s.n. pp. 301-305, Vol. II) standard in every respect, so that you can reproduce them?

The point, therefore, is this Engineering definitely did not and was not A No, sir. They are not all standard. On the contrary, none of
engaged in the manufacture of air conditioning units but had its services them are the same. Each one must be designed and
contracted for the installation of a central system. The cases cited by the constructed to meet the particular requirements, whether the
Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. application is to be operated. (t.s.n. pp. 101-102)
636; Celestino Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and
Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. What We consider as on all fours with the case at bar is the case of S.M.
Neither are they applicable because the facts in all the cases cited are Lawrence Co. vs. McFarland, Commissioner of Internal Revenue of the State of
entirely different. Take for instance the case of Celestino Co where this Court Tennessee and McCanless, 355 SW 2d, 100, 101, "where the cause presents the
held the taxpayer to be a manufacturer rather than a contractor of sash, question of whether one engaged in the business of contracting for the
doors and windows manufactured in its factory. Indeed, from the very start, establishment of air conditioning system in buildings, which work requires, in
Celestino Co intended itself to be a manufacturer of doors, windows, sashes addition to the furnishing of a cooling unit, the connection of such unit with
etc. as it did register a special trade name for its sash business and ordered electrical and plumbing facilities and the installation of ducts within and
company stationery carrying the bold print "ORIENTAL SASH FACTORY through walls, ceilings and floors to convey cool air to various parts of the
(CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. building, is liable for sale or use tax as a contractor rather than a retailer of
etc., Manufacturers of All Kinds of Doors, Windows ... ." Likewise, Celestino Co tangible personal property. Appellee took the Position that appellant was not
never put up a contractor's bond as required by Article 1729 of the Civil Code. engaged in the business of selling air conditioning equipment as such but in
Also, as a general rule, sash factories receive orders for doors and windows of the furnishing to its customers of completed air conditioning systems pursuant
special design only in particular cases, but the bulk of their sales is derived to contract, was a contractor engaged in the construction or improvement of
from ready-made doors and windows of standard sizes for the average home, real property, and as such was liable for sales or use tax as the consumer of
which "sales" were reflected in their books of accounts totalling P118,754.69 for materials and equipment used in the consummation of contracts, irrespective
the period from January, 1952 to September 30, 1952, or for a period of only of the tax status of its contractors. To transmit the warm or cool air over the
nine (9) months. This Court found said sum difficult to have been derived from buildings, the appellant installed system of ducts running from the basic units
its few customers who placed special orders for these items. Applying the through walls, ceilings and floors to registers. The contract called for
abovestated facts to the case at bar, We found them to he inapposite. completed air conditioning systems which became permanent part of the
Engineering advertised itself as Engineering Equipment and Supply Company, buildings and improvements to the realty." The Court held the appellant a
Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de contractor which used the materials and the equipment upon the value of
Comillas, Manila (Exh. "B" and "15" BIR rec. p. 186), and not as manufacturers. It which the tax herein imposed was levied in the performance of its contracts
likewise paid the contractors tax on all the contracts for the design and with its customers, and that the customers did not purchase the equipment
construction of central system as testified to by Mr. Rey Parker, its President and have the same installed.
and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did not have
ready-made air conditioning units for sale but as per testimony of Mr. Parker
Applying the facts of the aforementioned case to the present case, We see
upon inquiry of Judge Luciano of the CTA
that the supply of air conditioning units to Engineer's various customers,
whether the said machineries were in hand or not, was especially made for
Q Aside from the general components, which go into air each customer and installed in his building upon his special order. The air
conditioning plant or system of the central type which your conditioning units installed in a central type of air conditioning system would
company undertakes, and the procedure followed by you in not have existed but for the order of the party desiring to acquire it and if it
obtaining and executing contracts which you have already existed without the special order of Engineering's customer, the said air

31
conditioning units were not intended for sale to the general public. Therefore, be held subject to the 50% surcharge under Section 190 of the Tax
We have but to affirm the conclusion of the Court of Tax Appeals that Code dealing on compensating tax because the provisions thereof
Engineering is a contractor rather than a manufacturer, subject to the do not include the 50% surcharge. Where a particular provision of
contractors tax prescribed by Section 191 of the Code and not to the the Tax Code does not impose the 50% surcharge as fraud penalty
advance sales tax imposed by Section 185(m) in relation to Section 194 of the we cannot enforce a non-existing provision of law notwithstanding
same Code. Since it has been proved to Our satisfaction that Engineering the assessment of respondent to the contrary. Instances of the
imported air conditioning units, parts or accessories thereof for use in its exclusion in the Tax Code of the 50% surcharge are those dealing
construction business and these items were never sold, resold, bartered or on tax on banks, taxes on receipts of insurance companies, and
exchanged, Engineering should be held liable to pay taxes prescribed under franchise tax. However, if the Tax Code imposes the 50% surcharge
Section 1905 of the Code. This compensating tax is not a tax on the as fraud penalty, it expressly so provides as in the cases of income
importation of goods but a tax on the use of imported goods not subject to tax, estate and inheritance taxes, gift taxes, mining tax,
sales tax. Engineering, therefore, should be held liable to the payment of 30% amusement tax and the monthly percentage taxes. Accordingly,
compensating tax in accordance with Section 190 of the Tax Code in relation we hold that petitioner is not subject to the 50% surcharge despite
to Section 185(m) of the same, but without the 50% mark up provided in the existence of fraud in the absence of legal basis to support the
Section 183(b). importation thereof. (p. 228 CTA rec.)

II We have gone over the exhibits submitted by the Commissioner evidencing


fraud committed by Engineering and We reproduce some of them hereunder
We take up next the issue of fraud. The Commissioner charged Engineering for clarity.
with misdeclaration of the imported air conditioning units and parts or
accessories thereof so as to make them subject to a lower rate of percentage As early as March 18, 1953, Engineering in a letter of even date wrote to Trane
tax (7%) under Section 186 of the Tax Code, when they are allegedly subject Co. (Exh. "3-K" pp. 152-155, BIR rec.) viz:
to a higher rate of tax (30%) under its Section 185(m). This charge of fraud was
denied by Engineering but the Court of Tax Appeals in its decision found Your invoices should be made in the name of Madrigal & Co., Inc.,
adversely and said" Manila, Philippines, c/o Engineering Equipment & Supply Co.,
Manila, Philippines forwarding all correspondence and shipping
... We are amply convinced from the evidence presented by papers concerning this order to us only and not to the customer.
respondent that petitioner deliberately and purposely misdeclared
its importations. This evidence consists of letters written by petitioner When invoicing, your invoices should be exactly as detailed in the
to its foreign suppliers, instructing them on how to invoice and customer's Letter Order dated March 14th, 1953 attached. This is in
describe the air conditioning units ordered by petitioner. ... (p. 218 accordance with the Philippine import licenses granted to
CTA rec.) Madrigal & Co., Inc. and such details must only be shown on all
papers and shipping documents for this shipment. No mention of
Despite the above findings, however, the Court of Tax Appeals absolved words air conditioning equipment should be made on any
Engineering from paying the 50% surcharge prescribe by Section 183(a) of the shipping documents as well as on the cases. Please give this
Tax Code by reasoning out as follows: matter your careful attention, otherwise great difficulties will be
encountered with the Philippine Bureau of Customs when clearing
The imposition of the 50% surcharge prescribed by Section 183(a) the shipment on its arrival in Manila. All invoices and cases should
of the Tax Code is based on willful neglect to file the monthly return be marked "THIS EQUIPMENT FOR RIZAL CEMENT CO."
within 20 days after the end of each month or in case a false or
fraudulent return is willfully made, it can readily be seen, that The same instruction was made to Acme Industries, Inc., San Francisco,
petitioner cannot legally be held subject to the 50% surcharge California in a letter dated March 19, 1953 (Exh. "3-J-1" pp. 150-151, BIR rec.)
imposed by Section 183(a) of the Tax Code. Neither can petitioner
32
On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New ordinary regular methods of order write-up. We would then
York, U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the latter from include the set made up according to the import license in
mentioning or referring to the term 'air conditioning' and to describe the the shipping boxes themselves and use those items as our
goods on order as Fiberglass pipe and pipe fitting insulation instead. Likewise actual shipping documents and invoices, and we will send
on April 30, 1953, Engineering threatened to discontinue the forwarding the other regular invoice to you, by separate
service of Universal Transcontinental Corporation when it wrote Trane Co. (Exh. correspondence. (Exh- No. "3-F-1", p. 144 BIR rec.)
"3-H" p. 146, BIR rec.):
Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-
It will be noted that the Universal Transcontinental Corporation is not C" p. 141 BIR rec.)
following through on the instructions which have been covered by
the above correspondence, and which indicates the necessity of In the process of clearing the shipment from the piers, one of the
discontinuing the use of the term "Air conditioning Machinery or Air Customs inspectors requested to see the packing list. Upon
Coolers". Our instructions concerning this general situation have been presenting the packing list, it was discovered that the same was
sent to you in ample time to have avoided this error in terminology, prepared on a copy of your letterhead which indicated that the
and we will ask that on receipt of this letter that you again write to Trane Co. manufactured air conditioning, heating and heat
Universal Transcontinental Corp. and inform them that, if in the future, transfer equipment. Accordingly, the inspectors insisted that this
they are unable to cooperate with us on this requirement, we will equipment was being imported for air conditioning purposes. To
thereafter be unable to utilize their forwarding service. Please inform date, we have not been able to clear the shipment and it is
them that we will not tolerate another failure to follow our possible that we will be required to pay heavy taxes on
requirements. equipment.

And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. The purpose of this letter is to request that in the future, no
another letter, viz: documents of any kind should be sent with the order that
indicate in any way that the equipment could possibly be used
In the past, we have always paid the air conditioning tax on for air conditioning.
climate changers and that mark is recognized in the Philippines,
as air conditioning equipment. This matter of avoiding any tie-in It is realized that this a broad request and fairly difficult to
on air conditioning is very important to us, and we are asking that accomplish and administer, but we believe with proper caution it
from hereon that whoever takes care of the processing of our can be executed. Your cooperation and close supervision
orders be carefully instructed so as to avoid again using the term concerning these matters will be appreciated. (Emphasis
"Climate changers" or in any way referring to the equipment as supplied)
"air conditioning."
The aforequoted communications are strongly indicative of the fraudulent
And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, intent of Engineering to misdeclare its importation of air conditioning units and
suggesting a solution, viz: spare parts or accessories thereof to evade payment of the 30% tax. And
since the commission of fraud is altogether too glaring, We cannot agree with
We feel that we can probably solve all the problems by the Court of Tax Appeals in absolving Engineering from the 50% fraud
following the procedure outlined in your letter of March 25, surcharge, otherwise We will be giving premium to a plainly intolerable act of
1953 wherein you stated that in all future jobs you would tax evasion. As aptly stated by then Solicitor General, now Justice, Antonio P.
enclose photostatic copies of your import license so that we Barredo: 'this circumstance will not free it from the 50% surcharge because in
might make up two sets of invoices: one set describing any case whether it is subject to advance sales tax or compensating tax, it is
equipment ordered simply according to the way that they required by law to truly declare its importation in the import entries and
are listed on the import license and another according to our internal revenue declarations before the importations maybe released from
33
customs custody. The said entries are the very documents where the nature, increased by 25% the increment to be a part
quantity and value of the imported goods declared and where the customs of the tax.
duties, internal revenue taxes, and other fees or charges incident to the
importation are computed. These entries, therefore, serve the same purpose Since the imported air conditioning units-and spare parts or accessories
as the returns required by Section 183(a) of the Code.' thereof are subject to the compensating tax of 30% as the same were used in
the construction business of Engineering, it is incumbent upon the latter to
Anent the 25% delinquency surcharge, We fully agree to the ruling made by comply with the aforequoted requirement of Section 190 of the Code, by
the Court of Tax Appeals and hold Engineering liable for the same. As held by posting in its books of accounts or notifying the Collector of Internal Revenue
the lower court: that the imported articles were used for other purposes within 30 days. ...
Consequently; as the 30% compensating tax was not paid by petitioner within
At first blush it would seem that the contention of petitioner the time prescribed by Section 190 of the Tax Code as amended, it is
that it is not subject to the delinquency, surcharge of 25% is therefore subject to the 25% surcharge for delinquency in the payment of the
sound, valid and tenable. However, a serious study and said tax. (pp. 224-226 CTA rec.)
critical analysis of the historical provisions of Section 190 of the
Tax Code dealing on compensating tax in relation to Section III
183(a) of the same Code, will show that the contention of
petitioner is without merit. The original text of Section 190 of Lastly the question of prescription of the tax assessment has been put in issue.
Commonwealth Act 466, otherwise known as the National Engineering contends that it was not guilty of tax fraud in effecting the
Internal Revenue Code, as amended by Commonwealth Act importations and, therefore, Section 332(a) prescribing ten years is
No. 503, effective on October 1, 1939, does not provide for inapplicable, claiming that the pertinent prescriptive period is five years from
the filing of a compensation tax return and payment of the 25 the date the questioned importations were made. A review of the record
% surcharge for late payment thereof. Under the original text however reveals that Engineering did file a tax return or declaration with the
of Section 190 of the Tax Code as amended by Bureau of Customs before it paid the advance sales tax of 7%. And the
Commonwealth Act No. 503, the contention of the petitioner declaration filed reveals that it did in fact misdeclare its importations. Section
that it is not subject to the 25% surcharge appears to be 332 of the Tax Code which provides:
legally tenable. However, Section 190 of the Tax Code was
subsequently amended by the Republic Acts Nos. 253, 361,
Section 332. Exceptions as to period of limitation of
1511 and 1612 effective October 1, 1946, July 1, 1948, June 9,
assessment and collection of taxes.
1949, June 16, 1956 and August 24, 1956 respectively, which
invariably provides among others, the following:
(a) In the case of a false or fraudulent return with intent to
evade tax or of a failure to file a return, the tax may be
... If any article withdrawn from the
assessed, or a proceeding in court for the collection of such
customhouse or the post office without
tax may be begun without assessment at any time within ten
payment of the compensating tax is
years after the discovery of the falsity, fraud or omission.
subsequently used by the importer for other
purposes, corresponding entry should be
made in the books of accounts if any are is applicable, considering the preponderance of evidence of fraud with the
kept or a written notice thereof sent to the intent to evade the higher rate of percentage tax due from Engineering. The,
Collector of Internal Revenue and payment tax assessment was made within the period prescribed by law and
of the corresponding compensating tax prescription had not set in against the Government.
made within 30 days from the date of such
entry or notice and if tax is not paid within WHEREFORE, the decision appealed from is affirmed with the modification that
such period the amount of the tax shall be Engineering is hereby also made liable to pay the 50% fraud surcharge.

34
SO ORDERED.

35
AGENCY TO BUY OR SELL (D) If, before an invoice falls due, Mr. Quiroga should request its
payment, said payment when made shall be considered as a prompt
G.R. No. L-11491 August 23, 1918 payment, and as such a deduction of 2 per cent shall be made from
the amount of the invoice.
ANDRES QUIROGA, plaintiff-appellant,
vs. The same discount shall be made on the amount of any invoice
PARSONS HARDWARE CO., defendant-appellee. which Mr. Parsons may deem convenient to pay in cash.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. (E) Mr. Quiroga binds himself to give notice at least fifteen days before
Crossfield & O'Brien for appellee. 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,
AVANCEA, J.:
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
On January 24, 1911, in this city of manila, a contract in the following tenor price thereby be increased, for, in this latter case, Mr. Quiroga
was entered into by and between the plaintiff, as party of the first part, and J. assumed the obligation to invoice the beds at the price at which the
Parsons (to whose rights and obligations the present defendant later order was given.
subrogated itself), as party of the second part:
(F) Mr. Parsons binds himself not to sell any other kind except the
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA "Quiroga" beds.
AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA,
FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN
ART. 2. In compensation for the expenses of advertisement which, for
ISLANDS.
the benefit of both contracting parties, Mr. Parsons may find himself
obliged to make, Mr. Quiroga assumes the obligation to offer and
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his give the preference to Mr. Parsons in case anyone should apply for
beds in the Visayan Islands to J. Parsons under the following the exclusive agency for any island not comprised with the Visayan
conditions: group.

(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for ART. 3. Mr. Parsons may sell, or establish branches of his agency for the
the latter's establishment in Iloilo, and shall invoice them at the same sale of "Quiroga" beds in all the towns of the Archipelago where there
price he has fixed for sales, in Manila, and, in the invoices, shall make are no exclusive agents, and shall immediately report such action to
and allowance of a discount of 25 per cent of the invoiced prices, as Mr. Quiroga for his approval.
commission on the sale; and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different styles.
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
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, ninety days to the other party.
within a period of sixty days from the date of their shipment.
Of the three causes of action alleged by the plaintiff in his complaint, only two
(C) The expenses for transportation and shipment shall be borne by M. of them constitute the subject matter of this appeal and both substantially
Quiroga, and the freight, insurance, and cost of unloading from the amount to the averment that the defendant violated the following
vessel at the point where the beds are received, shall be paid by Mr. obligations: not to sell the beds at higher prices than those of the invoices; to
Parsons. have an open establishment in Iloilo; itself to conduct the agency; to keep the

36
beds on public exhibition, and to pay for the advertisement expenses for the also used in articles 2 and 3, only expresses that the defendant was the only
same; and to order the beds by the dozen and in no other manner. As may one that could sell the plaintiff's beds in the Visayan Islands. With regard to the
be seen, with the exception of the obligation on the part of the defendant to remaining clauses, the least that can be said is that they are not incompatible
order the beds by the dozen and in no other manner, none of the obligations with the contract of purchase and sale.
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 The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-
sale of his beds in Iloilo, and that said obligations are implied in a contract of president of the defendant corporation and who established and managed
commercial agency. The whole question, therefore, reduced itself to a the latter's business in Iloilo. It appears that this witness, prior to the time of his
determination as to whether the defendant, by reason of the contract testimony, had serious trouble with the defendant, had maintained a civil suit
hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the against it, and had even accused one of its partners, Guillermo Parsons, of
sale of his beds. 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,
In order to classify a contract, due regard must be given to its essential replied that it was to be an agent for his beds and to collect a commission on
clauses. In the contract in question, what was essential, as constituting its sales. However, according to the defendant's evidence, it was Mariano Lopez
cause and subject matter, is that the plaintiff was to furnish the defendant with Santos, a director of the corporation, who prepared Exhibit A. But, even
the beds which the latter might order, at the price stipulated, and that the supposing that Ernesto Vidal has stated the truth, his statement as to what was
defendant was to pay the price in the manner stipulated. The price agreed his idea in contracting with the plaintiff is of no importance, inasmuch as the
upon was the one determined by the plaintiff for the sale of these beds in agreements contained in Exhibit A which he claims to have drafted,
Manila, with a discount of from 20 to 25 per cent, according to their class. constitute, as we have said, a contract of purchase and sale, and not one of
Payment was to be made at the end of sixty days, or before, at the plaintiff's commercial agency. This only means that Ernesto Vidal was mistaken in his
request, or in cash, if the defendant so preferred, and in these last two cases classification of the contract. But it must be understood that a contract is what
an additional discount was to be allowed for prompt payment. These are the law defines it to be, and not what it is called by the contracting parties.
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 The plaintiff also endeavored to prove that the defendant had returned beds
of the defendant, to pay their price. These features exclude the legal that it could not sell; that, without previous notice, it forwarded to the
conception of an agency or order to sell whereby the mandatory or agent defendant the beds that it wanted; and that the defendant received its
received the thing to sell it, and does not pay its price, but delivers to the commission for the beds sold by the plaintiff directly to persons in Iloilo. But all
principal the price he obtains from the sale of the thing to a third person, and this, at the most only shows that, on the part of both of them, there was
if he does not succeed in selling it, he returns it. By virtue of the contract mutual tolerance in the performance of the contract in disregard of its terms;
between the plaintiff and the defendant, the latter, on receiving the beds, and it gives no right to have the contract considered, not as the parties
was necessarily obliged to pay their price within the term fixed, without any stipulated it, but as they performed it. Only the acts of the contracting parties,
other consideration and regardless as to whether he had or had not sold the subsequent to, and in connection with, the execution of the contract, must be
beds. considered for the purpose of interpreting the contract, when such
interpretation is necessary, but not when, as in the instant case, its essential
It would be enough to hold, as we do, that the contract by and between the agreements are clearly set forth and plainly show that the contract belongs to
defendant and the plaintiff is one of purchase and sale, in order to show that a certain kind and not to another. Furthermore, the return made was of
it was not one made on the basis of a commission on sales, as the plaintiff certain brass beds, and was not effected in exchange for the price paid for
claims it was, for these contracts are incompatible with each other. But, them, but was for other beds of another kind; and for the letter Exhibit L-1,
besides, examining the clauses of this contract, none of them is found that requested the plaintiff's prior consent with respect to said beds, which shows
substantially supports the plaintiff's contention. Not a single one of these that it was not considered that the defendant had a right, by virtue of the
clauses necessarily conveys the idea of an agency. The words commission on contract, to make this return. As regards the shipment of beds without previous
sales used in clause (A) of article 1 mean nothing else, as stated in the notice, it is insinuated in the record that these brass beds were precisely the
contract itself, than a mere discount on the invoice price. The word agency, ones so shipped, and that, for this very reason, the plaintiff agreed to their

37
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.

38
AGENCY TO BUY OR SELL the other, representing the defendant, that the latter would, on
behalf of the plaintiff, order sound reproducing equipment from the
G.R. No. L-47538 June 20, 1941 Starr Piano Company and that the plaintiff would pay the defendant,
in addition to the price of the equipment, a 10 per cent commission,
plus all expenses, such as, freight, insurance, banking charges, cables,
GONZALO PUYAT & SONS, INC., petitioner,
etc. At the expense of the plaintiff, the defendant sent a cable,
vs.
Exhibit "3", to the Starr Piano Company, inquiring about the equipment
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
desired and making the said company to quote its price without
discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the
Feria & Lao for petitioner. price, evidently the list price of $1,700 f.o.b. factory Richmond,
J. W. Ferrier and Daniel Me. Gomez for respondent. Indiana. The defendant did not show the plaintiff the cable of inquiry
nor the reply but merely informed the plaintiff of the price of $1,700.
LAUREL, J.: Being agreeable to this price, the plaintiff, by means of Exhibit "1",
which is a letter signed by C. S. Salmon dated November 19, 1929,
This is a petition for the issuance of a writ of certiorari to the Court of Appeals formally authorized the order. The equipment arrived about the end
for the purpose of reviewing its Amusement Company (formerly known as of the year 1929, and upon delivery of the same to the plaintiff and
Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant- the presentation of necessary papers, the price of $1.700, plus the 10
appellee." per cent commission agreed upon and plus all the expenses and
charges, was duly paid by the plaintiff to the defendant.
It appears that the respondent herein brought an action against the herein
petitioner in the Court of First Instance of Manila to secure a reimbursement of Sometime the following year, and after some negotiations between
certain amounts allegedly overpaid by it on account of the purchase price of the same parties, plaintiff and defendants, another order for sound
sound reproducing equipment and machinery ordered by the petitioner from reproducing equipment was placed by the plaintiff with the
the Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as defendant, on the same terms as the first order. This agreement or
found by the trial court and confirmed by the appellate court, which are order was confirmed by the plaintiff by its letter Exhibit "2", without
admitted by the respondent, are as follows: date, that is to say, that the plaintiff would pay for the equipment the
amount of $1,600, which was supposed to be the price quoted by the
Starr Piano Company, plus 10 per cent commission, plus all expenses
In the year 1929, the "Teatro Arco", a corporation duly organized incurred. The equipment under the second order arrived in due time,
under the laws of the Philippine Islands, with its office in Manila, was and the defendant was duly paid the price of $1,600 with its 10 per
engaged in the business of operating cinematographs. In 1930, its cent commission, and $160, for all expenses and charges. This amount
name was changed to Arco Amusement Company. C. S. Salmon was of $160 does not represent actual out-of-pocket expenses paid by the
the president, while A. B. Coulette was the business manager. About defendant, but a mere flat charge and rough estimate made by the
the same time, Gonzalo Puyat & Sons, Inc., another corporation doing defendant equivalent to 10 per cent of the price of $1,600 of the
business in the Philippine Islands, with office in Manila, in addition to its equipment.
other business, was acting as exclusive agents in the Philippines for the
Starr Piano Company of Richmond, Indiana, U.S. A. It would seem that
this last company dealt in cinematographer equipment and About three years later, in connection with a civil case in Vigan, filed
machinery, and the Arco Amusement Company desiring to equipt its by one Fidel Reyes against the defendant herein Gonzalo Puyat &
cinematograph with sound reproducing devices, approached Sons, Inc., the officials of the Arco Amusement Company discovered
Gonzalo Puyat & Sons, Inc., thru its then president and acting that the price quoted to them by the defendant with regard to their
manager, Gil Puyat, and an employee named Santos. After some two orders mentioned was not the net price but rather the list price,
negotiations, it was agreed between the parties, that is to say, Salmon and that the defendants had obtained a discount from the Starr
and Coulette on one side, representing the plaintiff, and Gil Puyat on Piano Company. Moreover, by reading reviews and literature on

39
prices of machinery and cinematograph equipment, said officials of In the first place, the contract is the law between the parties and should
the plaintiff were convinced that the prices charged them by the include all the things they are supposed to have been agreed upon. What
defendant were much too high including the charges for out-of- does not appear on the face of the contract should be regarded merely as
pocket expense. For these reasons, they sought to obtain a reduction "dealer's" or "trader's talk", which can not bind either party. (Nolbrook v.
from the defendant or rather a reimbursement, and failing in this they Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v.
brought the present action. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass.,
411.) The letters, Exhibits 1 and 2, by which the respondent accepted the
The trial court held that the contract between the petitioner and the prices of $1,700 and $1,600, respectively, for the sound reproducing
respondent was one of outright purchase and sale, and absolved that equipment subject of its contract with the petitioner, are clear in their terms
petitioner from the complaint. The appellate court, however, by a division and admit no other interpretation that the respondent in question at the
of four, with one justice dissenting held that the relation between petitioner prices indicated which are fixed and determinate. The respondent admitted
and respondent was that of agent and principal, the petitioner acting as in its complaint filed with the Court of First Instance of Manila that the
agent of the respondent in the purchase of the equipment in question, and petitioner agreed to sellto it the first sound reproducing equipment and
sentenced the petitioner to pay the respondent alleged overpayments in the machinery. The third paragraph of the respondent's cause of action states:
total sum of $1,335.52 or P2,671.04, together with legal interest thereon from
the date of the filing of the complaint until said amount is fully paid, as well as 3. That on or about November 19, 1929, the herein plaintiff
to pay the costs of the suit in both instances. The appellate court further (respondent) and defendant (petitioner) entered into an agreement,
argued that even if the contract between the petitioner and the respondent under and by virtue of which the herein defendant was to secure
was one of purchase and sale, the petitioner was guilty of fraud in concealing from the United States, and sell and deliver to the herein plaintiff,
the true price and hence would still be liable to reimburse the respondent for certain sound reproducing equipment and machinery, for which the
the overpayments made by the latter. said defendant, under and by virtue of said agreement, was to
receive the actual cost price plus ten per cent (10%), and was also to
The petitioner now claims that the following errors have been incurred by the be reimbursed for all out of pocket expenses in connection with the
appellate court: purchase and delivery of such equipment, such as costs of telegrams,
freight, and similar expenses. (Emphasis ours.)
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar
que, segun hechos, entre la recurrente y la recurrida existia una We agree with the trial judge that "whatever unforseen events might have
relacion implicita de mandataria a mandante en la transaccion de taken place unfavorable to the defendant (petitioner), such as change in
que se trata, en vez de la de vendedora a compradora como ha prices, mistake in their quotation, loss of the goods not covered by insurance
declarado el Juzgado de Primera Instncia de Manila, presidido or failure of the Starr Piano Company to properly fill the orders as per
entonces por el hoy Magistrado Honorable Marcelino Montemayor. specifications, the plaintiff (respondent) might still legally hold the defendant
(petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with
the pretended relation of agency between the petitioner and the
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar
respondent, because in agency, the agent is exempted from all liability in the
que, suponiendo que dicha relacion fuerra de vendedora a
discharge of his commission provided he acts in accordance with the
compradora, la recurrente obtuvo, mediante dolo, el consentimiento
instructions received from his principal (section 254, Code of Commerce), and
de la recurrida en cuanto al precio de $1,700 y $1,600 de las
the principal must indemnify the agent for all damages which the latter may
maquinarias y equipos en cuestion, y condenar a la recurrente ha
incur in carrying out the agency without fault or imprudence on his part
obtenido de la Starr Piano Company of Richmond, Indiana.
(article 1729, Civil Code).

We sustain the theory of the trial court that the contract between the
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten
petitioner and the respondent was one of purchase and sale, and not one of
per cent (10%) commission, this does not necessarily make the petitioner an
agency, for the reasons now to be stated.
agent of the respondent, as this provision is only an additional price which the

40
respondent bound itself to pay, and which stipulation is not incompatible with price. If the respondent later on discovers itself at the short end of a bad
the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 bargain, it alone must bear the blame, and it cannot rescind the contract,
Phil., 501.) much less compel a reimbursement of the excess price, on that ground alone.
The respondent could not secure equipment and machinery manufactured
In the second place, to hold the petitioner an agent of the respondent in the by the Starr Piano Company except from the petitioner alone; it willingly paid
purchase of equipment and machinery from the Starr Piano Company of the price quoted; it received the equipment and machinery as represented;
Richmond, Indiana, is incompatible with the admitted fact that the petitioner and that was the end of the matter as far as the respondent was concerned.
is the exclusive agent of the same company in the Philippines. It is out of the The fact that the petitioner obtained more or less profit than the respondent
ordinary for one to be the agent of both the vendor and the purchaser. The calculated before entering into the contract or reducing the price agreed
facts and circumstances indicated do not point to anything but plain ordinary upon between the petitioner and the respondent. Not every concealment is
transaction where the respondent enters into a contract of purchase and sale fraud; and short of fraud, it were better that, within certain limits, business
with the petitioner, the latter as exclusive agent of the Starr Piano Company in acumen permit of the loosening of the sleeves and of the sharpening of the
the United States. intellect of men and women in the business world.

It follows that the petitioner as vendor is not bound to reimburse the The writ of certiorari should be, as it is hereby, granted. The decision of the
respondent as vendee for any difference between the cost price and the appellate court is accordingly reversed and the petitioner is absolved from
sales price which represents the profit realized by the vendor out of the the respondent's complaint in G. R. No. 1023, entitled "Arco Amusement
transaction. This is the very essence of commerce without which merchants or Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo
middleman would not exist. Puyat & Sons, Inc., defendants-appellee," without pronouncement regarding
costs. So ordered.
The respondents contends that it merely agreed to pay the cost price as
distinguished from the list price, plus ten per cent (10%) commission and all
out-of-pocket expenses incurred by the petitioner. The distinction which the
respondents seeks to draw between the cost price and the list price we
consider to be spacious. It is to be observed that the twenty-five per cent
(25%) discount granted by the Starr piano Company to the petitioner is
available only to the latter as the former's exclusive agent in the Philippines.
The respondent could not have secured this discount from the Starr Piano
Company and neither was the petitioner willing to waive that discount in favor
of the respondent. As a matter of fact, no reason is advanced by the
respondent why the petitioner should waive the 25 per cent discount granted
it by the Starr Piano Company in exchange for the 10 percent commission
offered by the respondent. Moreover, the petitioner was not duty bound to
reveal the private arrangement it had with the Starr Piano Company relative
to such discount to its prospective customers, and the respondent was not
even aware of such an arrangement. The respondent, therefore, could not
have offered to pay a 10 per cent commission to the petitioner provided it
was given the benefit of the 25 per cent discount enjoyed by the petitioner. It
is well known that local dealers acting as agents of foreign manufacturers,
aside from obtaining a discount from the home office, sometimes add to the
list price when they resell to local purchasers. It was apparently to guard
against an exhorbitant additional price that the respondent sought to limit it to
10 per cent, and the respondent is estopped from questioning that additional

41
AGENCY TO BUY OR SELL Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the]
province of Davao", petitioner, as Distributor, being precluded from disposing
G.R. No. L-20871 April 30, 1971 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
KER & CO., LTD., petitioner,
maximum quantity and to promote in every way the sale thereof.4 The prices,
vs.
discounts, terms of payment, terms of delivery and other conditions of sale
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.
were subject to change in the discretion of the Company.5

FERNANDO, J.:
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
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax upon consignment the products specified under the terms of this agreement
Appeals, holding it liable as a commercial broker under Section 194 (t) of the in such quantities as in the judgment of the Company may be necessary for
National Internal Revenue Code. Its plea, notwithstanding the vigorous effort the successful solicitation and maintenance of business in the territory, and the
of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable Distributor agrees that responsibility for the final sole of all goods delivered shall
stands in the way. The decision under review conforms to and is in rest with him. All goods on consignment shall remain the property of the
accordance with the controlling doctrine announced in the recent case Company until sold by the Distributor to the purchaser or purchasers, but all
of Commissioner of Internal Revenue v. Constantino.1 The decisive test, as sales made by the Distributor shall be in his name, in which the sale price of all
therein set forth, is the retention of the ownership of the goods delivered to the goods sold less the discount given to the Distributor by the Company in
possession of the dealer, like herein petitioner, for resale to customers, the accordance with the provision of paragraph 13 of this agreement, whether or
price and terms remaining subject to the control of the firm consigning such not such sale price shall have been collected by the Distributor from the
goods. The facts, as found by respondent Court, to which we defer, purchaser or purchasers, shall immediately be paid and remitted by the
unmistakably indicate that such a situation does exist. The juridical Distributor to the Company. It is further agreed that this agreement does not
consequences must inevitably follow. We affirm. constitute Distributor the agent or legal representative 4 of the Company for
any purpose whatsoever. Distributor is not granted any right or authority to
It was shown that petitioner was assessed by the then Commissioner of Internal assume or to create any obligation or responsibility, express or implied, in
Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial behalf of or in the name of the Company, or to bind the Company in any
broker's percentage tax, surcharge, and compromise penalty for the period manner or thing whatsoever."6
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 All specifications for the goods ordered were subject to acceptance by the
down. As a result, it filed a petition for review with the Court of Tax Appeals. In Company with petitioner, as Distributor, required to accept such goods
its answer, the then Commissioner Domingo maintained his stand that shipped as well as to clear the same through customs and to arrange for
petitioner should be taxed in such amount as a commercial broker. In the delivery in its warehouse in Cebu City. Moreover, orders are to be filled in
decision now under review, promulgated on October 19, 1962, the Court of whole or in part from the stocks carried by the Company's neighboring
Tax Appeals held petitioner taxable except as to the compromise penalty of branches, subsidiaries or other sources of Company's brands.7 Shipments were
P500.00, the amount due from it being fixed at P19,772.33. 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
Such liability arose from a contract of petitioner with the United States Rubber resale prices, lists, discounts and general terms and conditions of local resale
International, the former being referred to as the Distributor and the latter were to be subject to the approval of the Company and to change from time
specifically designated as the Company. The contract was to apply to to time in its discretion.9 The dealer, as Distributor, is allowed a discount of ten
transactions between the former and petitioner, as Distributor, from July 1, percent on the net amount of sales of merchandise made under such
1948 to continue in force until terminated by either party giving to the other agreement. 10 On a date to be determined by the Company, the petitioner,
sixty days' notice.2 The shipments would cover products "for consumption in as Distributor, was required to report to it data showing in detail all sales during

42
the month immediately preceding, specifying therein the quantities, sizes and cancellation of the Agreement, all goods held on consignment shall be held
types together with such information as may be required for accounting by petitioner for the account of the rubber company until their disposition is
purposes, with the Company rendering an invoice on sales as described to be provided for by the latter (Par. 19). All these circumstances are irreconcilably
dated as of the date of inventory and sales report. As Distributor, petitioner antagonistic to the idea of an independent merchant." 14 Hence its
had to make payment on such invoice or invoices on due date with the conclusion: "However, upon analysis of the contract, as a whole, together with
Company being privileged at its option to terminate and cancel the the actual conduct of the parties in respect thereto, we have arrived at the
agreement forthwith upon the failure to comply with this obligation. 11 The conclusion that the relationship between them is one of brokerage or
Company, at its own expense, was to keep the consigned stock fully insured agency." 15 We find ourselves in agreement, notwithstanding the able brief
against loss or damage by fire or as a result of fire, the policy of such insurance filed on behalf of petitioner by its counsel. As noted at the outset, we cannot
to be payable to it in the event of loss. Petitioner, as Distributor, assumed full heed petitioner's plea for reversal.
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 1. According to the National Internal Revenue Code, a commercial broker
stock which could be subject to change. 12 There was furthermore this equally "includes all persons, other than importers, manufacturers, producers, or bona
tell-tale covenant: "Upon the termination or any cancellation of this fide employees, who, for compensation or profit, sell or bring about sales or
agreement all goods held on consignment shall be held by the Distributor for purchases of merchandise for other persons or bring proposed buyers and
the account of the Company, without expense to the Company, until such sellers together, or negotiate freights or other business for owners of vessels or
time as provision can be made by the Company for disposition." 13 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
The issue with the Court of Tax Appeals, as with us now, is whether the commission merchants." 16 The controlling decision as to the test to be
relationship thus created is one of vendor and vendee or of broker and followed as to who falls within the above definition of a commercial broker is
principal. Not that there would have been the slightest doubt were it not for that of Commissioner of Internal Revenue v. Constantino. 17 In the language of
the categorical denial in the contract that petitioner was not constituted as Justice J. B. L. Reyes, who penned the opinion: "Since the company retained
"the agent or legal representative of the Company for any purpose ownership of the goods, even as it delivered possession unto the dealer for
whatsoever." It would be, however, to impart to such an express disclaimer a resale to customers, the price and terms of which were subject to the
meaning it should not possess to ignore what is manifestly the role assigned to company's control, the relationship between the company and the dealer is
petitioner considering the instrument as a whole. That would be to lose sight one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of
altogether of what has been agreed upon. The Court of Tax Appeals was not such a view follows: " 'The difficulty in distinguishing between contracts of sale
misled in the language of the decision now on appeal: "That the petitioner Ker and the creation of an agency to sell has led to the establishment of rules by
& Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber International the application of which this difficulty may be solved. The decisions say the
is borne out by the facts that petitioner can dispose of the products of the transfer of title or agreement to transfer it for a price paid or promised is the
Company only to certain persons or entities and within stipulated limits, unless essence of sale. If such transfer puts the transferee in the attitude or position of
excepted by the contract or by the Rubber Company (Par. 2); that it merely an owner and makes him liable to the transferor as a debtor for the agreed
receives, accepts and/or holds upon consignment the products, which price, and not merely as an agent who must account for the proceeds of a
remain properties of the latter company (Par. 8); that every effort shall be resale, the transaction is a sale; while the essence of an agency to sell is the
made by petitioner to promote in every way the sale of the products (Par. 3); delivery to an agent, not as his property, but as the property of the principal,
that sales made by petitioner are subject to approval by the company (Par. who remains the owner and has the right to control sales, fix the price, and
12); that on dates determined by the rubber company, petitioner shall render terms, demand and receive the proceeds less the agent's commission upon
a detailed report showing sales during the month (Par. 14); that the rubber sales made.' " 20 The opinion relied on the work of Mechem on Sales as well as
company shall invoice the sales as of the dates of inventory and sales report Mechem on Agency. Williston and Tiedman both of whom wrote treatises on
(Par. 14); that the rubber company agrees to keep the consigned goods fully Sales, were likewise referred to.
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 Equally relevant is this portion of the Salisbury opinion: "It is difficult to
inventory of the existing stock which may be checked by an authorized understand or appreciate the necessity or presence of these mutual
representative of the former (Par. 15); and that upon termination or
43
requirements and obligations on any theory other than that of a contract of would be to frustrate the objective for which administrative tribunals are
agency. Salisbury was to furnish the mill and put the timber owned by him into created if the judiciary, absent such a showing, is to ignore their appraisal on
a marketable condition in the form of lumber; Brooks was to furnish the funds a matter that forms the staple of their specialized competence. While it is to
necessary for that purpose, sell the manufactured product, and account be admitted that counsel for petitioner did scrutinize with care the decision
therefor to Salisbury upon the specific terms of the agreement, less the under review with a view to exposing what was considered its flaws, it cannot
compensation fixed by the parties in lieu of interest on the money advanced be said that there was such a failure to apply what the law commands as to
and for services as agent. These requirements and stipulations are in tent with call for its reversal. Instead, what cannot be denied is that the Court of Tax
any other conception of the contract. If it constitutes an agreement to sell, Appeals reached a result to which the Court in the recent Constantino
they are meaningless. But they cannot be ignored. They were placed there for decision gave the imprimatur of its approval.
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 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

44
DACION EN PAGO
There appears to have been no further action taken by the parties after the
DAO HENG BANK, INC., now G.R. No. 173856 appraisal of the properties.
BANCO DE ORO UNIVERSAL
BANK, Present: Dao Heng was later to demand the settlement of respondents
Petitioner, obligation by letter of August 18, 2000[1] wherein it indicated that they had an
QUISUMBING, J., Chairperson, outstanding obligation of P10,385,109.92 inclusive of interests and other
CARPIO MORALES, charges. Respondents failed to heed the demand, however.
TINGA,
- versus - VELASCO, JR., and Dao Heng thereupon filed in September 2000 an application to foreclose the
BRION, JJ. real estate mortgages executed by respondents. The properties subject of the
mortgage were sold for P10,776,242 at a public auction conducted
on December 20, 2000 to Banco de Oro Universal Bank (hereafter petitioner)
SPS. LILIA and REYNALDO LAIGO, Promulgated: which was the highest bidder.
Respondents.
November 20, 2008 It appears that respondents negotiated for the redemption of the
mortgages for by a June 29, 2001 letter[2] to them, petitioner, to which Dao
Heng had been merged, through its Vice President on Property Management
& Credit Services Department, advised respondent Lilia Laigo as follows:
SECOND DIVISION

x--------------------------------------------x This is to formally advise you of the banks response to your


proposal pertaining to the redemption of the two (2)
DECISION foreclosed lots located in Fairview, Quezon City as has been
relayed to you last June 13, 2001 as follows:

CARPIO MORALES, J.
1. Redemption price shall be P11.5MM plus 12%
interest based on diminishing balance payable in
The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao staggered payments up to January 2, 2002 as
Heng Bank, Inc. (Dao Heng) in the total amount of P11 Million, to secure the follows:
payment of which they forged on October 28, 1996, November 18, 1996 and
April 18, 1997 three Real Estate Mortgages covering two parcels of land a. P3MM immediately upon receipt of this
registered in the name of respondent Lilia D. Laigo, . . . married to Reynaldo approval
Laigo, one containing 569 square meters and the other containing 537 square b. Balance payable in staggered
meters. payments (plus interest) up to January 2,
The mortgages were duly registered in the Registry of Deeds of Quezon City. 2002

The loans were payable within 12 months from the execution of the promissory 2. Release Values for Partial Redemption:
notes covering the loans. As of 2000, respondents failed to settle their
outstanding obligation, drawing them to verbally offer to cede to Dao Heng a. TCT No. 92257 (along Commonwealth) P7.500
one of the two mortgaged lots by way of dacion en pago. To appraise the MM*
value of the mortgaged lands, Dao Heng in fact commissioned an appraiser b. TCT No. N-146289 (along Regalado) P4.000
whose fees were shouldered by it and respondents. MM*
45
* excluding 12% interest A hearing on the application for a TRO was conducted by Branch 215
of the RTC of Quezon City following which it denied the same.
3. Other Conditions:
Petitioner thereupon filed a Motion to Dismiss the complaint on the
a. Payments shall be covered by post ground that the claim on which respondents action is founded is
dated checks unenforceable under the Statute of Frauds and the complaint states no cause
b. TCT No. 92257 shall be the first property of action. Respondents opposed the motion, contending that their delivery of
to be released upon payment of the first the titles to the mortgaged properties constituted partial performance of their
P7.5MM plus interest obligation under the dacion en pago to take it out from the coverage of the
c. Arrangement to be covered by an Statute of Frauds.
Agreement
The trial court granted petitioners Motion to Dismiss in this wise:
If you are agreeable to the foregoing terms and [P]laintiffs claim must be based on a document or
conditions, please affix your signature showing your writing evidencing the alleged dacion en pago, otherwise,
conformity thereto at the space provided the same cannot be enforced in an action in court. The Court
below. (Emphasis and underscoring in the original; is not persuaded by plaintiffs contention that their case is an
italics supplied) exception to the operation of the rule on statute of frauds
because of their partial performance of the obligation in the
dacion en pago consisting of the delivery of the titles of the
properties to the defendants. As correctly pointed out by the
Nothing was heard from respondents, hence, petitioner by its defendants, the titles were not delivered to them pursuant to
Manager, Property Management & Credit Services Department, advised her the dacion en pago but by reason of the execution of the
by letter of December 26, 2001[3] that in view of their failure to conform to the mortgage loan agreement. If indeed a dacion en pago
conditions set by it for the redemption of the properties, it would proceed to agreement was entered into between the parties, it is
consolidate the titles immediately after the expiration of the redemption inconceivable that a written document would not be drafted
period on January 2, 2002. considering the magnitude of the amount
involved.[5] (Emphasis and underscoring supplied)
Six days before the expiration of the redemption period or on
December 27, 2001, respondents filed a complaint before the Regional Trial
Court (RTC) of Quezon City, for Annulment, Injunction with Prayer for Respondents assailed the dismissal of their complaint via Petition for
Temporary Restraining Order (TRO), praying for the annulment of the Review before this Court which referred it to the Court of Appeals for
foreclosure of the properties subject of the real estate mortgages and for disposition.
them to be allowed to deliver by way of dacion en pago one of the
mortgaged properties as full payment of [their] mortgaged obligation and to, Reversing the trial courts dismissal of the complaint, the appellate
in the meantime, issue a TRO directing the defendant-herein petitioner to court, by Decision of January 26, 2006,[6] reinstated respondents complaint.[7]
desist from consolidating ownership over their properties.
In ordering the reinstatement of respondents complaint, the appellate court
By respondents claim, Dao Heng verbally agreed to enter into held that the complaint states a cause of action, respondents having alleged
a dacion en pago. that there was partial performance of the agreement to settle their
obligation via dacion en pago when they agreed to have the properties
In its Opposition to respondents Application for a TRO, [4] petitioner appraised to thus place their agreement within the exceptions provided
claimed that there was no meeting of the minds between the parties on the under Article 1403[8] of the Civil Code on Statute of Frauds. Thus the appellate
settlement of respondents loan via dacion en pago. court ratiocinated:
46
Particularly, in seeking exception to the application of the In their complaint, respondents alleged:
Statute of Frauds, petitioners[-herein respondents] averred
partial performance of the supposed verbal dacion en pago. xxxx
In paragraph 5 of their complaint, they stated: As part of the
agreement, defendant Dao Heng Bank had the mortgaged 4. Sometime in the middle of the year 2000, defendant Dao Heng
property appraised to determine which of the two shall be Bank as the creditor bank agreed to the full settlement of
delivered as full payment of the mortgage obligation; Also as plaintiffs mortgage obligation of P9 Million through the
part of the deal, plaintiffs for their part paid P5,000.00 for the assignment of one of the two (2) mortgaged properties;
appraisal expense. As reported by the appraiser
commissioned by Defendant Dao Heng, the appraised value [5] As part of the agreement, defendant Dao Heng Bank had
of the mortgaged properties were as follows: x x x Having the mortgaged properties appraised to determine which of
done so, petitioners are at least entitled to a reasonable the two (2) mortgaged properties shall be delivered as full
opportunity to prove their case in the course of a full trial, to payment of the mortgage obligation; Also as part of the
which the respondents may equally present their evidence in deal, plaintiffs for their part paid P5,000.00 for the appraisal
refutation of the formers case. (Underscoring supplied) expense; As reported by the appraiser commissioned by
defendant Dao Heng, the appraised value of the mortgaged
properties were as follows:

Petitioners Motion for Reconsideration having been denied by the appellate (a) Property No. 1 T.C.T. No.
court by Resolution of July 19, 2006, the present petition was filed faulting the 92257: P12,518,000.00
appellate court in ruling: L2A Blk 12 Don Mariano Marcos
Ave., Fairview, QC
I.
(b) Property No. 2 T.C.T. No.
. . . THAT THE COMPLAINT ALLEGED A SUFFICIENT CAUSE OF 146289: P8,055,000.00 L36 Blk 87
ACTION DESPITE THE ALLEGATIONS, AS WELL AS ADMISSIONS Regalado Ave. Cor. Ipil
FROM THE RESPONDENTS, THAT THERE WAS NO PERFECTED St., Neopolitan, QC
DACION EN PAGO CONTRACT;
[6] Sometime in December, year 2000, the protest of plaintiffs
II. notwithstanding and in blatant breach of the agreed Dacion
en Pago as the mode of full payment of plaintiffs mortgage
. . . THAT THE ALLEGED DACION EN PAGO IS NOT obligation, defendant Dao Heng Bank proceeded to
UNENFORCEABLE UNDER THE STATUTE OF FRAUDS, DESPITE THE foreclose the mortgaged properties above-described and
ABSENCE OF A WRITTEN & BINDING CONTRACT; sold said properties which were aggregately valued at more
than P20 Million for only P10,776,242.00, an unconscionably
III. very low price;(Underscoring supplied)

. . . THAT THE COMPLAINT SUFFICIENTLY STATED A CAUSE OF


ACTION.[9]
Even if a complaint states a cause of action, however, a motion to
dismiss for insufficiency of cause of action may be granted if the evidence
Generally, the presence of a cause of action is determined from the facts discloses facts sufficient to defeat the claim and enables the court to go
alleged in the complaint. beyond the disclosures in the complaint. In such instances, the court can
47
dismiss a complaint on this ground, even without a hearing, by taking into of a debt in money.[13] It is an objective novation of the obligation,
account the discussions in said motion to dismiss and the disposition thereto.[10] hence, common consent of the parties is required in order to extinguish the
obligation.
In its Opposition to respondents application for the issuance of a . . . In dacion en pago, as a special mode of payment, the
TRO,[11] petitioner, responding to respondents allegation that it agreed to the debtor offers another thing to the creditor who accepts it as
settlement of their obligation via the assignment of one of the two mortgaged equivalent of payment of an outstanding debt. The
properties, alleged that there was no meeting of the minds thereon: undertaking really partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or property of the
4. Plaintiffs claim that defendant Dao Heng Bank[s] debtor, payment for which is to be charged against the
foreclosure sale of the mortgaged properties was improper debtors debt. As such the elements of a contract of sale,
because there was an agreement to dacion one of the two namely, consent, object certain, and cause or consideration
(2) mortgaged properties as full settlement of the loan must be present. In its modern concept, what actually takes
obligation and that defendant Dao Heng Bank and Banco place in dacion en pago is an objective novation of the
de Oro were already negotiating and colluding for the latters obligation where the thing offered as an accepted
acquisition of the mortgaged [properties] for the equivalent of the performance of an obligation is considered
unsconscionably low price of P10,776.242.00 are as the object of the contract of sale, while the debt is
clearly WITHOUT BASIS. Quite to the contrary, there was no considered the purchase price. In any case, common
meeting of the minds between defendant Dao Heng Bank consent is an essential prerequisite, be it sale or novation, to
and the plaintiffs to dacion any of the mortgaged properties have the effect of totally extinguishing the debt or
as full settlement of the loan.Although there was a obligation.[14] (Emphasis, italics and underscoring supplied;
PROPOSAL and NEGOTIATIONS to settle the loan by way citation omitted)
of dacion, nothing came out of said proposal, much less did
the negotiations mature into the execution of a dacion en
pago instrument.Defendant Dao Heng Bank found the offer Being likened to that of a contract of sale, dacion en pago is governed by the
to settle by way of dacion not acceptable and thus, it opted law on sales.[15] The partial execution of a contract of sale takes the
to foreclose on the mortgage. 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 law clearly provides that the debtor of a thing cannot the obligation concur and are clearly established to be present.[16]
compel the creditor to receive a different one, although the
latter may be of the same value, or more valuable than that Respondents claim that petitioners commissioning of an appraiser to appraise
which is due (Article 1244, New Civil Code). The oblige is the value of the mortgaged properties, his services for which they and
entitled to demand fulfillment of the obligation or petitioner paid, and their delivery to petitioner of the titles to the properties
performance as stipulated (Palmares v. Court of Appeals, 288 constitute partial performance of their agreement to take the case out of the
SCRA 422 at p. 444 [1998]). The power to decide whether or provisions on the Statute of Frauds.
not to foreclose on the mortgage is the sole prerogative of
the mortgagee (Rural Bank of San Mateo, Inc. vs. There is no concrete showing, however, that after the appraisal of the
Intermediate Appellate Court, 146 SCRA 205, at 213 properties, petitioner approved respondents proposal to settle their
[1986]) Defendant Dao Heng Bank merely opted to exercise obligation via dacion en pago. The delivery to petitioner of the titles to the
such prerogative.[12] (Emphasis in the original; capitalization properties is a usual condition sine qua non to the execution of the mortgage,
and underscoring supplied) both for security and registration purposes. For if the title to a property is not
delivered to the mortgagee, what will prevent the mortgagor from again
encumbering it also by mortgage or even by sale to a third party.
Dacion en pago as a mode of extinguishing an existing obligation partakes of
the nature of sale whereby property is alienated to the creditor in satisfaction
48
Finally, that respondents did not deny proposing to redeem the
mortgages,[17] as reflected in petitioners June 29, 2001 letter to them, dooms
their claim of the existence of a perfected dacion en pago.

WHEREFORE, the Court of Appeals Decision of January 26,


2006 is REVERSED and SET ASIDE. The Resolution of July 2, 2002 of the Regional
Trial Court of Quezon City, Branch 215 dismissing respondents complaint
is REINSTATED.

SO ORDERED.

49
LEASE 4. That the defendant has violated the terms of the said promissory note and
chattel mortgage by failing to pay the installments which fell due on
EN BANC December 22, 1933, and January 22 and February 22, 1934;chanrobles virtual
law library
G.R. No. L-42256 April 25, 1935
5. That after crediting the defendant with all the payments made by him on
account of said promissory note, Appendix A, there is still due and owing from
THE BACHRACH MOTOR CO., INC., Plaintiff-Appellant, vs. PABLO A.
said defendant in favor of the plaintiff the sum of P928.50, together with
MILLAN,Defendant-Appellee.
interest thereon at the rate of 12 per cent per annum from March 17, 1934,
until paid, as may be seen from the statement of account hereto attached,
Ohnick and Opisso for appellant. marked Appendix C, and made a part hereof;chanrobles virtual law library
B. Francisco for appellee.
6. That the complaint in the present case was made by the plaintiff without
GODDARD, J.: chanrobles virtual law library foreclosing the said chattel mortgage, Appendix B;chanrobles virtual law
library
This action was instituted in the Court of First Instance of the City of Manila for
the purpose of recovering an alleged balance due the plaintiff from the 7. The defendant had offered to return the said second hand Renault touring
defendant on a promissory note executed by the latter on December 12, car to the plaintiff in payment of the full amount under the promissory note,
1933. The trial court dismissed the action with costs against the Appendix A, and the chattel mortgage, Appendix B, but the said plaintiff
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library refused to receive the same, and has filed this complaint for the full amount of
the purchase price.
This case was submitted for decision on the following agreed statement of
facts: The trial court, after embodying in its decision the above stipulation of facts,
passed on to consider the provisions of article 1454-A of the Civil Code (Act
1. That the plaintiff is a corporation duly organized according to the laws of No. 4122 of the Philippine Legislature) and held that inasmuch as that article
the Philippine Islands, with its principal place of business in the City of Manila, gives the vendor the alternative of either cancelling the sale or foreclosing the
and the defendant, Pablo A. Millan, is of legal age, and a resident of the City mortgage and the vendor, appellant n this case, having elected not to
of Manila, Philippine Islands;chanrobles virtual law library foreclose the mortgage, it can only make use of the other alternative, that is,
cancel the sale and retain the total amount of the installments already paid
2. That on December 12, 1933, the defendant for value received, executed on account of the purchase price of the automobile bought by the
and delivered to the plaintiff his promissory note for the sum of P939 payable in defendant from the plaintiff. Upon this theory the trial court dismissed this
the City of Manila, Philippine Islands, in monthly installments, as may be seen case.chanroblesvirtualawlibrary chanrobles virtual law library
from a true copy of said promissory note, hereto attached, marked Appendix
A, and made a part hereof;chanrobles virtual law library The plaintiff-appellant's only assignment of error reads as follows:

3. That the said amount of P939 was the balance of the purchase price of one The lower court erred in holding that under article 1454-A of the Civil Code the
second hand Renault touring car purchased by the said defendant from the vendor, who has sold a chattel on installments secured by mortgage of the
plaintiff, as may be seen from the chattel mortgage executed by the chattel, has no other alternative but to either foreclose the mortgage or
defendant in favor of the plaintiff, hereto attached, marked Appendix B, and rescind the sale; and in holding that under said article, said vendor cannot
made a part hereof, which chattel mortgage was executed by the demand the fulfillment of the obligation as contained in the promissory notes
defendant on the said date, December 12, 1933, and registered in the office separately signed by the purchaser.
of the Register of Deeds of the City of Manila;chanrobles virtual law library

50
Article 1454 of the Civil Code, as amended by Act No. 4122 of the Philippine In other words, under this amendment, in all proceedings for the foreclosure of
Legislature, now reads: chattel mortgages, executed on chattels which have been sold on the
installment plan, the mortgagee is limited to the property included in the
ART. 1454. When earnest money or a pledge has been given to bind the mortgage.chanroblesvirtualawlibrary chanrobles virtual law library
contract of purchase and sale, the contract may be rescinded if the vendee
should be willing to forfeit the earnest money or pledge or the vendor to return The question now before this court is, Can a vendor of personal property on
double the amount.chanroblesvirtualawlibrary chanrobles virtual law library the installment plan, upon the failure of the purchaser to comply with his
obligation under such a contract, exact the fulfillment of that obligation, or
ART. 1454-A. In a contract for the sale of personal property payable in does article 1454-A deprive him of that right and limit him to the right to
installments, failure to pay two or more installments shall confer upon the cancel such a sale or foreclose a mortgage if one has been given on the
vendor the right to cancel the sale or foreclose the mortgage if one has been property?chanrobles virtual law library
given on the property, without reimbursement to the purchaser of the
installments already paid, if there be an agreement to this Has the adoption of article 1454-A, amending article 1454 of the Civil Code
effect.chanroblesvirtualawlibrary chanrobles virtual law library also repealed that part of article 1124 of the Civil Code, which gives the
prejudiced person the right to exact the fulfillment of an obligation?
However, if the vendor has chosen to foreclose the mortgage he shall have
no further action against the purchaser for the recovery of any unpaid ART. 1124. The right to resolve reciprocal obligations, in case one of the
balance owing by the same, and any agreement to the contrary shall be null obligors should fail to comply with that which is incumbent upon him, is
and void.chanroblesvirtualawlibrarychanrobles virtual law library deemed to be implied.chanroblesvirtualawlibrary chanrobles virtual law library

The same rule shall apply to leases of personal property with option to The person prejudiced may choose between exacting the fulfillment of the
purchase, when the lessor has chosen to deprive the lessee of the enjoyment obligation or its resolution with indemnity for losses and payment of interest in
of such personal property. either case. He may also demand the resolution of the obligation even after
having elected its fulfillment, should the latter be found impossible.
Undoubtedly the principal object of the above amendment was to remedy
the abuses committed in connection with the foreclosure of chattel The right to cancel a contract for the sale of personal property, payable in
mortgages. This amendment prevents mortgagees from seizing the installments, in case the vendee fails to comply with the terms of the contract
mortgaged property, buying it at foreclosure sale for a low price and then and the right to foreclose a mortgage, if one has been given on such
bringing suit against the mortgagor for a deficiency judgment. The almost property, in case the mortgagor fails to live up to the terms thereof are legal
invariable result of this procedure was that the mortgagor found himself minus remedies which were available to a vendor long before Act No. 4122 was
the property and still owing practically the full judgment of his original passed. This being so it follows that said Act, in so far as it refers to these
indebtedness. Under this amendment the vendor of personal property, the remedies, is merely a redeclaration of rights which existed at the time that law
purchase price of which is payable in installments, has the right to cancel the was adopted. This Act however places a certain limitation on the privilege to
sale or foreclose the mortgage if one has been given on the property. exercise these rights in the case of installment sales of personal property in that
Whichever right the vendor elects he need not return to the purchaser the they are now available to the vendor after the vendee has failed to pay two
amount of the installments already paid, "if there be an agreement to that or more installments. It furthermore prescribes and limits the rights of the
effect". Furthermore, if the vendor avails himself of the right to foreclose the vendor after he has availed himself of either
mortgage this amendment prohibits him from bringing an action against the remedy.chanroblesvirtualawlibrary chanrobles virtual law library
purchaser for the unpaid balance.chanroblesvirtualawlibrary chanrobles
virtual law library Before Act No. 4122 was adopted the legal right to exact the fulfillment of an
obligation was also available to the person prejudiced by the failure of one of
the obligors to comply with the terms of an obligation. Act No. 4122 does not

51
expressly or impliedly prohibit the party injured by the failure of one of the
obligors, in a sale of personal property on installments, from exacting the
fulfillment of that obligation. Neither do the terms of that Act expressly provide
nor do they imply that, upon failure to pay two or more installments on the
purchase price of personal property sold on the installment plan, the
vendor must "cancel the sale or foreclose the mortgage if one has been given
on the property."chanrobles virtual law library

In view of the foregoing, it is evident that the Legislature in adopting Act No.
4122 did not intend to limit the remedies available to a vendor of personal
property on the installment plan to the right to cancel the sale or foreclose the
mortgage if one had been given on the property. The real object of that law is
to prevent the exercise of either of these rights by such a vendor until after the
vendee has failed to pay two or more installments and furthermore to
prescribe and limit the rights of the vendor after he has availed himself of
either of the remedies mentioned
therein.chanroblesvirtualawlibrary chanrobles virtual law library

It is apparent that that part of article 1124 of the Civil Code, mentioned
above, has not been repealed.chanroblesvirtualawlibrary chanrobles virtual
law library

Wherefore, we hold that in a sale of personal property on the installment plan


the vendor may elect to exact the fulfillment of the obligation, as the plaintiff
has done in this case, cancel the sale or foreclose his mortgage if one has
been given on the property so sold. If he elects to cancel or foreclose he is
bound by the provisions of article 1454-A of the Civil
Code.chanroblesvirtualawlibrary chanrobles virtual law library

The judgment of the trial court is reversed and let judgment be entered in
favor of the plaintiff and against the defendant for the sum of P928.50 with
interest thereon at the rate of 12 per cent per annum from March 17, 1934,
until paid in full, plus the sum of P232.12 as attorneys' fees and penalty, without
costs in either instance.

Malcolm, Hull, Butte, and Diaz, JJ., concur.

52
LEASE SEC 2. This Act shall take effect on its approval.

G.R. No. L-43263 October 31, 1935 Approved, December 9, 1933.

MANILA TRADING & SUPPLY CO., plaintiff-appellant, There is no dispute as to the facts. They may be summarize as follows: On
vs. December 13, 1933 that is, subsequent to the enactment of Act No, 4122
E.M. REYES, defendant-appellee. E.M. Reyes executed in favor of the Manila Trading & Supply Co., a chattel
mortgage on an automobile as security for the payment of the sum of P400,
MALCOLM, J.: which Reyes agreed to pay in ten equal monthly installments. As found by the
trial judge, Reyes failed to pay some of the installments due on his obligation.
Thereupon the Manila Trading & Supply Co., proceeded to foreclose its
The only question presented is the validity of Act No. 4122, known as the
chattel mortgage. The mortgaged property was sold at public auction by the
Installment Sales Law, reading as follows:
sheriff of the City of Manila for the sum of P200, After applying this sum, with
interest, costs, and liquidated damages to Reyes' indebtedness, the latter
AN ACT TO AMEND THE CIVIL CODE BY INSERTING BETWEEN SECTlONS owed the company a balance of P275.47, with interest thereon at the rate of
FOURTEEN HUNDRED AND FIFTY-FOUR AND FOURTEEN HUNDRED AND 12 percent per annum from February 19, 1934.
FIFTY-FIVE THEREOF A NEW SECTION, TO BE KNOWN AS SECTION
FOURTEEN HUNDRED AND FIFTY-FOUR-A.
When Reyes failed to pay the deficiency on the debt, the company instituted
an action in the Court of First Instance of Manila for the recovery thereof. To
Be it enacted by the Senate and House of Representatives of the plaintiff's complaint defendant filed an answer in which he pleaded as a
Philippines in Legislature assembled and by the authority of the same: defense that plaintiff, having chosen to foreclose its chattel mortgage, had no
further action against defendant for the recovery of the unpaid balance
SECTION 1. The Civil Code is hereby amended by inserting between owed by him to plaintiff, as provided by Act No. 4122. After trial the lower
sections fourteen hundred and fifty-four and fourteen hundred and court sustained defendant's defense and rendered a judgment absolving him
fifty-five thereof a new section, to be known as section fourteen from the complaint, with costs.
hundred and fifty-four-A, which shall read as follows:
From this judgment, the plaintiff has taken an appeal and here contends that
"SEC. 1454-A. In a contract for the sale of personal property payable the lower court erred in not declaring Act No. 4122 of the Philippine Legislature
in installments, failure to pay two or more installments shall confer unconstitutional for the following reasons: (1) in that it embraces more than
upon the vendor the right to cancel the sale or foreclose the one subject, (2) in that it unduly restrains the liberty of a person to contract
mortgage if one has been given the property, without reimbursement with respect to his property rights, (3) in that it is class legislation, and (4) in that
to the purchaser of the installments already paid, if there be an it denies vendors and lessors of personal property the equal protection of the
agreement to this effect. laws.

"However, if the vendor has chosen to foreclose the mortgage he 1. Title of the Law. Act No. 4122 is entitled, "An Act to amend the Civil Code
shall have no further action against the purchaser for the recovery of by inserting between sections fourteen hundred and fifty-four and fourteen,
any unpaid balance owing by the same, and any agreement to the hundred and fifty-five thereof a new section, to be known as section fourteen
contrary shall be null and void. hundred and fifty-four-A." It is argued that the Act amends the Civil Code and
the Chattel Mortgage Law, Act No. 1508. As a consequence, it is alleged, that
"The same rule shall apply to leases of personal property with option to one of the subjects covered by the Act, the amendment of the Chattel
purchase, when the lessor has chosen to deprive the lessee of the Mortgage Law, is not expressed in the title thereof, in violation of section 3 of
enjoyment of such personal property." the Organic Act, the Act of Congress of August 29, 1916 which provides that

53
no bill which may be enacted into law shall embrace more than one subject, 2. Liberty of contract, class legislation, and equal protection of the laws. The
and that subject shall be expressed in the title of the bill." question of the validity of an act is solely one of constitutional power.
Questions of expediency, of motive, or of results are irrelevant. Nevertheless it
We think that this is taking altogether too narrow and technical a view of the is not improper to inquire as to the occasion for the enactment of a law. The
matter. Legislation should not be embarrassed by overly strict construction. legislative purpose thus disclosed can then serve as a fit background for
The constitutional provision, while designed to remedy an evil, was not constitutional inquiry.
designed to require great particularity in stating the object of the law in its title.
In reality, while Act No. 4122 deals with three subjects, sales of personal Judge Moran in first instance had the following to say relative to the reasons
property on the installment plan, chattel mortgages, and leases of personal for the enactment of Act No. 4122:
property with option to repurchase, all three are comprehended within the
subject of installment payments. (Macondray & Co. vs. R. de Santos [1935], 61 Act No. 4122 aims to correct a social and economic evil, the
Phil., 370.) inordinate love for luxury of those who, without sufficient means,
purchase personal effects, and the ruinous practice of some
It would be well, however, to scrutinize this point a little more closely. The commercial houses of purchasing back the goods sold for a nominal
portion of the Civil Code which is amended is Book IV, Title IV having to do price besides keeping a part of the price already paid and collecting
with contract of purchase and sale and Chapter I having to do with the the balance, with stipulated interest, costs, and attorney's fees. For
nature and form of this contract. The Chattel Mortgage Law, in section 3, instance, a company sells a truck for P6,500. The purchaser makes
defines a chattel mortgage as conditional sale of personal property as down payment of P500, the balance to be paid in twenty-four equal
security for the payment a debt or the performance of some other obligation installments of P250 each. Pursuant to the practice before the
specified therein. The close analogy between chattel mortgages as covered enactment of Act No. 4122, if the purchaser fails to pay the first two
by Act No. 1508 and conditional sales as covered by the Civil Code gave this installments, the company takes possession of the truck and has it sold
court considerable difficulty, but eventually it was determined that a chattel to at public auction at which sale it purchases the truck for a nominal
mortgage, under Act No. 1508 is not of the Same effect as a contract of price, at most P500, without prejudice to its right to collect the
purchase and sale with right of repurchase under the Civil Code. (Manila balance of P5,500, plus interest, costs and attorney's fees. As a
Trading & Supply Co. vs. Tamaraw Plantation Co. [1925], 47 Phil., 513, consequence, the vendor does not only recover the goods sold, used
reconciling Meyers vs.Thein [1910], 15 Phil., 303; Bachrach vs. Mantel [1913] 25 hardly two months perhaps with only slight wear and tear, but also
Phil., 410, and Bachrach Motor Co. vs. Summers [1921], 42 Phil., 3.) Likewise the collects the entire stipulated purchase price, which probably swelled
close relationship between chattel mortgages and conditional sales in other up fifty per cent including interest, costs, and attorney's fees. This
jurisdictions is evidenced by the fact that a well-known text writer saw fit to practice is worse than usurious in many instances. And although, of
choose this as the title for his work. (Jones, Chattel Mortgages and Conditional course, the purchaser must suffer the consequences of his
Sales, 1933 ed.) imprudence and lack of foresight, the chastisement must not be to
the extent of ruining the vendor in a manner which shocks the
It could be added, if necessary, that the general rule is adopted in this conscience. The object of the law is highly commendable. As to
jurisdiction to the effect that a title which declares a statute to be an act to whether or not the means employed to do away with the evil above-
amend a specific code is sufficient and the precise nature of the amendatory mentioned are arbitrary will be presently set out.
act need not be further stated. (People vs. Buenviaje [1925], 47 Phil., 536.) On
the supposition, therefore, which seems reasonable, that the purpose had in In a case which readied this court, Mr. Justice Goddard, interpreting Act No.
mind by the Legislature in enacting Act No. 4122 was to provide legislation 4122, made the following observations:
concerning sales of personal property on the installment plan, this subject was
sufficiently expressed by indicating that the law had to do with an Undoubtedly the principal object of the above amendment was to
amendment of the Civil Code in the portion thereof given up to contract of remedy the abuses committed in connection with the foreclosure of
purchase and sale.lawphil.net chattel mortgages. This amendment prevents mortgagees from
seizing the mortgaged property, buying it at foreclosure sale for a low
54
price and then bringing suit against the mortgagor for a deficiency Court of that State. The importance of the subject matter in that jurisdiction
judgment. The almost invariable result of this procedure was that the was revealed by the fact tat four separate opinions were prepared by the
mortgagor found himself minus the property and still owing practically justices participating, in one of which Mr. Justice Johns, shortly thereafter to
the full amount of his original indebtedness. Under this amendment become a member of this court, concurred. However, it is but fair to state that
the vendor of personal property, the purchase price of which is one of the reasons prompting the court to uphold the law was the financial
payable in installments, has the right to cancel the sale or foreclose depression which had prevailed in the State. While in the Philippines the court
the mortgage if one has been given on the property. Whichever right can take judicial notice of the stringency of finances that presses upon the
the vendor elects he need not return to the purchaser the amount of people, we have no reason to believe that this was the reason that motivated
the installments already paid, "if there be an agreement to that the enactment of Act No. 4122. (Wright vs. Wimberly [1919], 184 Pac., 740.)
effect". Furthermore, if the vendor avails himself of the right to
foreclose the mortgage this amendment prohibits him from bringing While we are on the subject of the authorities, we may state that we have
an action against the purchaser for the unpaid balance. examined all of those obtainable, including some of recent date, but have
not been enlightened very much because as just indicated, they concerned
In other words, under this amendment, in all proceedings for the different states of facts and different laws. We gain the most help from the
foreclosure of chattel mortgages, executed on chattels which have case of Bronson vs. Kinzie ([1843], 1 How., 311), decided by the Supreme Court
been sold on the installment plan, the mortgagee is limited to the of the United States. It had under consideration a law passed in the State of
property included in the mortgage." (Bachrach Motor Co. vs. Millan Illinois, which provided that the equitable estate of the mortgagor should not
[1935], 61 Phil., 409.) be extinguished for twelve months after sale on decree, and which prevented
any sale of the mortgaged properly unless two-thirds of the amount at which
Public policy having thus had in view the objects just outlined, we should next the property had been valued by appraisers should be bid therefor.
examine the law to determine if notwithstanding that policy, it violates any of
the constitutional principles dealing with the three general subjects here to be The court, by Mr. Chief Justice Taney, declared: "Mortgages made since the
considered. passage of these laws must undoubtedly be governed by them; for every
State has the power to describe the legal and equitable obligations of a
In an effort to enlighten us, our attention has been directed to certain contract to be made and executed within its jurisdiction. It may exempt any
authorities, principally one coming from the State of Washington and another property it thinks proper from sale, for the payment of a debt; and may
from the State of Oregon. For reasons which will soon appear, we do not think impose such conditions and restrictions upon the creditor as its judgment and
that either decision is controlling. policy may dictate. And all future contracts would be subject to such
provisions; and they would be obligatory upon the parties in the courts of the
United States, as well as in those of the State.
In 1897, an Act was passed in the State of Washington which provided "that in
all proceedings for the foreclosure of mortgages hereafter executed, or on
judgments rendered upon the debt thereby secured, the mortgagee or As we understand it, parties have no vested right in particular remedies or
assignee shall be limited to the property included in the mortgage." It was held modes of procedure, and the Legislature may change existing remedies or
by a divided court of three to two that the statute since limiting the right to modes of procedure without impairing the obligation of contracts, provided
enforce a debt secured by mortgage to the property mortgaged, whether an efficacious remedy remains enforcement. But changes in the remedies
realty or chattels, was an undue restraint upon the liberty of a citizen to available for the enforcement of a mortgage may not, even when publicly
contract with respect to his property rights. But as is readily apparent, the policy is invoked as an excuse, be pressed so far as to cut down the security of
Washington law and the Philippine law are radically different in phraseology a mortgage without moderation or reason or in a spirit of oppression.
and in effect (Dennis vs. Moses [1898], 40 L.R.A., 302.) (Brotherhood of American Yeoman vs. Manz [1922], 206 Pac., 403; Oshkosh
Waterworks Co. vs. Oshkosh [1903], 187 U.S., 437; W.B. Worthen
Co. vs.Kavanaugh [1935], 79 U.S. Supreme Court Advance Opinions, 638.)
In Oregon, in a decision of a later date, an Act abolishing deficiency
judgments upon the foreclosure of mortgages to secure the unpaid balance
of the purchase price of real property was unanimously sustained by Supreme
55
In the Philippines, the Chattel Mortgage Law did not expressly provide for a
deficiency judgment upon the foreclosure of a mortgage. Indeed, it required
decisions of this court to authorize such a procedure. (Bank of the Philippine
Islands vs. Olutanga Lumber Co. [1924], 47 Phil., 20: Manila Trading & Supply
Co. vs. Tamaraw Plantation Co., supra.) But the practice became universal
enough to acquire the force of direct legislative enactment regarding
procedure. To a certain extent the Legislature has now disauthorized this
practice, but bas left a sufficient remedy remaining.

Three remedies are available to the vendor who has sold personal property on
the installment plan. (1) He may elect to exact the fulfillment of the obligation.
(Bachrach Motor Co. vs. Millan, supra.) (2) If the vendee shall have failed to
pay two or more installments, the vendor may cancel the sale. (3) If the
vendee shall have failed to pay two or more installments, the vendor may
foreclose the mortgage, if one has been given on the property. The basis of
the first option is the Civil Code. The basis of the last two options is Act No.
4112, amendatory of the Civil Code. And the proviso to the right to foreclose
is, that if the vendor has chosen this remedy, he shall have no further action
against the purchaser for the recovery of any unpaid balance owing by the
same. In other words, as we see it, the Act does no no more than qualify the
remedy.

Most constitutional issues are determined by the court's approach to them.


The proper approach in cases of this character should be to resolve all
presumptions in favor of the validity of an act in the absence of a clear
conflict between it and the constitution. All doubts should be resolved in its
favor.

The controlling purpose of Act No. 4122 is revealed to be to close the door to
abuses committed in connection with the foreclosure of chattel mortgages
when sales were payable in installments. That public policy, obvious from the
statute, was defined and established by legislative authority. It is for the courts
to perpetuate it.

We are of the opinion that the Legislature may change judicial methods and
remedies for the enforcement of contracts, as it has done by the enactment
of Act No. 4122, without unduly interfering with the obligation of the contracts,
without sanctioning class legislation, and without a denial of the equal
protection of the laws. We rule that Act No. 4122 is valid and enforceable. As
a consequence, the errors assigned by the appellant are overruled, and the
judgment affirmed, the costs of this instance to be taxed against the losing
party.

56
LEASE No. 60201 with a petition for a writ of Replevin, to collect the
balance due under the Chattel Mortgages and to repossess
G.R. No. L-27862 November 20, 1974 all the units to sold to plaintiffs' principal PDP Transit, Inc.
including the five (5) units guaranteed under the subject Real
(Estate) Mortgage.
LORENZO PASCUAL and LEONILA TORRES, plaintiffs-appellees,
vs.
UNIVERSAL MOTORS CORPORATION, defendant-appellant. In addition to the foregoing the Universal Motors Corporation admitted during
the hearing that in its suit (C.C. No. 60201) against the PDP Transit, Inc. it was
able to repossess all the units sold to the latter, including the five (5) units
MAKALINTAL, C.J.:p
guaranteed by the subject real estate mortgage, and to foreclose all the
chattel mortgages constituted thereon, resulting in the sale of the trucks at
In the lower court the parties entered into the following stipulation of facts: public auction.

1. That the plaintiffs executed the real estate mortgage With the foregoing background, the spouses Lorenzo Pascual and Leonila
subject matter of this complaint on December 14, 1960 to Torres, the real estate mortgagors, filed an action in the Court of First Instance
secure the payment of the indebtedness of PDP Transit, Inc. of Quezon City (Civil Case No. 8189) for the cancellation of the mortgage they
for the purchase of five (5) units of Mercedez Benz trucks constituted on two (2) parcels of land1 in favor of the Universal Motors
under invoices Nos. 2836, 2837, 2838, 2839 and 2840 with a Corporation to guarantee the obligation of PDP Transit, Inc. to the extent of
total purchase price or principal obligation of P152,506.50 but P50,000. The court rendered judgment for the plaintiffs, ordered the
plaintiffs' guarantee is not to exceed P50,000.00 which is the cancellation of the mortgage, and directed the defendant Universal Motors
value of the mortgage. Corporation to pay attorney's fees to the plaintiffs in the sum of P500.00.
Unsatisfied with the decision, defendant interposed the present appeal.
2. That the principal obligation of P152,506.50 was to bear
interest at 1% a month from December 14, 1960. In rendering judgment for the plaintiffs the lower court said in part: "... there
does not seem to be any doubt that Art. 14842 of the New Civil Code may be
3. That as of April 5, 1961 with reference to the two units applied in relation to a chattel mortgage constituted upon personal property
mentioned above and as of May 22, 1961 with reference to on the installment basis (as in the present case) precluding the mortgagee to
the three units, PDP Transit, Inc., plaintiffs' principal, had paid maintain any further action against the debtor for the purpose of recovering
to the defendant Universal Motors Corporation the sum of whatever balance of the debt secured, and even adding that any
P92,964.91, thus leaving a balance of P68,641.69 including agreement to the contrary shall be null and void."
interest due as of February 8, 1965.
The appellant now disputes the applicability of Article 1484 of the Civil Code
4. That the aforementioned obligation guaranteed by the to the case at bar on the ground that there is no evidence on record that the
plaintiffs under the Real Estate Mortgage, subject of this purchase by PDP Transit, Inc. of the five (5) trucks, the payment of the price of
action, is further secured by separate deeds of chattel which was partly guaranteed by the real estate mortgage in question, was
mortgages on the Mercedez Benz units covered by the payable in installments and that the purchaser had failed to pay two or more
aforementioned invoices in favor of the defendant Universal installments. The appellant also contends that in any event what article 1484
Motors Corporation. prohibits is for the vendor to recover from the purchaser the unpaid balance
of the price after he has foreclosed the chattel mortgage on the thing sold,
5. That on March 19, 1965, the defendant Universal Motors but not a recourse against the security put up by a third party.
Corporation filed a complaint against PDP Transit, Inc. before,
the Court of First Instance of Manila docketed as Civil Case Both arguments are without merit. The first involves an issue of fact: whether or
not the sale was one on installments; and on this issue the lower court found
57
that it was, and that there was failure to pay two or more installments. This
finding is not subject to review by this Court. The appellant's bare allegation to
the contrary cannot be considered at this stage of the case.

The next contention is that what article 1484 withholds from the vendor is the
right to recover any deficiency from the purchaser after the foreclosure of the
chattel mortgage and not a recourse to the additional security put up by a
third party to guarantee the purchaser's performance of his obligation. A
similar argument has been answered by this Court in this wise: "(T)o sustain
appellant's argument is to overlook the fact that if the guarantor should be
compelled to pay the balance of the purchase price, the guarantor will in turn
be entitled to recover what she has paid from the debtor vendee (Art. 2066,
Civil Code); so that ultimately, it will be the vendee who will be made to bear
the payment of the balance of the price, despite the earlier foreclosure of the
chattel mortgage given by him. Thus, the protection given by Article 1484
would be indirectly subverted, and public policy overturned." (Cruz vs. Filipinas
Investment & Finance Corporation, L-24772, May 27, 1968; 23 SCRA 791).

The decision appealed from is affirmed, with costs against the defendant-
appellant.

58
LEASE from doing so by Teodorica R. Viuda de Jose, the owner of the house, who
claimed to be entitled to said personal properties in lieu of rents due.
EN BANC
Upon a complaint filed by Julio Veloso Barrueco to recover the properties in
[G.R. No. 45955. April 5, 1939.] question from Teodorica R. Viuda de Jose, the Court of First Instance of Manila
held that the contracts of lease (Exhibits A and B) were fictitious, and that the
TEODORICA R. VIUDA DE JOSE, Petitioner, v. JULIO VELOSO real contract between the plaintiff and Mary Ando was one of sale on the
BARRUECO, Respondent. installment basis, wherefore, the complaint was dismissed and defendant
declared entitled to the properties in litigation. Brought to the Court of
SYLLABUS Appeals, the judgment was reversed, and the contracts between plaintiff and
Mary Ando held to be those of lease.
1. CONTRACT; LEASE DECLARED TO BE A CONDITIONAL SALE. Sellers desirous
of making conditional sales of their goods, but who do not wish openly to
make a bargain in that form, for one reason or another, have frequently The case is here on petition, by defendant Teodorica R. Viuda de Jose, now
resorted to the device of making contracts in the form of leases either with petitioner, contending that the decision of the Court of Appeals is erroneous
options to the buyer to purchase for a small consideration at the end of turn, for the following reasons:
provided the so-called rent has been duly paid, or with stipulations that if the
rent throughout the term is paid, title shall there upon vest in the lessee. It is (a) Resumiendo las condiciones de ambas escrituras de
obvious that such transactions are bases only in name. The so-called rent must "arrendamiento," Exhibits A y B, extractadas en la parte de la decision
necessary be regarded as payment of the price in installments since the due recurrida arriba acotada, se destacan estos datos:
payment of the agreed amount results, by the terms of the bargain, in the
transfer of title to the lessee.
Periodo
Valor del Primer Precio Alquiler
Exhibit necesario de
mueble pago restante mensual
LAUREL,J: pago

A
P70.00 P14.00 P56.00 P5.00 Once meses
The petitioner-appellant brought this case before this court thru petition for a .............
writ of certiorari to review the decision of the Court of Appeals promulgated
on October 30, 1937. B
120.00 24.00 96.00 10.00 Diez meses
.............
Mary Ando leased from Julio Barrueco a China cabinet valued T P70. She
undertook, under the lease, to pay P14 upon signing the contract and P5 (b) Al otorgarse la escritura hay inmediatamente pagos de P14 y
monthly thereafter for a period not specified but extendible at the owner's P24, que no son alquileres, y que no tienen otro significado sino pagos
pleasure. The contract of lease further provided that upon leasee's default, a cuenta del precio de los muebles. Estas candidades representan
the contract would be rescinded; that the leasee was not liberty to remove exactamente el pago anticipado del 20 por ciento, o una quinta
said cabinet from house No 1030 Misericordia Street where she lived, and that parte del valor.
upon failure to comply with the terms of the lease, the owner could
immediately take possession of the property leased. Under similar terms and
(c) Los cuatro quintos restantes del valor son pagaderos en forma de
conditions, Mary Ando also leased from said store a narra wardrobe valued at
mensualidades dentro de un periodo de 10 a 11 meses. Si este
P120, paying P24 cash and P10 monthly.
alquiler no es a cuenta del importe del mueble, el contrato sera
escandalosamente inmoral, por usurario y opresivo.
Unable to pay the rent of the house, Mary Ando attempted to move
therefrom, taking with her the cabinet and the wardrobe. She was presented

59
(d) Es indudable que estos pagos son para cubrir el precio estipulado, contract. (Testimony of plaintiff, p. 9, s. n.; and Mary Ando, p. 17, s. n.) Cf.
pues el recurrido admite que la consideracion de la venta ulterior son Valdez vs. Sibal 1., 46 Phil., 930.)
las mismas mensualidades, y la "arrendataria" dice que "los alquileres .
. . eran a cuenta del importe total," "como pago a plazos". In H. E. Heacock Co. vs. Buntal Manufacturing Co. (G. R. No. 44471,
promulgated September 26, 1938), we said:
(e) Los precios de los muebles fijados en las escrituras guardan
armonia con la indole de venta a plazos, pues esta aumentado A mayor abundamiento debemos decir que el hecho de haberse
considerablemente. En el mismo dia en que el asunto se vio en el fijado el precio de la maquina en el contrato, hace que este no sea
Juzgado Municipal de Manila, la apelada-recurrente tomo precious de arrendamiento sino de compraventa, porque en los contratos de
en los establecimientos de muebles identicos, y hallo que solo valen arrendamiento, a diferencia de los contratos de compraventa, es
P61 en total, en vez de P190 (n. t., p. 21). Esta prueba no ha sido redunduncia injustifiable, fijar o hacer mencion siguiera del precio de
contradicha. la cosa que se da en arrendamiento. (Arts. 1445, 1543, Codigo Civil.)
Cuando los terminos de un contrato no son claros o son
(f ) Las partes no solo se han obligado, el uno a entregar los muebles, contradictorios entre si, como lo son los del Exhibit A, debe darse
y la otra, a pagarlos. En efecto, la cosa ha sido entregada, y parte efecto a la intencion de las partes (art 1281 del Codigo Civil), y la
del precio fue pagado. intencion de la demandante y de los demandados en esta causa
segun la vemos impresa en el contrato Exhibit A, considerando en
(g) La decision dice que no es venta a plazos, sino arrendamiento conjunto todos sus terminos y clausulas es que el contrato por ellos
con opcion de compra, pero si la consideracion del arrendamiento y celebrado fue el de compraventa a plazos, y no de arrendamiento.
la de la compra es una y la misma, como ocurre en el presente caso,
segun la misma decision recurrida, entonces no existe contrato In Manila Gas Corporation vs. Calupitan (G.R. No. 46378, promulgated
doble, sino uno y simple, de venta condicional o a plazos. Para que December 17, 1938), we also observed:
sea arrendamiento con opcion de compra debe haber un precio
para la compra distinta del precio de arrendamiento, que no occurre Por las consideraciones arriba expuestas, somos de opinion, y asi
en el presente caso. declaramos, que cuando en un contrato que se titula de
arrendamiento de cosa mueble se estipula que el supuesto
A perusal of the record of this case shows that in Exhibit A, the amount of P70 arrendatario pagara cierta cantidad al firmarse el contrato, y en o
was fixed as the cost price for the cupboard, P14 as the down payment made antes del dia 5 de cada mes, otra cantidad determinada, en
at the signing of the contract and P5 as the monthly rentals of said furniture. In concepto de alguiler, dando al supuesto arrendatario derecho de
Exhibit B the amount of P120 was also fixed as the cost price of the modern opcion para comprar la citada cosa mueble antes de expirar el
narra wardrobe, the down payment made as P24 and the monthly rental at plazo del arrendamiento, que es el tiempo que se necesita para
P10. These Exhibits A and B are denominated CONTRACTS OF LEASE, the pagar dicho importe a razon de un tanto al mes, descontando los
monthly payments for both pieces of furniture are called rentals, and Mary pagos hechos en concepto de adelanto y de supuestos alquileres
Ando is mentioned as "leasee." What is the nature of these contracts? The mensuales, y dicho supuesto arrendatario hace el adelanto y paga
answer to this question is not to be found in any denomination which the varias mensualidades, haciendose constar en su cuenta y en los
parties may have given to the instruments, and not alone in any particular recibos que se le expiden que dichos pagos son a cuenta del importe
provision it contains, disconnected from all others, but in the ruling intention of de la cosa mueble supuestamente arrendada, dicho contrato tiene
the parties, gathered from the language they have used. It is the legal effect el concepto de venta a plazo y no de arrendamiento.
of the whole which is to be sought for. The form of the instrument is of little
account. (See Herryford vs. Davis, 26 Law. ed. [ U. S.], pp. 160, 162.). Sellers desirous of making conditional sales of their goods, but who do not wish
openly to make a bargain in that form, for one reason or another, have
We find that the parties intended to have the ownership of the furniture frequently resorted to the device of making contracts in the form of leases
transferred to Mary Ando upon the latter complying with the conditions of the either with options to the buyer to purchase for a small consideration at the
60
end of term, provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title shall thereupon
vest in the lessee. It is obvious that such transactions are leases only in name.
The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms
of the bargain, in the transfer of title to the lessee.

The writ of certiorari is granted, and the judgement of the Court of Appeals is
reserved and that of the Court of First Instance of Manila declared in full force
and effect. With out costs. So ordered.

61
LEASE encumbrances and he warrants to the Vendee good title thereto and to
defend the same against any and all claims of all persons whomsoever. 1
G.R. No. L-36902 January 30, 1982
After the pre-trial conference, the Court a quo issued an Order dated
LUIS PICHEL, petitioner, November 9, 1972 which in part read thus:
vs.
PRUDENCIO ALONZO, respondent. The following facts are admitted by the parties:

GUERRERO, J.: Plaintiff Prudencio Alonzo was awarded by the Government that
parcel of land designated as Lot No. 21 of Subdivision Plan Psd 32465
This is a petition to review on certiorari the decision of the Court of First of Balactasan, Lamitan, Basilan City in accordance with Republic
Instance of Basilan City dated January 5, 1973 in Civil Case No. 820 entitled Act No. 477. The award was cancelled by the Board of Liquidators
"Prudencio Alonzo, plaintiff, vs. Luis Pichel, defendant." on January 27, 1965 on the ground that, previous thereto, plaintiff
was proved to have alienated the land to another, in violation of
law. In 197 2, plaintiff's rights to the land were reinstated.
This case originated in the lower Court as an action for the annulment of a
"Deed of Sale" dated August 14, 1968 and executed by Prudencio Alonzo, as
vendor, in favor of Luis Pichel, as vendee, involving property awarded to the On August 14, 1968, plaintiff and his wife sold to defendant an the
former by the Philippine Government under Republic Act No. 477. Pertinent fruits of the coconut trees which may be harvested in the land in
portions of the document sued upon read as follows: question for the period, September 15, 1968 to January 1, 1976, in
consideration of P4,200.00. Even as of the date of sale, however, the
land was still under lease to one, Ramon Sua, and it was the
That the VENDOR for and in consideration of the sum of FOUR THOUSAND
agreement that part of the consideration of the sale, in the sum of
TWO HUNDRED PESOS (P4,200.00), Philippine Currency, in hand paid by
P3,650.00, was to be paid by defendant directly to Ramon Sua so as
the VENDEE to the entire satisfaction of the VENDOR, the VENDOR hereby
to release the land from the clutches of the latter. Pending said
sells transfers, and conveys, by way of absolute sale, all the coconut fruits
payment plaintiff refused to snow the defendant to make any
of his coconut land, designated as Lot No. 21 - Subdivision Plan No. Psd-
harvest.
32465, situated at Balactasan Plantation, Lamitan, Basilan City,
Philippines;
In July 1972, defendant for the first time since the execution of the
deed of sale in his favor, caused the harvest of the fruit of the
That for the herein sale of the coconut fruits are for all the fruits on the
coconut trees in the land.
aforementioned parcel of land presently found therein as well as for
future fruits to be produced on the said parcel of land during the years
period; which shag commence to run as of SEPTEMBER 15,1968; up to xxx xxx xxx
JANUARY 1, 1976 (sic);
Considering the foregoing, two issues appear posed by the
That the delivery of the subject matter of the Deed of Sale shall be from complaint and the answer which must needs be tested in the
time to time and at the expense of the VENDEE who shall do the crucible of a trial on the merits, and they are:
harvesting and gathering of the fruits;
First. Whether or nor defendant actually paid to plaintiff the full
That the Vendor's right, title, interest and participation herein conveyed is sum of P4,200.00 upon execution of the deed of sale.
of his own exclusive and absolute property, free from any liens and

62
Second. Is the deed of sale, Exhibit 'A', the prohibited The dispositive portion of the lower Court's decision states:
encumbrance contemplated in Section 8 of Republic Act No. 477? 2

WHEREFORE, it is the judgment of this Court that the deed of


Anent the first issue, counsel for plaintiff Alonzo subsequently 'stipulated and sale, Exhibit 'A', should be, as it is, hereby declared nun and
agreed that his client ... admits fun payment thereof by defendant. 3 The void; that plaintiff be, as he is, ordered to pay back to
remaining issue being one of law, the Court below considered the case defendant the consideration of the sale in the sum of
submitted for summary judgment on the basis of the pleadings of the parties, P4,200.00 the same to bear legal interest from the date of the
and the admission of facts and documentary evidence presented at the pre- filing of the complaint until paid; that defendant shall pay to
trial conference. the plaintiff the sum of P500.00 as attorney's fees.
Costs against the defendant. 6
The lower court rendered its decision now under review, holding that although
the agreement in question is denominated by the parties as a deed of sale of Before going into the issues raised by the instant Petition, the matter of
fruits of the coconut trees found in the vendor's land, it actually is, for all legal whether, under the admitted facts of this case, the respondent had the right
intents and purposes, a contract of lease of the land itself. According to the or authority to execute the "Deed of Sale" in 1968, his award over Lot No. 21
Court: having been cancelled previously by the Board of Liquidators on January 27,
1965, must be clarified. The case in point is Ras vs. Sua 7 wherein it was
... the sale aforestated has given defendant complete control and categorically stated by this Court that a cancellation of an award granted
enjoyment of the improvements of the land. That the contract is pursuant to the provisions of Republic Act No. 477 does not automatically
consensual; that its purpose is to allow the enjoyment or use of a divest the awardee of his rights to the land. Such cancellation does not result
thing; that it is onerous because rent or price certain is stipulated; in the immediate reversion of the property subject of the award, to the State.
and that the enjoyment or use of the thing certain is stipulated to be Speaking through Mr. Justice J.B.L. Reyes, this Court ruled that "until and unless
for a certain and definite period of time, are characteristics which an appropriate proceeding for reversion is instituted by the State, and its
admit of no other conclusion. ... The provisions of the contract itself reacquisition of the ownership and possession of the land decreed by a
and its characteristics govern its nature. 4 competent court, the grantee cannot be said to have been divested of
whatever right that he may have over the same property." 8
The Court, therefore, concluded that the deed of sale in question is an
encumbrance prohibited by Republic Act No. 477 which provides thus: There is nothing in the record to show that at any time after the supposed
cancellation of herein respondent's award on January 27, 1965, reversion
proceedings against Lot No. 21 were instituted by the State. Instead, the
Sec. 8. Except in favor of the Government or any of its branches,
admitted fact is that the award was reinstated in 1972. Applying the doctrine
units, or institutions, land acquired under the provisions of this Act or
announced in the above-cited Ras case, therefore, herein respondent is not
any permanent improvements thereon shall not be thereon and for
deemed to have lost any of his rights as grantee of Lot No. 21 under Republic
a term of ten years from and after the date of issuance of the
Act No. 477 during the period material to the case at bar, i.e., from the
certificate of title, nor shall they become liable to the satisfaction of
cancellation of the award in 1965 to its reinstatement in 1972. Within said
any debt contracted prior to the expiration of such period.
period, respondent could exercise all the rights pertaining to a grantee with
respect to Lot No. 21.
Any occupant or applicant of lands under this Act who transfers
whatever rights he has acquired on said lands and/or on the
This brings Us to the issues raised by the instant Petition. In his Brief, petitioner
improvements thereon before the date of the award or signature of
contends that the lower Court erred:
the contract of sale, shall not be entitled to apply for another piece
of agricultural land or urban, homesite or residential lot, as the case
may be, from the National Abaca and Other Fibers Corporation; 1. In resorting to construction and interpretation of the deed of
and such transfer shall be considered null and void. 5 sale in question where the terms thereof are clear and

63
unambiguous and leave no doubt as to the intention of the Simply and directly stated, the "Deed of Sale dated August 14, 1968 is precisely
parties; what it purports to be. It is a document evidencing the agreement of herein
2. In declaring granting without admitting that an interpretation parties for the sale of coconut fruits of Lot No. 21, and not for the lease of the
is necessary the deed of sale in question to be a contract of land itself as found by the lower Court. In clear and express terms, the
lease over the land itself where the respondent himself waived document defines the object of the contract thus: "the herein sale of the
and abandoned his claim that said deed did not express the true coconut fruits are for an the fruits on the aforementioned parcel of land
agreement of the parties, and on the contrary, respondent during the years ...(from) SEPTEMBER 15, 1968; up to JANUARY 1, 1976."
admitted at the pre-trial that his agreement with petitioner was Moreover, as petitioner correctly asserts, the document in question expresses
one of sale of the fruits of the coconut trees on the land; a valid contract of sale. It has the essential elements of a contract of sale as
3. In deciding a question which was not in issue when it declared defined under Article 1485 of the New Civil Code which provides thus:
the deed of sale in question to be a contract of lease over Lot 21;
4. In declaring furthermore the deed of sale in question to be a Art. 1458. By the contract of sale one of the contracting
contract of lease over the land itself on the basis of facts which parties obligates himself to transfer the ownership of and to
were not proved in evidence; deliver a determinate thing, and the other to pay therefor a
5. In not holding that the deed of sale, Exhibit "A" and "2", price certain in money or its equivalent.
expresses a valid contract of sale;
6. In not deciding squarely and to the point the issue as to
A contract of sale may be absolute or conditional.
whether or not the deed of sale in question is an encumbrance
on the land and its improvements prohibited by Section 8 of
Republic Act 477; and The subject matter of the contract of sale in question are the fruits of the
7. In awarding respondent attorney's fees even granting, without coconut trees on the land during the years from September 15, 1968 up to
admitting, that the deed of sale in question is violative of Section January 1, 1976, which subject matter is a determinate thing. Under Article
8 of Republic Act 477. 1461 of the New Civil Code, things having a potential existence may be the
object of the contract of sale. And in Sibal vs. Valdez, 50 Phil. 512, pending
crops which have potential existence may be the subject matter of the sale.
The first five assigned errors are interrelated, hence, We shall consider them
Here, the Supreme Court, citing Mechem on Sales and American cases said
together. To begin with, We agree with petitioner that construction or
which have potential existence may be the subject matter of sale. Here, the
interpretation of the document in question is not called for. A perusal of the
Supreme Court, citing Mechem on Sales and American cases said:
deed fails to disclose any ambiguity or obscurity in its provisions, nor is there
doubt as to the real intention of the contracting parties. The terms of the
agreement are clear and unequivocal, hence the literal and plain meaning Mr. Mechem says that a valid sale may be made of a thing,
thereof should be observed. Such is the mandate of the Civil Code of the which though not yet actually in existence, is reasonably
Philippines which provides that: certain to come into existence as the natural increment or
usual incident of something already in existence, and then
belonging to the vendor, and the title will vest in the buyer
Art. 1370. If the terms of a contract are clear and leave no
the moment the thing comes into existence. (Emerson vs.
doubt upon the intention of the contracting parties, the literal
European Railway Co., 67 Me., 387; Cutting vs. Packers
meaning of its stipulation shall control ... .
Exchange, 21 Am. St. Rep. 63) Things of this nature are said to
have a potential existence. A man may sell property of which
Pursuant to the afore-quoted legal provision, the first and fundamental duty of he is potentially and not actually possess. He may make a
the courts is the application of the contract according to its express terms, valid sale of the wine that a vineyard is expected to produce;
interpretation being resorted to only when such literal application is or the grain a field may grow in a given time; or the milk a
impossible. 9 cow may yield during the coming year; or the wool that shall
thereafter grow upon sheep; or what may be taken at the
next case of a fisherman's net; or fruits to grow; or young
64
animals not yet in existence; or the goodwill of a trade and (coconut trees) while the second, to the principal (the land). A transfer of the
the like. The thing sold, however, must be specific and accessory or improvement is not a transfer of the principal. It is the other way
Identified. They must be also owned at the time by the around, the accessory follows the principal. Hence, the sale of the nuts
vendor. (Hull vs. Hull 48 Conn. 250 (40 Am. Rep., 165) (pp. 522- cannot be interpreted nor construed to be a lease of the trees, much less
523). extended further to include the lease of the land itself.

We do not agree with the trial court that the contract executed by and The real and pivotal issue of this case which is taken up in petitioner's sixth
between the parties is "actually a contract of lease of the land and the assignment of error and as already stated above, refers to the validity of the
coconut trees there." (CFI Decision, p. 62, Records). The Court's holding that "Deed of Sale", as such contract of sale, vis-a-vis the provisions of Sec. 8, R.A.
the contract in question fits the definition of a lease of things wherein one of No. 477. The lower Court did not rule on this question, having reached the
the parties binds himself to give to another the enjoyment or use of a thing for conclusion that the contract at bar was one of lease. It was from the context
a price certain and for a period which may be definite or indefinite (Art. 1643, of a lease contract that the Court below determined the applicability of Sec.
Civil Code of the Philippines) is erroneous. The essential difference between a 8, R.A. No. 477, to the instant case.
contract of sale and a lease of things is that the delivery of the thing sold
transfers ownership, while in lease no such transfer of ownership results as the Resolving now this principal issue, We find after a close and careful
rights of the lessee are limited to the use and enjoyment of the thing leased. examination of the terms of the first paragraph of Section 8 hereinabove
quoted, that the grantee of a parcel of land under R.A. No. 477 is not
In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held: prohibited from alienating or disposing of the natural and/or industrial fruits of
the land awarded to him. What the law expressly disallows is the
Since according to article 1543 of the same Code the encumbrance or alienation of the land itself or any of the permanent
contract of lease is defined as the giving or the concession of improvements thereon. Permanent improvements on a parcel of land are
the enjoyment or use of a thing for a specified time and fixed things incorporated or attached to the property in a fixed manner, naturally or
price, and since such contract is a form of enjoyment of the artificially. They include whatever is built, planted or sown on the land which is
property, it is evident that it must be regarded as one of the characterized by fixity, immutability or immovability. Houses, buildings,
means of enjoyment referred to in said article 398, inasmuch machinery, animal houses, trees and plants would fall under the category of
as the terms enjoyment, use, and benefit involve the same permanent improvements, the alienation or encumbrance of which is
and analogous meaning relative to the general utility of prohibited by R.A. No. 477. While coconut trees are permanent improvements
which a given thing is capable. (104 Jurisprudencia Civil, 443) of a land, their nuts are natural or industrial fruits which are meant to be
gathered or severed from the trees, to be used, enjoyed, sold or otherwise
disposed of by the owner of the land. Herein respondents, as the grantee of
In concluding that the possession and enjoyment of the coconut trees can
Lot No. 21 from the Government, had the right and prerogative to sell the
therefore be said to be the possession and enjoyment of the land itself
coconut fruits of the trees growing on the property.
because the defendant-lessee in order to enjoy his right under the contract,
he actually takes possession of the land, at least during harvest time, gather all
of the fruits of the coconut trees in the land, and gain exclusive use thereof By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla
without the interference or intervention of the plaintiff-lessor such that said organizations and other qualified persons were given the opportunity to
plaintiff-lessor is excluded in fact from the land during the period aforesaid, the acquire government lands by purchase, taking into account their limited
trial court erred. The contract was clearly a "sale of the coconut fruits." The means. It was intended for these persons to make good and productive use of
vendor sold, transferred and conveyed "by way of absolute sale, all the the lands awarded to them, not only to enable them to improve their
coconut fruits of his land," thereby divesting himself of all ownership or standard of living, but likewise to help provide for the annual payments to the
dominion over the fruits during the seven-year period. The possession and Government of the purchase price of the lots awarded to them. Section 8 was
enjoyment of the coconut trees cannot be said to be the possession and included, as stated by the Court a quo, to protect the grantees from
enjoyment of the land itself because these rights are distinct and separate themselves and the incursions of opportunists who prey on their misery and
from each other, the first pertaining to the accessory or improvements
65
poverty." It is there to insure that the grantees themselves benefit from their (3) In criminal cases of malicious prosecution against the
respective lots, to the exclusion of other persons. plaintiff;
(4) In case of a clearly unfounded civil action or proceeding
The purpose of the law is not violated when a grantee sells the produce or against the plaintiff;
fruits of his land. On the contrary, the aim of the law is thereby achieved, for (5) Where the defendant acted in gross and evident bad faith
the grantee is encouraged and induced to be more industrious and in refusing to satisfy the plaintiff's plainly valid, just and
productive, thus making it possible for him and his family to be economically demandable claim;
self-sufficient and to lead a respectable life. At the same time, the (6) In actions for legal support;
Government is assured of payment on the annual installments on the land. We (7) In actions for the recovery of wages of household helpers,
agree with herein petitioner that it could not have been the intention of the laborers and skilled workers;
legislature to prohibit the grantee from selling the natural and industrial fruits of (8) In actions for indemnity under workmen's compensation and
his land, for otherwise, it would lead to an absurd situation wherein the employer's liability laws;
grantee would not be able to receive and enjoy the fruits of the property in (9) In a separate civil action to recover civil liability arising from
the real and complete sense. a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and
Respondent through counsel, in his Answer to the Petition contends that even
equitable that attorney's fees and expenses of litigation should
granting arguendo that he executed a deed of sale of the coconut fruits, he
be recovered.
has the "privilege to change his mind and claim it as (an) implied lease," and
he has the "legitimate right" to file an action for annulment "which no law can
stop." He claims it is his "sole construction of the meaning of the transaction In all cases, the attorney's fees and expenses of litigation must
that should prevail and not petitioner. (sic). 10 Respondent's counsel either be reasonable.
misapplies the law or is trying too hard and going too far to defend his client's
hopeless cause. Suffice it to say that respondent-grantee, after having We find that none of the legal grounds enumerated above exists to justify or
received the consideration for the sale of his coconut fruits, cannot be warrant the grant of attorney's fees to herein respondent.
allowed to impugn the validity of the contracts he entered into, to the
prejudice of petitioner who contracted in good faith and for a consideration. IN VIEW OF THE FOREGOING, the judgment of the lower Court is hereby set
aside and another one is entered dismissing the Complaint. Without costs.
The issue raised by the seventh assignment of error as to the propriety of the
award of attorney's fees made by the lower Court need not be passed upon, SO ORDERED.
such award having been apparently based on the erroneous finding and
conclusion that the contract at bar is one of lease. We shall limit Ourselves to
the question of whether or not in accordance with Our ruling in this case,
respondent is entitled to an award of attorney's fees. The Civil Code provides
that:

Art. 2208. In the absence of stipulation, attorney's fees and


expenses of litigation, other than judicial costs, cannot be
recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to
protect his interest;

66
MUST BE LICIT After the death of Paulino Montemayor the said property passed
to his successors-in-interest, Maria Montemayor and Donata
G.R. No. L-31271 April 29, 1974 Montemayor, who in turn, sold it, as well as the first parcel, to a
certain Potenciano Garcia.
ROMEO MARTINEZ and LEONOR SUAREZ, spouses, petitioners-appellants,
vs. Because Potenciano Garcia was prevented by the then municipal
HON. COURT OF APPEALS, SECRETARY and UNDERSECRETARY OF PUBLIC WORKS president of Lubao, Pedro Beltran, from restoring the dikes
& COMMUNICATIONS, respondents-appellees. constructed on the contested property, the former, on June 22,
1914, filed Civil Case No. 1407 with the Court of First Instance
against the said Pedro Beltran to restrain the latter in his official
ESGUERRA, J.:p
capacity from molesting him in the possession of said second
parcel, and on even date, applied for a writ of preliminary
Petition for review by certiorari of the judgment of the Court of Appeals dated injunction, which was issued against said municipal president. The
November 17, 1969 in its CA-G.R. 27655-R which reverses the judgment of the Court, by decision promulgated June 12, 1916, declared
Court of First Instance of Pampanga in favor of petitioners-appellants against permanent the preliminary injunction, which, decision, on appeal,
the Secretary and Undersecretary of Public Works & Communications in the was affirmed by the Supreme Court on August 21, 1918. From June
case instituted to annul the order of November 25, 1958 of respondent 22, 1914, the dikes around the property in question remained
Secretary of Public Works & Communications directing the removal by the closed until a portion thereof was again opened just before the
petitioners of the dikes they had constructed on Lot No. 15856 of the Register outbreak of the Pacific War.
of Deeds of Pampanga, which order was issued pursuant to the provisions of
Republic Act No. 2056. The dispositive portion of the judgment of reversal of
On April 17, 1925. Potenciano Garcia applied for the registration of
the Court of Appeals reads as follows:
both parcels of land in his name, and the Court of First Instance of
Pampanga, sitting as land registration court, granted the
IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment registration over and against the opposition of the Attorney-
appealed from is hereby reversed, and another entered: [1] General and the Director of Forestry. Pursuant to the Court's
upholding the validity of the decision reached by the respondent decision, original certificate of title No. 14318, covering said
officials in the administrative case; [2] dissolving the injunction parcels 1 and 2 was issued to the spouses Potenciano Garcia and
issued by the Court below; and [3] cancelling the registration of Lorenza Sioson.
Lot No. 2, the disputed area, and ordering its reconveyance to
the public domain. No costs in this instance.
These parcels of land were subsequently bought by Emilio Cruz de
Dios in whose name transfer certificate of title No. 1421 was first
The background facts are stated by the Court of Appeals as follows: issued on November 9, 1925.

The spouses Romeo Martinez and Leonor Suarez, now petitioners- Thereafter, the ownership of these properties changed hands until
appellees, are the registered owners of two (2) parcels of land eventually they were acquired by the herein appellee spouses
located in Lubao, Pampanga, covered by transfer certificate of who hold them by virtue of transfer certificate of title No. 15856.
title No. 15856 of the Register of Deeds of the said province. Both
parcels of land are fishponds. The property involved in the instant
To avoid any untoward incident, the disputants agreed to refer the
case is the second parcel mentioned in the above-named transfer
matter to the Committee on Rivers and Streams, by then
certificate of title.
composed of the Honorable Pedro Tuason, at that time Secretary
of Justice, as chairman, and the Honorable Salvador Araneta and
The disputed property was originally owned by one Paulino Vicente Orosa, Secretary of Agriculture and National Resources
Montemayor, who secured a "titulo real" over it way back in 1883. and Secretary of Public Works and Communications, respectively,
67
as members. This committee thereafter appointed a Sub- Penalties For Its Violation, And For Other Purposes. 1 The said order
Committee to investigate the case and to conduct an ocular which gave rise to the instant proceedings, embodied a threat that
inspection of the contested property, and on March 11, 1954, said the dikes would be demolished should the herein appellees fail to
Sub-Committee submitted its report to the Committee on Rivers comply therewith within thirty (30) days.
and Streams to the effect that Parcel No. 2 of transfer certificate of
title No. 15856 was not a public river but a private fishpond owned The spouses Martinez replied to the order by commencing on January
by the herein spouses. 2, 1959 the present case, which was decided in their favor by the
lower Court in a decision dated August 10, 1959, the dispositive part of
On July 7, 1954, the Committee on Rivers and Streams rendered its which reads:
decision the dispositive part of which reads:
"WHEREFORE, in view of the foregoing considerations, the
"In view of the foregoing considerations, the Court hereby declares the decision, Exhibit S, rendered by
spouses Romeo Martinez and Leonor Suarez should the Undersecretary of Public Works and Communications
be restored to the exclusive possession, use and null and void; declares the preliminary injunction, hereto for
enjoyment of the creek in question which forms issued, permanent, and forever enjoining both respondents
part of their registered property and the decision from molesting the spouses Romeo Martinez and Leonor
of the courts on the matter be given full force and Suarez in their possession, use and enjoyment of their
effect." property described in Plan Psu-9992 and referred to in their
petition."
The municipal officials of Lubao, led by Acting Mayor Mariano "Without pronouncement as to costs."
Zagad, apparently refused to recognize the above decision, "SO ORDERED."
because on September 1, 1954, the spouses Romeo Martinez and
Leonor Suarez instituted Civil Case No. 751 before the Court of First As against this judgment respondent officials of the Department of
Instance of Pampanga against said Mayor Zagad, praying that the Public Works and Communications took the instant appeal,
latter be enjoined from molesting them in their possession of their contending that the lower Court erred:
property and in the construction of the dikes therein. The writ of
preliminary injunction applied for was issued against the respondent 1. In holding that then Senator Rogelio de la Rosa, complainant in the
municipal Mayor, who immediately elevated the injunction suit for administrative case, is not an interested party and his letter-complaint
review to the Supreme Court, which dismissed Mayor Zagad's dated August 15, 1958 did not confer jurisdiction upon the respondent
petition on September 7, 1953. With this dismissal order herein Undersecretary of Public Works and Communications to investigate the
appellee spouses proceeded to construct the dikes in the disputed said administrative case;
parcel of land.
2. In holding that the duty to investigate encroachments upon public
Some four (4) years later, and while Civil Case No. 751 was still pending rivers conferred upon the respondent Secretary under Republic Act No.
the Honorable Florencio Moreno, then Secretary of Public Works and 7056 cannot be lawfully delegated by him to his subordinates;
Communications, ordered another investigation of the said parcel of
land, directing the appellees herein to remove the dikes they had
3. In holding that the investigation ordered by the respondent
constructed, on the strength of the authority vested in him by Republic
Secretary in this case is illegal on the ground that the said respondent
Act No. 2056, approved on June 13, 1958, entitled "An Act To Prohibit,
Secretary has arrogated unto himself the power, which he does not
Remove and/or Demolish the Construction of Dams. Dikes, Or Any
possess, of reversing, making nugatory, and setting aside the two lawful
Other Walls In Public Navigable Waters, Or Waterways and In
decisions of the Court Exhibits K and I, and even annulling thereby, the
Communal Fishing Grounds, To Regulate Works in Such Waters or
one rendered by the highest Tribunal of the land;
Waterways And In Communal Fishing Grounds, And To Provide
68
4. In not sustaining respondent's claim that petitioners have no cause of COVERING IT HAS BEEN VESTED IN THE PETITIONERS WHO ARE THE
action because the property in dispute is a public river and in holding SEVENTH OF THE SUCCESSIVE INNOCENT PURCHASERS THEREOF AND
that the said claim has no basis in fact and in law; WHO IN PURCHASING THE SAME RELIED ON THE PRINCIPLE THAT THE
PERSONS DEALING WITH REGISTERED LAND NEED NOT GO BEHIND
5. In not passing upon and disposing of respondent's counterclaim; THE REGISTER TO DETERMINE THE CONDITION OF THE PROPERTY.

6. In not sustaining respondent's claim that the petition should not have The 1st and 2nd assignment of errors, being closely related, will be taken up
been entertained on the ground that the petitioners have not together.
exhausted administrative remedies; and
The ruling of the Court of Appeals that Lot No. 2 covered by Transfer
7. In holding that the decision of the respondents is illegal on the Certificate of Title No. 15856 of the petitioners-appellants is a public stream
ground that it violates the principles that laws shall have no retroactive and that said title should be cancelled and the river covered reverted to
effect unless the contrary is provided and in holding that the said public domain, is assailed by the petitioners-appellants as being a collateral
Republic Act No. 2056 is unconstitutional on the ground that attack on the indefeasibility of the torrens title originally issued in 1925 in favor
respondents' threat of prosecuting petitioners under Section 3 thereof of the petitioners-appellants' predecessor-in-interest, Potenciano Garcia,
for acts done four years before its enactment renders the said law ex which is violative of the rule of res judicata. It is argued that as the decree of
post facto. registration issued by the Land Registration Court was not re-opened through
a petition for review filed within one (1) year from the entry of the decree of
title, the certificate of title issued pursuant thereto in favor of the appellants for
The Court of Appeals sustained the above-mentioned assignment of errors
the land covered thereby is no longer open to attack under Section 38 of the
committed by the Court of First Instance of Pampanga and, as previously
Land Registration Act (Act 496) and the jurisprudence on the matter
stated, reversed the judgment of the latter court. From this reversal this appeal
established by this Tribunal. Section 38 of the Land Registration Act cited by
by certiorari was taken, and before this Court, petitioners-appellants assigned
appellants expressly makes a decree of registration, which ordinarily makes
the following errors allegedly committed by the Court of Appeals:
the title absolute and indefeasible, subject to the exemption stated in Section
39 of the said Act among which are: "liens, claims or rights arising or existing
1. THE COURT OF APPEALS ERRED IN DECLARING IN THE INSTANT under the laws or Constitution of the United States or of the Philippine Islands
CASE THAT PARCEL NO. 2 OF TRANSFER CERTIFICATE OF TITLE NO. which the statute of the Philippine Islands cannot require to appear of record
15856 IS A PUBLIC RIVER AND ORDERING THE CANCELLATION OF ITS in the registry."
REGISTRATION BECAUSE THIS CONSTITUTES A COLLATERAL ATTACK
ON A TORRENS TITLE IN VIOLATION OF THE LAW AND THE WELL-
At the time of the enactment of Section 496, one right recognized or existing
SETTLED JURISPRUDENCE ON THE MATTER.
under the law is that provided for in Article 339 of the old Civil Code which
reads as follows:
2. THE COURT OF APPEALS ERRED IN REOPENING AND RE-LITIGATING
THE ISSUE AS TO WHETHER OR NOT LOT NO. 2 OF TRANSFER
Property of public ownership is:
CERTIFICATE OF TITLE NO. 15856 REGISTER OF DEEDS OF PAMPANGA,
IS A PUBLIC RIVER NOTWITHSTANDING THE FACT THAT THIS ISSUE HAS
BEEN LONG RESOLVED AND SETTLED BY THE LAND REGISTRATION 1. That destined to the public use, such as roads, canals,
COURT OF PAMPANGA IN LAND REGISTRATION PROCEEDING NO. rivers, torrents, ports, and bridges constructed by the State,
692 AND IS NOW RES JUDICATA. and banks shores, roadsteads, and that of a similar character.
(Par. 1)
3. THE COURT OF APPEALS ERRED IN ORDERING THE CANCELLATION
OF THE REGISTRATION OF LOT NO. 2 OF TRANSFER CERTIFICATE OF
TITLE NO. 15856 NOTWITHSTANDING THE FACT THAT THE TORRENS TITLE

69
The above-mentioned properties are parts of the public domain intended for The right of reversion or reconveyance to the State of the public properties
public use, are outside the commerce of men and, therefore, not subject to fraudulently registered and which are not capable of private appropriation or
private appropriation. ( 3 Manresa, 6th ed. 101-104.) private acquisition does not prescribe. (Republic v. Ramona Ruiz, et al., G.R.
No. L-23712, April 29, 1968, 23 SCRA 348; Republic v. Ramos, G.R. No.
In Ledesma v. Municipality of Iloilo, 49 Phil. 769, this Court held: L-15484, January 31, 1963, 7 SCRA 47.)

A simple possession of a certificate of title under the Torrens When it comes to registered properties, the jurisdiction of the Secretary of
system does not necessarily make the possessor a true owner Public Works & Communications under Republic Act 2056 to order the
of all the property described therein. If a person obtains title removal or obstruction to navigation along a public and navigable creek or
under the Torrens system which includes by mistake or river included therein, has been definitely settled and is no longer open to
oversight, lands which cannot be registered under the Torrens question (Lovina v. Moreno, G.R. No L-17821, November 29, 1963, 9 SCRA 557;
system, he does not by virtue of said certificate alone Taleon v. Secretary of Public Works & Communications G.R. No. L-24281, May
become the owner of the land illegally included. 16, 1961, 20 SCRA 69, 74).

In Mercado v. Municipal President of Macabebe, 59 Phil. 592, it was also said: The evidence submitted before the trial court which was passed upon by the
respondent Court of Appeals shows that Lot No. 2 (Plan Psu 992) of Transfer
Certificate of Title No. 15856, is a river of the public domain. The technical
It is useless for the appellant now to allege that she has
description of both Lots Nos. 1 and 2 appearing in Original Certificate of Title
obtained certificate of title No. 329 in her favor because the
No. 14318 of the Register of Deeds of Pampanga, from which the present
said certificate does not confer upon her any right to the
Transfer Certificate of Title No. 15856 was derived, confirms the fact that Lot
creek in question, inasmuch as the said creek, being of the
No. 2 embraced in said title is bounded practically on all sides by rivers. As
public domain, is included among the various exceptions
held by the Court of First Instance of Pampanga in Civil Case No. 1247 for
enumerated in Section 39 of Act 496 to which the said
injunction filed by the petitioners' predecessors-in-interest against the
certificate is subject by express provision of the law.
Municipal Mayor of Lubao and decided in 1916 (Exh. "L"), Lot No. 2 is a branch
of the main river that has been covered with water since time immemorial
The same ruling was laid down in Director of Lands v. Roman Catholic Bishop and, therefore, part of the public domain. This finding having been affirmed
of Zamboanga, 61 Phil. 644, as regards public plaza. by the Supreme Court, there is no longer any doubt that Lot No. 2 of Transfer
Certificate of Title No. 15856 of petitioners is a river which is not capable of
In Dizon, et al. v. Rodriguez, et al., G.R. No. L-20300-01 and G.R. No. L-20355-56, private appropriation or acquisition by prescription. (Palanca v. Com. of the
April 30, 1965, 20 SCRA 704, it was held that the incontestable and indefeasible Philippines, 69 Phil. 449; Meneses v. Com. of the Philippines, 69 Phil. 647).
character of a Torrens certificate of title does not operate when the land Consequently, appellants' title does not include said river.
covered thereby is not capable of registration.
II
It is, therefore, clear that the authorities cited by the appellants as to the
conclusiveness and incontestability of a Torrens certificate of title do not apply As regards the 3rd assignment of error, there is no weight in the appellants'
here. The Land Registration Court has no jurisdiction over non-registerable argument that, being a purchaser for value and in good faith of Lot No. 2, the
properties, such as public navigable rivers which are parts of the public nullification of its registration would be contrary to the law and to the
domain, and cannot validly adjudge the registration of title in favor of a applicable decisions of the Supreme Court as it would destroy the stability of
private applicant. Hence, the judgment of the Court of First Instance of the title which is the core of the system of registration. Appellants cannot be
Pampanga as regards the Lot No. 2 of Certificate of Title No. 15856 in the deemed purchasers for value and in good faith as in the deed of absolute
name of petitioners-appellants may be attacked at any time, either directly or conveyance executed in their favor, the following appears:
collaterally, by the State which is not bound by any prescriptive period
provided for by the Statute of Limitations (Article 1108, par. 4, new Civil Code).

70
6. Que la segunda parcela arriba descrita y mencionada principle that rivers are parts of the public domain for public use and not
esta actualmente abierta, sin malecones y excluida de la capable of private appropriation or acquisition by prescription.
primera parcela en virtud de la Orden Administrative No. 103,
tal como fue enmendada, del pasado regimen o Gobierno. FOR ALL THE FOREGOING, the judgment of the Court of Appeals appealed
from is in accordance with law, and the same is hereby affirmed with costs
7. Que los citados compradores Romeo Martinez y Leonor against the petitioners-appellants.
Suarez se encargan de gestionar de las autoridades
correspondientes para que la citada segunda parcela
pueda ser convertida de nuevo en pesqueria, corriendo a
cuenta y cargo de los mismos todos los gastos.

8. Que en el caso de que dichos compradores no pudiesen


conseguir sus propositos de convertir de nuevo en pesquera
la citada segunda parcela, los aqui vendedores no
devolveran ninguna cantidad de dinero a los referidos
compradores; este es, no se disminuiriat el precio de esta
venta. (Exh. 13-a, p. 52, respondents record of exhibits)

These stipulations were accepted by the petitioners-appellants in the same


conveyance in the following terms:

Romeo Martinez y Leonor Suarez, mayores de edad, filipinos y


residentes en al Barrio de Julo Municipio de Malabon,
Provincia de Rizal, por la presente, declaran que estan
enterados del contenido de este documento y lo aceptan
en los precisos terminos en que arriba uedan consignados.
(Exh. 13-a, ibid)

Before purchasing a parcel of land, it cannot be contended that the


appellants who were the vendees did not know exactly the condition of the
land that they were buying and the obstacles or restrictions thereon that may
be put up by the government in connection with their project of converting
Lot No. 2 in question into a fishpond. Nevertheless, they willfully and voluntarily
assumed the risks attendant to the sale of said lot. One who buys something
with knowledge of defect or lack of title in his vendor cannot claim that he
acquired it in good faith (Leung Lee v. Strong Machinery Co., et al., 37 Phil.
664).

The ruling that a purchaser of a registered property cannot go beyond the


record to make inquiries as to the legality of the title of the registered owner,
but may rely on the registry to determine if there is no lien or encumbrances
over the same, cannot be availed of as against the law and the accepted

71
MUST BE DETERMINATE OR DETERMINABLE Asimismo nago constar que la cesion y traspaso que ariba se
mencionan es de venta difinitiva, y que para la mejor identificacion
G.R. No. L-24732 April 30, 1968 de los lotes y porciones de los mismos que son objeto de la presente,
PIO SIAN MELLIZA, petitioner, hago constar que dichos lotes y porciones son los que necesita el
vs. Gobierno Municipal de Iloilo para la construccion de avenidas,
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT parques y City Hall site del Municipal Government Center de iloilo,
APPEALS, respondents. segun el plano Arellano.
BENGZON, J.P., J.:
On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to
Juliana Melliza during her lifetime owned, among other properties, three Remedios Sian Villanueva who thereafter obtained her own registered title
parcels of residential land in Iloilo City registered in her name under Original thereto, under Transfer Certificate of Title No. 18178. Remedios in turn on
Certificate of Title No. 3462. Said parcels of land were known as Lots Nos. 2, 5 November 4, 1946 transferred her rights to said portion of land to Pio Sian
and 1214. The total area of Lot No. 1214 was 29,073 square meters. Melliza, who obtained Transfer Certificate of Title No. 2492 thereover in his
name. Annotated at the back of Pio Sian Melliza's title certificate was the
On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 following:
square meters of Lot 1214, to serve as site for the municipal hall. 1 The donation
was however revoked by the parties for the reason that the area donated ... (a) that a portion of 10,788 square meters of Lot 1214 now designated as
was found inadequate to meet the requirements of the development plan of Lots Nos. 1214-B-2 and 1214-B-3 of the subdivision plan belongs to the
the municipality, the so-called "Arellano Plan". 2 Municipality of Iloilo as per instrument dated November 15, 1932....

Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of
Lots 1214-A and 1214-B. And still later, Lot 1214-B was further divided into Lots Iloilo, donated the city hall site together with the building thereon, to the
1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As approved by the Bureau of Lands, University of the Philippines (Iloilo branch). The site donated consisted of Lots
Lot 1214-B-1 with 4,562 square meters, became known as Lot 1214-B; Lot 1214- Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square meters,
B-2, with 6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B- more or less.
13, with 4,135 square meters, became Lot 1214-D.
Sometime in 1952, the University of the Philippines enclosed the site donated
On November 15, 1932 Juliana Melliza executed an instrument without any with a wire fence. Pio Sian Melliza thereupon made representations, thru his
caption containing the following: lawyer, with the city authorities for payment of the value of the lot (Lot 1214-B).
No recovery was obtained, because as alleged by plaintiff, the City did not
Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS have funds (p. 9, Appellant's Brief.)
VEINTIDOS PESOS (P6,422.00), moneda filipina que por la presente
declaro haber recibido a mi entera satisfaccion del Gobierno The University of the Philippines, meanwhile, obtained Transfer Certificate of
Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a dicho Title No. 7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D.
Gobierno Municipal de Iloilo los lotes y porciones de los mismos que a
continuacion se especifican a saber: el lote No. 5 en toda su On December 10, 1955 Pio Sian Melliza filed an action in the Court of First
extension; una porcion de 7669 metros cuadrados del lote No. 2, Instance of Iloilo against Iloilo City and the University of the Philippines for
cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del piano recovery of Lot 1214-B or of its value.
de subdivision de dichos lotes preparado por la Certeza Surveying
Co., Inc., y una porcion de 10,788 metros cuadrados del lote No. 1214
cuya porcion esta designada como sub-lotes Nos. 1214-B-2 y 1214- The defendants answered, contending that Lot 1214-B was included in the
B-3 del mismo plano de subdivision. public instrument executed by Juliana Melliza in favor of Iloilo municipality in
1932. After stipulation of facts and trial, the Court of First Instance rendered its

72
decision on August 15, 1957, dismissing the complaint. Said court ruled that the the city hall, separating that building from Lots 1214-C and 1214-D, which were
instrument executed by Juliana Melliza in favor of Iloilo municipality included included therein. And, finally, appellees argue that the sale's object was
in the conveyance Lot 1214-B. In support of this conclusion, it referred to the determinate, because it could be ascertained, at the time of the execution of
portion of the instrument stating: the contract, what lots were needed by Iloilo municipality for avenues, parks
and city hall site "according to the Arellano Plan", since the Arellano plan was
Asimismo hago constar que la cesion y traspaso que arriba se then already in existence.
mencionan es de venta difinitiva, y que para la major identificacion
de los lotes y porciones de los mismos que son objeto de la presente, The appeal before Us calls for the interpretation of the public instrument
hago constar que dichos lotes y porciones son los que necesita el dated November 15, 1932. And interpretation of such contract involves a
Gobierno municipal de Iloilo para la construccion de avenidas, question of law, since the contract is in the nature of law as between the
parques y City Hall site del Municipal Government Center de Iloilo, parties and their successors-in-interest.
segun el plano Arellano.
At the outset, it is well to mark that the issue is whether or not the conveyance
and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and by Juliana Melliza to Iloilo municipality included that portion of Lot 1214 known
1214-D but also such other portions of lots as were necessary for the municipal as Lot 1214-B. If not, then the same was included, in the instrument
hall site, such as Lot 1214-B. And thus it held that Iloilo City had the right to subsequently executed by Juliana Melliza of her remaining interest in Lot 1214
donate Lot 1214-B to the U.P. to Remedios Sian Villanueva, who in turn sold what she thereunder had
acquired, to Pio Sian Melliza. It should be stressed, also, that the sale to
Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, Remedios Sian Villanueva from which Pio Sian Melliza derived title did not
1965, the Court of Appeals affirmed the interpretation of the Court of First specifically designate Lot 1214-B, but only such portions of Lot 1214 as were
Instance, that the portion of Lot 1214 sold by Juliana Melliza was not limited to not included in the previous sale to Iloilo municipality (Stipulation of Facts, par.
the 10,788 square meters specifically mentioned but included whatever was 5, Record on Appeal, p. 23). And thus, if said Lot 1214-B had been included in
needed for the construction of avenues, parks and the city hall site. the prior conveyance to Iloilo municipality, then it was excluded from the sale
Nonetheless, it ordered the remand of the case for reception of evidence to to Remedios Sian Villanueva and, later, to Pio Sian Melliza.
determine the area actually taken by Iloilo City for the construction of
avenues, parks and for city hall site. The point at issue here is then the true intention of the parties as to the object
of the public instrument Exhibit "D". Said issue revolves on the paragraph of the
The present appeal therefrom was then taken to Us by Pio Sian Melliza. public instrument aforequoted and its purpose, i.e., whether it was intended
Appellant maintains that the public instrument is clear that only Lots Nos. 1214- merely to further describe the lots already specifically mentioned, or whether it
C and 1214-D with a total area of 10,788 square meters were the portions of was intended to cover other lots not yet specifically mentioned.
Lot 1214 included in the sale; that the purpose of the second paragraph,
relied upon for a contrary interpretation, was only to better identify the lots First of all, there is no question that the paramount intention of the parties was
sold and none other; and that to follow the interpretation accorded the deed to provide Iloilo municipality with lots sufficient or adequate in area for the
of sale by the Court of Appeals and the Court of First Instance would render construction of the Iloilo City hall site, with its avenues and parks. For this
the contract invalid because the law requires as an essential element of sale, matter, a previous donation for this purpose between the same parties was
a "determinate" object (Art. 1445, now 1448, Civil Code). revoked by them, because of inadequacy of the area of the lot donated.

Appellees, on the other hand, contend that the present appeal improperly Secondly, reading the public instrument in toto, with special reference to the
raises only questions of fact. And, further, they argue that the parties to the paragraphs describing the lots included in the sale, shows that said instrument
document in question really intended to include Lot 1214-B therein, as shown describes four parcels of land by their lot numbers and area; and then it goes
by the silence of the vendor after Iloilo City exercised ownership thereover; on to further describe, not only those lots already mentioned, but the
that not to include it would have been absurd, because said lot is contiguous lots object of the sale, by stating that said lots are the ones needed for the
to the others admittedly included in the conveyance, lying directly in front of construction of the city hall site, avenues and parks according to the Arellano
73
plan. If the parties intended merely to cover the specified lots Lots 2, 5, And, moreover, there is no question either that Lot 1214-B is contiguous to Lots
1214-C and 1214-D, there would scarcely have been any need for the next 1214-C and 1214-D, admittedly covered by the public instrument. It is
paragraph, since these lots are already plainly and very clearly described by stipulated that, after execution of the contract Exhibit "D", the Municipality of
their respective lot number and area. Said next paragraph does not really Iloilo possessed it together with the other lots sold. It sits practically in the heart
add to the clear description that was already given to them in the previous of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation of facts,
one. was the notary public of the public instrument. As such, he was aware of its
terms. Said instrument was also registered with the Register of Deeds and such
It is therefore the more reasonable interpretation, to view it as describing those registration was annotated at the back of the corresponding title certificate of
other portions of land contiguous to the lots aforementioned that, by Juliana Melliza. From these stipulated facts, it can be inferred that Pio Sian
reference to the Arellano plan, will be found needed for the purpose at hand, Melliza knew of the aforesaid terms of the instrument or is chargeable with
the construction of the city hall site. knowledge of them; that knowing so, he should have examined the Arellano
plan in relation to the public instrument Exhibit "D"; that, furthermore, he should
have taken notice of the possession first by the Municipality of Iloilo, then by
Appellant however challenges this view on the ground that the description of
the City of Iloilo and later by the University of the Philippines of Lot 1214-B as
said other lots in the aforequoted second paragraph of the public instrument
part of the city hall site conveyed under that public instrument, and raised
would thereby be legally insufficient, because the object would allegedly not
proper objections thereto if it was his position that the same was not included
be determinate as required by law.
in the same. The fact remains that, instead, for twenty long years, Pio Sian
Melliza and his predecessors-in-interest, did not object to said possession, nor
Such contention fails on several counts. The requirement of the law that a sale exercise any act of possession over Lot 1214-B. Applying, therefore, principles
must have for its object a determinate thing, is fulfilled as long as, at the time of civil law, as well as laches, estoppel, and equity, said lot must necessarily be
the contract is entered into, the object of the sale is capable of being made deemed included in the conveyance in favor of Iloilo municipality, now Iloilo
determinate without the necessity of a new or further agreement between the City.
parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific
mention of some of the lots plus the statement that the lots object of the sale
WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of
are the ones needed for city hall site, avenues and parks, according to the
the Court of First Instance, and the complaint in this case is dismissed. No costs.
Arellano plan, sufficiently provides a basis, as of the time of the execution of
So ordered.
the contract, for rendering determinate said lots without the need of a new
and further agreement of the parties.
MUST BE DETERMINATE OR DETERMINABLE
The Arellano plan was in existence as early as 1928. As stated, the previous
donation of land for city hall site on November 27, 1931 was revoked on G.R. No. L-22487 May 21, 1969
March 6, 1932 for being inadequate in area under said Arellano plan.
Appellant claims that although said plan existed, its metes and bounds were ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their
not fixed until 1935, and thus it could not be a basis for determining the lots respective husbands, HILARIO ROMANO, FELIPE BERNARDO, and MAXIMO
sold on November 15, 1932. Appellant however fails to consider that LACANDALO, ISABEL ATILANO and GREGORIO ATILANO, plaintiffs-appellees,
the area needed under that plan for city hall site was then already known; vs.
that the specific mention of some of the lots covered by the sale in effect LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants.
fixed the corresponding location of the city hall site under the plan; that,
therefore, considering the said lots specifically mentioned in the public MAKALINTAL, J.:
instrument Exhibit "D", and the projected city hall site, with its area, as then
shown in the Arellano plan (Exhibit 2), it could be determined which, and how
In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva,
much of the portions of land contiguous to those specifically named, were
lot No. 535 of the then municipality of Zamboanga cadastre. The vendee
needed for the construction of the city hall site.
thereafter obtained transfer certificate of title No. 1134 in his name. In 1920 he

74
had the land subdivided into five parts, identified as lots Nos. 535-A, 535-B, 535- ordered to execute in their favor the corresponding deed of transfer with
C, 535-D and 535-E, respectively. On May 18 of the same year, after the respect to lot No. 535-E.
subdivision had been effected, Eulogio Atilano I, for the sum of P150.00,
executed a deed of sale covering lot No. 535-E in favor of his brother Eulogio The trial court rendered judgment for the plaintiffs on the sole ground that
Atilano II, who thereupon obtained transfer certificate of title No. 3129 in his since the property was registered under the Land Registration Act the
name. Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were defendants could not acquire it through prescription. There can be, of course,
likewise sold to other persons, the original owner, Eulogio Atilano I, retaining for no dispute as to the correctness of this legal proposition; but the defendants,
himself only the remaining portion of the land, presumably covered by the title aside from alleging adverse possession in their answer and counterclaim, also
to lot No. 535-A. Upon his death the title to this lot passed to Ladislao Atilano, alleged error in the deed of sale of May 18, 1920, thus: "Eulogio Atilano 1.o, por
defendant in this case, in whose name the corresponding certificate (No. T- equivocacion o error involuntario, cedio y traspaso a su hermano Eulogio
5056) was issued. Atilano 2.do el lote No. 535-E en vez del Lote No. 535-A."lawphi1.et

On December 6, 1952, Eulogio Atilano II having become a widower upon the The logic and common sense of the situation lean heavily in favor of the
death of his wife Luisa Bautista, he and his children obtained transfer defendants' contention. When one sells or buys real property a piece of
certificate of title No. 4889 over lot No. 535-E in their names as co-owners. land, for example one sells or buys the property as he sees it, in its actual
Then, on July 16, 1959, desiring to put an end to the co-ownership, they had setting and by its physical metes and bounds, and not by the mere lot number
the land resurveyed so that it could properly be subdivided; and it was then assigned to it in the certificate of title. In the particular case before us, the
discovered that the land they were actually occupying on the strength of the portion correctly referred to as lot No. 535-A was already in the possession of
deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as referred the vendee, Eulogio Atilano II, who had constructed his residence therein,
to in the deed, while the land which remained in the possession of the vendor, even before the sale in his favor even before the subdivision of the entire lot
Eulogio Atilano I, and which passed to his successor, defendant Ladislao No. 535 at the instance of its owner, Eulogio Atillano I. In like manner the latter
Atilano, was lot No. 535-E and not lot No. 535-A. had his house on the portion correctly identified, after the subdivision, as lot
No. 535-E, even adding to the area thereof by purchasing a portion of an
On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also adjoining property belonging to a different owner. The two brothers continued
deceased, filed the present action in the Court of First Instance of in possession of the respective portions the rest of their lives, obviously ignorant
Zamboanga, alleging, inter alia, that they had offered to surrender to the of the initial mistake in the designation of the lot subject of the 1920 until 1959,
defendants the possession of lot No. 535-A and demanded in return the when the mistake was discovered for the first time.
possession of lot No. 535-E, but that the defendants had refused to accept the
exchange. The plaintiffs' insistence is quite understandable, since lot No. 535-E The real issue here is not adverse possession, but the real intention of the
has an area of 2,612 square meters, as compared to the 1,808 square-meter parties to that sale. From all the facts and circumstances we are convinced
area of lot No. 535-A. that the object thereof, as intended and understood by the parties, was that
specific portion where the vendee was then already residing, where he
In their answer to the complaint the defendants alleged that the reference to reconstructed his house at the end of the war, and where his heirs, the
lot No. 535-E in the deed of sale of May 18, 1920 was an involuntary error; that plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and that
the intention of the parties to that sale was to convey the lot correctly its designation as lot No. 535-E in the deed of sale was simple mistake in the
identified as lot No. 535-A; that since 1916, when he acquired the entirety of drafting of the document.1wphi1.et The mistake did not vitiate the consent
lot No. 535, and up to the time of his death, Eulogio Atilano I had been of the parties, or affect the validity and binding effect of the contract
possessing and had his house on the portion designated as lot No. 535-E, after between them. The new Civil Code provides a remedy for such a situation by
which he was succeeded in such possession by the defendants herein; and means of reformation of the instrument. This remedy is available when, there
that as a matter of fact Eulogio Atilano I even increased the area under his having been a meeting of the funds of the parties to a contract, their true
possession when on June 11, 1920 he bought a portion of an adjoining lot, No. intention is not expressed in the instrument purporting to embody the
536, from its owner Fruto del Carpio. On the basis of the foregoing allegations agreement by reason of mistake, fraud, inequitable conduct on accident (Art.
the defendants interposed a counterclaim, praying that the plaintiffs be 1359, et seq.) In this case, the deed of sale executed in 1920 need no longer

75
reformed. The parties have retained possession of their respective properties
conformably to the real intention of the parties to that sale, and all they
should do is to execute mutual deeds of conveyance.

WHEREFORE, the judgment appealed from is reversed. The plaintiffs are


ordered to execute a deed of conveyance of lot No. 535-E in favor of the
defendants, and the latter in turn, are ordered to execute a similar document,
covering lot No. 595-A, in favor of the plaintiffs. Costs against the latter.

76
MUST BE DETERMINATE OR DETERMINABLE 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
G.R. No. L-9935 February 1, 1915 terms of a written contract is decidedly applicable. There is not the slightest
YU TEK and CO., plaintiff-appellant, intimation in the contract that the sugar was to be raised by the defendant.
vs. Parties are presumed to have reduced to writing all the essential conditions of
BASILIO GONZALES, defendant-appellant. 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
TRENT, J.: incorporating into the contract additional contemporaneous conditions which
are not mentioned at all in the writing, unless there has been fraud or mistake.
The basis of this action is a written contract, Exhibit A, the pertinent paragraphs In an early case this court declined to allow parol evidence showing that a
of which follow: 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
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum
provided that the plaintiff should receive from the defendant a stipulated
of P3,000 Philippine currency from Messrs. Yu Tek and Co., and that in
salary and expenses. The defendant sought to interpose as a defense to
consideration of said sum be obligates himself to deliver to the said Yu
recovery that the payment of the salary was contingent upon the plaintiff's
Tek and Co., 600 piculs of sugar of the first and second grade,
employment redounding to the benefit of the defendant company. The
according to the result of the polarization, within the period of three
contract contained no such condition and the court declined to receive
months, beginning on the 1st day of January, 1912, and ending on the
parol evidence thereof.
31st day of March of the same year, 1912.

In the case at bar, it is sought to show that the sugar was to be obtained
2. That the said Mr. Basilio Gonzales obligates himself to deliver to the
exclusively from the crop raised by the defendant. There is no clause in the
said Messrs. Yu Tek and Co., of this city the said 600 piculs of sugar at
written contract which even remotely suggests such a condition. The
any place within the said municipality of Santa Rosa which the said
defendant undertook to deliver a specified quantity of sugar within a
Messrs. Yu Tek and Co., or a representative of the same may
specified time. The contract placed no restriction upon the defendant in the
designate.
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
3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. and expected to raise the sugar himself, but he did not limit his obligation to
Yu Tek and Co. the 600 piculs of sugar within the period of three his own crop of sugar. Our conclusion is that the condition which the
months, referred to in the second paragraph of this document, this defendant seeks to add to the contract by parol evidence cannot be
contract will be rescinded and the said Mr. Basilio Gonzales will then considered. The rights of the parties must be determined by the writing itself.
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.
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;
Plaintiff proved that no sugar had been delivered to it under this contract nor that the contract represented a perfected sale; and that by failure of his crop
had it been able to recover the P3,000. Plaintiff prayed for judgment for the he was relieved from complying with his undertaking by loss of the thing due.
P3,000 and, in addition, for P1,200 under paragraph 4, supra. Judgment was (Arts. 1452, 1096, and 1182, Civil Code.) This argument is faulty in assuming that
rendered for P3,000 only, and from this judgment both parties appealed. there was a perfected sale. Article 1450 defines a perfected sale as follows:

The points raised by the defendant will be considered first. He alleges that the The sale shall be perfected between vendor and vendee and shall be
court erred in refusing to permit parol evidence showing that the parties binding on both of them, if they have agreed upon the thing which is
intended that the sugar was to be secured from the crop which the the object of the contract and upon the price, even when neither has
defendant raised on his plantation, and that he was unable to fulfill the been delivered.

77
Article 1452 reads: "The injury to or the profit of the thing sold shall, after the quantity had been deposited in a specific warehouse, and thus set apart and
contract has been perfected, be governed by the provisions of articles 1096 distinguished from all other hemp.
and 1182."
A number of cases have been decided in the State of Louisiana, where the
This court has consistently held that there is a perfected sale with regard to the civil law prevails, which confirm our position. Perhaps the latest is Witt Shoe
"thing" whenever the article of sale has been physically segregated from all Co. vs. Seegars and Co. (122 La., 145; 47 Sou., 444). In this case a contract was
other articles Thus, a particular tobacco factory with its contents was held sold entered into by a traveling salesman for a quantity of shoes, the sales having
under a contract which did not provide for either delivery of the price or of been made by sample. The court said of this contract:
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., But it is wholly immaterial, for the purpose of the main question,
200) where specified shares of stock in a tobacco factory were held sold by a whether Mitchell was authorized to make a definite contract of sale or
contract which deferred delivery of both the price and the stock until the not, since the only contract that he was in a position to make was an
latter had been appraised by an inventory of the entire assets of the agreement to sell or an executory contract of sale. He says that
company. In Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific house plaintiff sends out 375 samples of shoes, and as he was offering to sell
was held perfected between the vendor and vendee, although the delivery by sample shoes, part of which had not been manufactured and the
of the price was withheld until the necessary documents of ownership were rest of which were incorporated in plaintiff's stock in Lynchburg, Va., it
prepared by the vendee. In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the was impossible that he and Seegars and Co. should at that time have
plaintiff had delivered a quantity of hemp into the warehouse of the agreed upon the specific objects, the title to which was to pass, and
defendant. The defendant drew a bill of exchange in the sum of P800, hence there could have been no sale. He and Seegars and Co. might
representing the price which had been agreed upon for the hemp thus have agreed, and did (in effect ) agree, that the identification of the
delivered. Prior to the presentation of the bill for payment, the hemp was objects and their appropriation to the contract necessary to make a
destroyed. Whereupon, the defendant suspended payment of the bill. It was sale should thereafter be made by the plaintiff, acting for itself and for
held that the hemp having been already delivered, the title had passed and Seegars and Co., and the legend printed in red ink on plaintiff's
the loss was the vendee's. It is our purpose to distinguish the case at bar from billheads ("Our responsibility ceases when we take transportation Co's.
all these cases. receipt `In good order'" indicates plaintiff's idea of the moment at
which such identification and appropriation would become effective.
In the case at bar the undertaking of the defendant was to sell to the plaintiff The question presented was carefully considered in the case of
600 piculs of sugar of the first and second classes. Was this an agreement State vs. Shields, et al. (110 La., 547, 34 Sou., 673) (in which it was
upon the "thing" which was the object of the contract within the meaning of absolutely necessary that it should be decided), and it was there held
article 1450, supra? Sugar is one of the staple commodities of this country. For that in receiving an order for a quantity of goods, of a kind and at a
the purpose of sale its bulk is weighed, the customary unit of weight being price agreed on, to be supplied from a general stock, warehoused at
denominated a "picul." There was no delivery under the contract. Now, if another place, the agent receiving the order merely enters into an
called upon to designate the article sold, it is clear that the defendant could executory contract for the sale of the goods, which does not divest or
only say that it was "sugar." He could only use this generic name for the thing transfer the title of any determinate object, and which becomes
sold. There was no "appropriation" of any particular lot of sugar. Neither party effective for that purpose only when specific goods are thereafter
could point to any specific quantity of sugar and say: "This is the article which appropriated to the contract; and, in the absence of a more specific
was the subject of our contract." How different is this from the contracts agreement on the subject, that such appropriated takes place only
discussed in the cases referred to above! In the McCullough case, for when the goods as ordered are delivered to the public carriers at the
instance, the tobacco factory which the parties dealt with was specifically place from which they are to be shipped, consigned to the person by
pointed out and distinguished from all other tobacco factories. So, in the whom the order is given, at which time and place, therefore, the sale
Barretto case, the particular shares of stock which the parties desired to is perfected and the title passes.
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

78
This case and State vs. Shields, referred to in the above quotation are amply agreed on, the contract will be rescinded and he will be obliged to return the
illustrative of the position taken by the Louisiana court on the question before P3,000 and pay the sum of P1,200 by way of indemnity for loss and damages.
us. But we cannot refrain from referring to the case of Larue and There cannot be the slightest doubt about the meaning of this language or
Prevost vs.Rugely, Blair and Co. (10 La. Ann., 242) which is summarized by the the intention of the parties. There is no room for either interpretation or
court itself in the Shields case as follows: construction. Under the provisions of article 1255 of the Civil Code contracting
parties are free to execute the contracts that they may consider suitable,
. . . It appears that the defendants had made a contract for the sale, provided they are not in contravention of law, morals, or public order. In our
by weight, of a lot of cotton, had received $3,000 on account of the opinion there is nothing in the contract under consideration which is opposed
price, and had given an order for its delivery, which had been to any of these principles.
presented to the purchaser, and recognized by the press in which the
cotton was stored, but that the cotton had been destroyed by fire For the foregoing reasons the judgment appealed from is modified by
before it was weighed. It was held that it was still at the risk of the allowing the recovery of P1,200 under paragraph 4 of the contract. As thus
seller, and that the buyer was entitled to recover the $3,000 paid on modified, the judgment appealed from is affirmed, without costs in this
account of the price. instance.

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
79
MUST BE DETERMINATE OR DETERMINABLE Fonacier would receive from the mining claims, all his rights and interests on all
the roads, improvements, and facilities in or outside said claims, the right to
G.R. No. L-11827 July 31, 1961 use the business name "Larap Iron Mines" and its goodwill, and all the records
and documents relative to the mines. In the same document, Gaite
transferred to Fonacier all his rights and interests over the "24,000 tons of iron
FERNANDO A. GAITE, plaintiff-appellee,
ore, more or less" that the former had already extracted from the mineral
vs.
claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
upon the signing of the agreement, and
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO
TY, defendants-appellants.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be
paid from and out of the first letter of credit covering the first shipment
REYES, J.B.L., J.:
of iron ores and of the first amount derived from the local sale of iron
ore made by the Larap Mines & Smelting Co. Inc., its assigns,
This appeal comes to us directly from the Court of First Instance because the administrators, or successors in interests.
claims involved aggregate more than P200,000.00.
To secure the payment of the said balance of P65,000.00, Fonacier promised
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by to execute in favor of Gaite a surety bond, and pursuant to the promise,
himself or in a representative capacity, of 11 iron lode mineral claims, known Fonacier delivered to Gaite a surety bond dated December 8, 1954 with
as the Dawahan Group, situated in the municipality of Jose Panganiban, himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its
province of Camarines Norte. stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco
Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however,
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier that when this bond was presented to him by Fonacier together with the
constituted and appointed plaintiff-appellee Fernando A. Gaite as his true "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8,
and lawful attorney-in-fact to enter into a contract with any individual or 1954, he refused to sign said Exhibit "A" unless another bond under written by a
juridical person for the exploration and development of the mining claims bonding company was put up by defendants to secure the payment of the
aforementioned on a royalty basis of not less than P0.50 per ton of ore that P65,000.00 balance of their price of the iron ore in the stockpiles in the mining
might be extracted therefrom. On March 19, 1954, Gaite in turn executed a claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was
general assignment (Record on Appeal, pp. 17-19) conveying the executed by the same parties to the first bond Exhibit "A-1", with the Far
development and exploitation of said mining claims into the Larap Iron Mines, Eastern Surety and Insurance Co. as additional surety, but it provided that the
a single proprietorship owned solely by and belonging to him, on the same liability of the surety company would attach only when there had been an
royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not
development and exploitation of the mining claims in question, opening and less then P65,000.00, and that, furthermore, the liability of said surety company
paving roads within and outside their boundaries, making other improvements would automatically expire on December 8, 1955. Both bonds were attached
and installing facilities therein for use in the development of the mines, and in to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made
time extracted therefrom what he claim and estimated to be approximately integral parts thereof.
24,000 metric tons of iron ore.
On the same day that Fonacier revoked the power of attorney he gave to
For some reason or another, Isabelo Fonacier decided to revoke the authority Gaite and the two executed and signed the "Revocation of Power of Attorney
granted by him to Gaite to exploit and develop the mining claims in question, and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining
and Gaite assented thereto subject to certain conditions. As a result, a Operation", ceding, transferring, and conveying unto the Larap Mines and
document entitled "Revocation of Power of Attorney and Contract" was Smelting Co., Inc. the right to develop, exploit, and explore the mining claims
executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to in question, together with the improvements therein and the use of the name
Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that "Larap Iron Mines" and its good will, in consideration of certain royalties.

80
Fonacier likewise transferred, in the same document, the complete title to the On the first question, the lower court held that the obligation of the
approximately 24,000 tons of iron ore which he acquired from Gaite, to the defendants to pay plaintiff the P65,000.00 balance of the price of the
Larap & Smelting Co., in consideration for the signing by the company and its approximately 24,000 tons of iron ore was one with a term: i.e., that it would
stockholders of the surety bonds delivered by Fonacier to Gaite (Record on be paid upon the sale of sufficient iron ore by defendants, such sale to be
Appeal, pp. 82-94). effected within one year or before December 8, 1955; that the giving of
security was a condition precedent to Gait's giving of credit to defendants;
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the and that as the latter failed to put up a good and sufficient security in lieu of
Far Eastern Surety and Insurance Company, no sale of the approximately the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955,
24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., the obligation became due and demandable under Article 1198 of the New
Inc., nor had the P65,000.00 balance of the price of said ore been paid to Civil Code.
Gaite by Fonacier and his sureties payment of said amount, on the theory that
they had lost right to make use of the period given them when their bond, As to the second question, the lower court found that plaintiff Gaite did have
Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier approximately 24,000 tons of iron ore at the mining claims in question at the
and his sureties failed to pay as demanded by Gaite, the latter filed the time of the execution of the contract Exhibit "A."
present complaint against them in the Court of First Instance of Manila (Civil
Case No. 29310) for the payment of the P65,000.00 balance of the price of the Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering
ore, consequential damages, and attorney's fees. defendants to pay him, jointly and severally, P65,000.00 with interest at 6% per
annum from December 9, 1955 until payment, plus costs. From this judgment,
All the defendants except Francisco Dante set up the uniform defense that defendants jointly appealed to this Court.
the obligation sued upon by Gaite was subject to a condition that the
amount of P65,000.00 would be payable out of the first letter of credit During the pendency of this appeal, several incidental motions were
covering the first shipment of iron ore and/or the first amount derived from the presented for resolution: a motion to declare the appellants Larap Mines &
local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to Smelting Co., Inc. and George Krakower in contempt, filed by appellant
the time of the filing of the complaint, no sale of the iron ore had been made, Fonacier, and two motions to dismiss the appeal as having become
hence the condition had not yet been fulfilled; and that consequently, the academic and a motion for new trial and/or to take judicial notice of certain
obligation was not yet due and demandable. Defendant Fonacier also documents, filed by appellee Gaite. The motion for contempt is unmeritorious
contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to because the main allegation therein that the appellants Larap Mines &
him by Gaite was actually delivered, and counterclaimed for more than Smelting Co., Inc. and Krakower had sold the iron ore here in question, which
P200,000.00 damages. allegedly is "property in litigation", has not been substantiated; and even if
true, does not make these appellants guilty of contempt, because what is
At the trial of the case, the parties agreed to limit the presentation of under litigation in this appeal is appellee Gaite's right to the payment of the
evidence to two issues: balance of the price of the ore, and not the iron ore itself. As for the several
motions presented by appellee Gaite, it is unnecessary to resolve these
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite motions in view of the results that we have reached in this case, which we
P65,000.00 become due and demandable when the defendants failed to shall hereafter discuss.
renew the surety bond underwritten by the Far Eastern Surety and Insurance
Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and The main issues presented by appellants in this appeal are:

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to (1) that the lower court erred in holding that the obligation of appellant
defendant Fonacier were actually in existence in the mining claims when Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the
these parties executed the "Revocation of Power of Attorney and Contract", iron ore in question)is one with a period or term and not one with a suspensive
Exhibit "A." condition, and that the term expired on December 8, 1955; and

81
(2) that the lower court erred in not holding that there were only 10,954.5 tons each party anticipates performance by the other from the very start. While in
in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier. a sale the obligation of one party can be lawfully subordinated to an
uncertain event, so that the other understands that he assumes the risk of
The first issue involves an interpretation of the following provision in the receiving nothing for what he gives (as in the case of a sale of hopes or
contract Exhibit "A": expectations, emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear.
Nothing is found in the record to evidence that Gaite desired or assumed to
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo
run the risk of losing his right over the ore without getting paid for it, or that
F. Fonacier all his rights and interests over the 24,000 tons of iron ore,
Fonacier understood that Gaite assumed any such risk. This is proved by the
more or less, above-referred to together with all his rights and interests
fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00,
to operate the mine in consideration of the sum of SEVENTY-FIVE
an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and
THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:
the company's stockholders, but also on one by a surety company; and the
fact that appellants did put up such bonds indicates that they admitted the
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of definite existence of their obligation to pay the balance of P65,000.00.
this agreement.
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid shipment of the ore as a condition precedent, would be tantamount to
from and out of the first letter of credit covering the first shipment of leaving the payment at the discretion of the debtor, for the sale or shipment
iron ore made by the Larap Mines & Smelting Co., Inc., its assigns, could not be made unless the appellants took steps to sell the ore. Appellants
administrators, or successors in interest. would thus be able to postpone payment indefinitely. The desireability of
avoiding such a construction of the contract Exhibit "A" needs no stressing.
We find the court below to be legally correct in holding that the shipment or
local sale of the iron ore is not a condition precedent (or suspensive) to the 4) Assuming that there could be doubt whether by the wording of the
payment of the balance of P65,000.00, but was only a suspensive period or contract the parties indented a suspensive condition or a suspensive period
term. What characterizes a conditional obligation is the fact that its efficacy or (dies ad quem) for the payment of the P65,000.00, the rules of interpretation
obligatory force (as distinguished from its demandability) is subordinated to would incline the scales in favor of "the greater reciprocity of interests", since
the happening of a future and uncertain event; so that if the suspensive sale is essentially onerous. The Civil Code of the Philippines, Article 1378,
condition does not take place, the parties would stand as if the conditional paragraph 1, in fine, provides:
obligation had never existed. That the parties to the contract Exhibit "A" did
not intend any such state of things to prevail is supported by several
If the contract is onerous, the doubt shall be settled in favor of the
circumstances:
greatest reciprocity of interests.

1) The words of the contract express no contingency in the buyer's obligation


and there can be no question that greater reciprocity obtains if the buyer'
to pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out
obligation is deemed to be actually existing, with only its maturity (due date)
of the first letter of credit covering the first shipment of iron ores . . ." etc. There
postponed or deferred, that if such obligation were viewed as non-existent or
is no uncertainty that the payment will have to be made sooner or later; what
not binding until the ore was sold.
is undetermined is merely the exact date at which it will be made. By the very
terms of the contract, therefore, the existence of the obligation to pay is
recognized; only its maturity or demandability is deferred. The only rational view that can be taken is that the sale of the ore to Fonacier
was a sale on credit, and not an aleatory contract where the transferor,
Gaite, would assume the risk of not being paid at all; and that the previous
2) A contract of sale is normally commutative and onerous: not only does
sale or shipment of the ore was not a suspensive condition for the payment of
each one of the parties assume a correlative obligation (the seller to deliver
the balance of the agreed price, but was intended merely to fix the future
and transfer ownership of the thing sold and the buyer to pay the price),but
date of the payment.
82
This issue settled, the next point of inquiry is whether appellants, Fonacier and absolute after one year from the transfer of the ore to Fonacier by virtue of the
his sureties, still have the right to insist that Gaite should wait for the sale or deed Exhibit "A.".
shipment of the ore before receiving payment; or, in other words, whether or
not they are entitled to take full advantage of the period granted them for All the alternatives, therefore, lead to the same result: that Gaite acted within
making the payment. his rights in demanding payment and instituting this action one year from and
after the contract (Exhibit "A") was executed, either because the appellant
We agree with the court below that the appellant have forfeited the right debtors had impaired the securities originally given and thereby forfeited any
court below that the appellants have forfeited the right to compel Gaite to further time within which to pay; or because the term of payment was
wait for the sale of the ore before receiving payment of the balance of originally of no more than one year, and the balance of P65,000.00 became
P65,000.00, because of their failure to renew the bond of the Far Eastern Surety due and payable thereafter.
Company or else replace it with an equivalent guarantee. The expiration of
the bonding company's undertaking on December 8, 1955 substantially Coming now to the second issue in this appeal, which is whether there were
reduced the security of the vendor's rights as creditor for the unpaid really 24,000 tons of iron ore in the stockpiles sold by appellee Gaite to
P65,000.00, a security that Gaite considered essential and upon which he had appellant Fonacier, and whether, if there had been a short-delivery as
insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). claimed by appellants, they are entitled to the payment of damages, we
The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil must, at the outset, stress two things: first, that this is a case of a sale of a
Code of the Philippines: specific mass of fungible goods for a single price or a lump sum, the quantity
of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being
"ART. 1198. The debtor shall lose every right to make use of the period: a mere estimate by the parties of the total tonnage weight of the mass;
and second, that the evidence shows that neither of the parties had actually
(1) . . . measured of weighed the mass, so that they both tried to arrive at the total
quantity by making an estimate of the volume thereof in cubic meters and
then multiplying it by the estimated weight per ton of each cubic meter.
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised.
The sale between the parties is a sale of a specific mass or iron ore because
no provision was made in their contract for the measuring or weighing of the
(3) When by his own acts he has impaired said guaranties or securities
ore sold in order to complete or perfect the sale, nor was the price of
after their establishment, and when through fortuitous event they
P75,000,00 agreed upon by the parties based upon any such
disappear, unless he immediately gives new ones equally satisfactory.
measurement.(see Art. 1480, second par., New Civil Code). The subject matter
of the sale is, therefore, a determinate object, the mass, and not the actual
Appellants' failure to renew or extend the surety company's bond upon its number of units or tons contained therein, so that all that was required of the
expiration plainly impaired the securities given to the creditor (appellee seller Gaite was to deliver in good faith to his buyer all of the ore found in the
Gaite), unless immediately renewed or replaced. mass, notwithstanding that the quantity delivered is less than the amount
estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield
There is no merit in appellants' argument that Gaite's acceptance of the Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code).
surety company's bond with full knowledge that on its face it would There is no charge in this case that Gaite did not deliver to appellants all the
automatically expire within one year was a waiver of its renewal after the ore found in the stockpiles in the mining claims in questions; Gaite had,
expiration date. No such waiver could have been intended, for Gaite stood to therefore, complied with his promise to deliver, and appellants in turn are
lose and had nothing to gain barely; and if there was any, it could be bound to pay the lump price.
rationally explained only if the appellants had agreed to sell the ore and pay
Gaite before the surety company's bond expired on December 8, 1955. But in But assuming that plaintiff Gaite undertook to sell and appellants undertook to
the latter case the defendants-appellants' obligation to pay became buy, not a definite mass, but approximately 24,000 tons of ore, so that any
substantial difference in this quantity delivered would entitle the buyers to
83
recover damages for the short-delivery, was there really a short-delivery in this There was, consequently, no short-delivery in this case as would entitle
case? appellants to the payment of damages, nor could Gaite have been guilty of
any fraud in making any misrepresentation to appellants as to the total
We think not. As already stated, neither of the parties had actually measured quantity of ore in the stockpiles of the mining claims in question, as charged
or weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. by appellants, since Gaite's estimate appears to be substantially correct.
Both parties predicate their respective claims only upon an estimated number
of cubic meters of ore multiplied by the average tonnage factor per cubic WHEREFORE, finding no error in the decision appealed from, we hereby affirm
meter. the same, with costs against appellants.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the
stockpiles of ore that he sold to Fonacier, while appellants contend that by
actual measurement, their witness Cirpriano Manlagit found the total volume
of ore in the stockpiles to be only 6.609 cubic meters. As to the average
weight in tons per cubic meter, the parties are again in disagreement, with
appellants claiming the correct tonnage factor to be 2.18 tons to a cubic
meter, while appellee Gaite claims that the correct tonnage factor is about
3.7.

In the face of the conflict of evidence, we take as the most reliable estimate
of the tonnage factor of iron ore in this case to be that made by Leopoldo F.
Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a
government pensionado to the States and a mining engineering graduate of
the Universities of Nevada and California, with almost 22 years of experience
in the Bureau of Mines. This witness placed the tonnage factor of every cubic
meter of iron ore at between 3 metric tons as minimum to 5 metric tons as
maximum. This estimate, in turn, closely corresponds to the average tonnage
factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by
engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the
mining claims involved at the request of appellant Krakower, precisely to
make an official estimate of the amount of iron ore in Gaite's stockpiles after
the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the
stockpiles made by appellant's witness Cipriano Manlagit is correct, if we
multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the
product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons
made by appellee Gaite, considering that actual weighing of each unit of the
mass was practically impossible, so that a reasonable percentage of error
should be allowed anyone making an estimate of the exact quantity in tons
found in the mass. It must not be forgotten that the contract Exhibit "A"
expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River
Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

84
Emption rei speratae vs. emptio spei known as the "HDA. EL PORVENIR" described in Pars. II and III of the
complaint, comprising the southern one half () of that parcel or
G.R. No. L-21436 August 18, 1972 agricultural land covered by Original Certificate of Title No. 7 of
the land records of the Province of Pangasinan, situated in the
municipalities of Tayug, Natividad, San Quintin and Sta. Maria;
REPUBLIC OF THE PHILIPPINES (Represented by the Land Tenure Administration,
substituted by the Land Authority), plaintiff and appellant,
vs. 2. That the defendant-co-owners have agreed to the
MARIANO F. LICHAUCO, ET AL., defendants. JOSE M. LICHAUCO, TRINIDAD condemnation of their property in view of the conformity of the
GONZALES, FRANCISCO CASTILLO and JOSE CASTILLO, defendants and plaintiff to grant them the right of retention of the areas stated
appellants. below and further reflected on the sketch plan hereto attached
and made an integrate part hereof as Annex "A"; and the
defendant-co-owners who are the heirs of the property have
ZALDIVAR, J.:p
among themselves agreed and have adjudicated the retained
areas corresponding to the persons whose names appear below:
The Republic of the Philippines, by authority of Republic Act No. 1400,
represented by the Land Tenure Administration, filed on December 2, 1957, in
the Court of First Instance of Pangasinan a complaint against the defendants Lot 3 Amanda de la Cruz 132.7732 Has. More or
for the expropriation of the lands of the "Hacienda El Porvenir", having an area less
of 1,352.84245 hectares, situated in the municipalities of Tayug, Natividad, San
Quintin and Sta. Maria, province of Pangasinan. In the complaint it was Lot 4 Renato Lichauco 144.1449 Has. More or
alleged, among other things, that the aggregate assessed value of the less
property was P434,440.00, and that the continuous agrarian conflicts between Lot 8 Amanda de la Cruz 6.8980 Has. More or less
defendants and their tenants could be solved only through the purchase of
said property by the government. Defendants, in their amended motion to Lot 9 Amanda de la 5.3164 Has. More or less
dismiss, sought the dismissal of the complaint, alleging that the hacienda was Cruz(Mariano)
no longer a co-ownership but had been partitioned among the several heirs
of Crisanto Lichauco, and that Republic Act No. 1400 was unconstitutional. Lot 10 Amanda de la Cruz 4.8811 Has. More or less
(Macario)
On March 23, 1961, the plaintiff and the defendants filed in court an Lot 12 Amanda de la Cruz 5.8811 Has. More or less
"Agreement and Joint Motion 2, as follows: (Ranato)

COMES NOW the plaintiff, represented by the Land Tenure Lot 2 Trinidad Castillo (portion) 51.3100 Has. More or
Administration, and the defendants (Mariano) F. Lichauco, less
Macario M. H. Lichauco, represented by Romeo Lichauco as
Administrator and Guardian ad litem, Renato P. Lichauco, Lot 11 Trinidad Castillo & minors
Francisco and Jose Castillo (minors) represented by their mother Francisco & Jose Castillo 6.7955 Has. More or less
and legal guardian, Olga Gonzales Castillo, and Trinidad Castillo; Lot 13 Jose Manuel Lichauco 5.5375 Has. More or less
Amanda L. De la Cruz and Jose Manuel Lichauco, assisted by their
respective counsels, and to this Honorable Court most respectfully TOTAL 362.6700 Has. More or
state: less

1. The defendant-co-owners do hereby agree, as evidenced by


their signature affixed hereto, to the expropriation of their property

85
leaving a total area of approximately 990.1725 hectares subject owned by her heirs, Trinidad Castillo and the minor Francisco and
to expropriation. Jose Castillo, and also that portion sold directly to Trinidad
Castillo as follows:
3. That the plaintiff and the defendant-co-owners have agreed
to survey and segregate the retained areas by the surveyors of Area sold by Mariano Lichauco to the late Maria
the Land Tenure Administration, with the assistance of the Lichauco Vda. de Gonzales ONE HUNDRED
defendant-co-owners or their authorized representative in order SIXTY SIX THOUSAND ONE HUNDRED EIGHTY
to pinpoint and delineate more or less the boundaries on the SQUARE METERS (166,180) more or less. Dated July
ground of the retained areas, at the expense of the Land Tenure 29, 1954. Francisco de la Fuente, Notary Public,
Administration; City of Manila, Doc. No. 39; Page No. 89; Book
No. II; Series of 1954.
4. That the defendant-co-owners hereby waive their right to
contest the expropriation by the Republic of the Philippines of the NINETY THOUSAND SIX HUNDRED SQUARE METERS
property mentioned in Pars. Il and III of the complaint, excluding (90,600) more or less. Dated April 28, 1955; City of
the portions to be retained by them, as to which the plaintiff Manila; SERVILLANO DE LA CRUZ, Notary Public;
agrees to dismiss the expropriation proceedings in the above- Doc. No. 79; Page No. 94, Book No.II; Series of
mentioned case; 1955.

5. That while it is true that these expropriation proceedings are Sold by Mariano Lichauco to Trinidad G. Castillo
based on Original Certificate of Title No. 7, one half () of which TWENTY THOUSAND EIGHT HUNDRED SQUARE
is more or less 1,352.8425 hectares, the survey on the ground as METERS (20,800) more or less. Dated Dec. 17,
per G. L. R. 0. No. 1 shows an increase in area of about 144.0681 1956. Notary Public Jose Aligayan, City of Manila.
hectares which is still subject to judicial determination in G. L. R. 0.
Case No. 1 and in the event the difference in area is adjusted From the amounts due Mariano F. Lichauco and Macario M. H.
and/or adjudicated in favor on the defendant-co-owners, the Lichauco, represented by Romeo Lichauco as administrator, the
plaintiff shall have the option buy the said portions in question as amounts of P5,000.00 and P32,800.00, respectively corresponding
adjudicated and to pay the corresponding price as in this to their personal accounts with Amanda L. de la Cruz shall be paid
expropriation case. However should there be an official directly to the latter;
devaluation of the Philippine Currency the price of the disputed
area, as well as the balance of the price of the portion of land
7. That the provisional value corresponding to ten (10) hectares of
expropriated herein, shall be computed in accordance with the
first class land due each of the defendant-co-owners, Macario M.
value of the currency at the time of the Court's adjudication in
H. Lichauco, Mariano Lichauco and Jose Manuel Lichauco, and
each case.
the value corresponding to seven (7) hectares of first class land
due to Francisco and Jose Castillo shall be deducted from the
6. That the defendant-co-owners have agreed that payments share of each of the said defendants, as well as from all
shall be made to them separately. In regard to liens and subsequent payments corresponding to said area, and the said
encumbrances, payment shall be made to the creditor banks deductions shall be paid directly to Amanda de la Cruz who shall
out of the provisional value to be paid to each defendant-co- deposit same in a bank so as to earn interest, under the name of
owners by the Land Tenure Administration with the Court which each depositor separately in trust for the remaining land owners to
shall be deducted from the corresponding amounts due each of answer for the liability of the said defendant-co-owners in the
the defendant-co-owners who are the debtors. That payment to event G.L.R.O. Case No. 1 should be decided adversely against
each co-owner by each of them, including that portion sold by them; otherwise all such amounts deposited with Amanda L. de la
Mariano Lichauco to the late Maria Vda. de Gonzales and now Cruz shall be paid or delivered by her to the said defendants,
86
Macario, Mariano, Jose Manuel Lichauco and Francisco and Jose 990.17250 Has. P990,172.50 144.065810
Castillo immediately after the termination of such case; provided, Has.
however, that no payment or delivery of the said amounts shall be
made, until and unless said G.L.R.O. Case No. 1 and its related
cases shall have been terminated; and provided further that In the event that G.L.R.O. Case No. 1 is decided against the herein
should the liability of each of the defendant-co-owners exceed the owners and in favor of the adverse claimants regarding the total
value of said ten hectares, all of them shall be liable for their disputed excess area of 144.06810 and any of the herein co-owners
proportionate share of said excess, but in no case shall the liability is found to have included in his lot more than his share of the
of Amanda de la Cruz, Renato P. Lichauco, the heirs of Maria L. disputed excess area so that he has to deliver more than his said
Vda. de Gonzales and all other defendant-co-owners shall exceed share, the other co-owners shall proportionately pay him the value
their proportionate shares should G. L. R. O. Case No. 1 be decided of the area in excess of his said share.
adversely against them, and likewise the liability of Trinidad G.
Castillo shall not exceed her proportionate share as stipulated in 9. That upon the issuance of the order of condemnation the Land
the supplemental agreement entered into between Olga Gonzales Tenure Administration shall deposit with the Court the amount of
de Castillo and Trinidad Gonzales de Castillo dated January 18, P990,172.50, which shall be considered as the provisional value of
1957 and notarized by Notary Public Stella D. Dadivas on July 23, the expropriated portion of the "Hda. El Porvenir," to be paid to the
1960; defendant-co-owners and their creditors separately in the manner
and proportion herein stipulated provided that this agreed
8. That the defendant-co-owners shall be paid according to the provisional value shall in no way be taken or understood as
areas they have agreed to sell under 0. C. T. No. 7 as well as for the indicative or determinative of the actual reasonable value which
disputed area, should the same be adjudicated to the estimated the plaintiff should pay for the defendant co-owners for the land
as follows: subject of expropriation in this case which shall not be less than the
Area (O.C.T. Provisional Disputed provisional value of P990,172.50 as herein before stated; provided
No.7) that any of the parties hereto may appeal to the higher Courts from
said determination if he should so desire;
Value Excess
10. That the final basis of condemnation and payment shall be the
Value area by actual survey by the Land Tenure Administration of the land
Amanda L. de la 80.48615 Has. 80,486.15 24,01135 Has. to be expropriated by and transferred to the said Office, after
Cruz deducting the retentions by the defendants-owners as hereinabove
specified; and the Land Tenure Administration shall give priority to
MarianoLichauco 197.71575 Has. 107,715.75 24.01135 Has. the survey to be conducted;

Jose M. Lichauco 212-11355 Has. 212,113.55 24.01135 Has. 11. That all payments by the Land Tenure Administration for the
Heirs of M. H. 220.59265 Has. 220,592.65 24.01135 Has. expropriated portion of the "Hda. El Porvenir" shall be strictly on cash
Lichauco basis.

Renato Lichauco 84.13815 Has. 84,138.15 24.01135 Has. WHEREFORE, it is respectfully prayed that this Honorable Court:

Trinidad Castillo 79.07462 Has. 79,074.62 8.00378 Has.


1. Issue the corresponding order of condemnation and fix a
Francisco & Jose 116.05163 Has. 116,051.63 16.00757 Has. provisional value of P990,172.50, ordering the deposit thereof with
Castillo the Court within a reasonable time from the issuance of said order of
condemnation and forthwith the payment by the Clerk of Court of
87
the same separately and proportionately to the defendants-co- possession in favor of the plaintiff, and an alias writ on August 30, 1961. This writ
owners and to the banks and other parties as stated hereinabove; was served on September 10, 1961, and on said date plaintiff was placed in
and the issuance of the corresponding writ of possession in favor of possession of the property.
the plaintiff upon making of said deposit;
On November 29,1961 Commissioners Rodolfo E. Vinluan and Hermenegildo
2. Appoint a committee to receive evidence on the fair and Acosta submitted the majority report of the Committee on Appraisal. The
reasonable compensation which the Government; represented by other commissioner submitted on December 2, 1961 the minority report. The
the plaintiff, shall pay to the corresponding defendant-co-owners recommended fair market values of the different kinds of lands in the two
and which should not be less than the provisional value of reports were as follows:
P990,172.50 as hereinbefore stated; provided any of the parties
hereto may appeal to the higher courts from said determination if Recommended value per hectare as per.
he should so desire;
Kind of land Majority Minority Report
Report
3. Order the dismissal of the expropriation case as against the area
retained by the defendant-co-owners specified hereinabove; First class irrigated

4. Order the priority survey of the hacienda by and at the expense riceland P5,500.00 P4,500.00
of the Land Tenure Administration, with the assistance of the Lots 7-D & 7-E 4,000.00
defendant co-owners, to segregate the areas retained by the
defendant-co-owners; Lots 7-A, 7-B & 7-C 3,500

5. Provide by order for such other matters as will best insure the full Second class irrigated
implementation of and compliance with the above terms and
riceland 4,500.00
conditions agreed to by the parties.
Third class irrigated
Manila for Lingayen, Pangasinan, March 23, 1961.
riceland 4,000.00 3,000.00
Acting on the foregoing Agreement and Joint Motion, the Court of First First class sugar cane
Instance of Pangasinan issued, on March 23, 1961, the order of condemnation
of the property sought to be expropriated and set the provisional value of the land 5,500.00
property at P990,172.50.
Lot 7-E (6-AM) 4,500.00
Inasmuch as the defendants were not agreeable to the price of P1,787,048.80, Fourth class sugar cane
or an average of P1,945.36 per hectare offered by the plaintiff in its
memorandum-report dated June 15, 1961 (Exhibit A), the court created a land 3,000.00
Committee on Appraisal and appointed as members thereof Atty. Rodolfo E.
Vinluan, to represent the Court; Mr. Alfredo Balingao of Tayug, Pangasinan, to Lots 7-D (A-8) &
represent the plaintiff; and Mr. Hermenegildo Acosta, also of Tayug, to
7-E (A-Z) 3,500.00
represent the defendants.
Lots 6, 7-D, 7-E 3,500.00
Upon motion of the plaintiff, after it had deposited with the clerk of court the
provisional value of the property, the court issued, on July 3, 1961, the writ of Lots 5, 7-A, 7-B, 7-C 3,000.00

88
First class upland 4,000.00 Tayug, Sta.Maria, San Quintin, and Natividad, province of
Pangasinan declaring the plaintiff to be the owner of said portion
Second class upland 3,500.00 of 990 hectares, 17 ares, and 25 centares upon previous
payment to the defendants the following sums:
Lots 7-A, 7-B & 7-C 2,500.00

Rolling lands 2,000.00 To:

Lots 7-A, 7-B & 7-C 1,500.00


Amanda L. de la Cruz P243,211.93
Residential land 1.00 per sq. 1.00 per sq.m.
Mariano Lichauco 812,711.09
m.
Jose M. Lichauco 630,906.55
On December 8, 1961, defendants, Jose Manuel Lichauco, Trinidad Gonzales Heirs of M. H. Lichauco 864,015.40
Castillo, and minors Francisco and Jose Castillo, excepted to the majority
report insofar as it affected their lots for which they claimed a price higher Heirs of Renato Lichauco 233,399.40
than what was recommended.
Trinidad, Francisco and Jose 685,135.30
Plaintiff, on the other hand, presented its "Consolidated Objections to the Castillo
Majority and Minority Reports of the Commissioners", dated December 14,
1961, upon the grounds that the reports were not in accordance with the and to pay an interest of 6% per annum on each and every sum
provisions of Section 8, Rule 69 of the Rules of Court; that the conclusions and indicated above to the respective defendants from August 30,
findings made by the commissioners were contrary to law, and not supported 1962, up to the time the whole amounts are paid; to pay 6%
by the evidence on the record; and that the prices recommended therein did interest a year from September 10, 1961 to August 30, 1962 on the
not represent the "market value" or "just compensation" of the property respective amounts mentioned in paragraph 1, page 21 of the
expropriated. decision to each of the defendants; and ordering the plaintiff to
exclude the retained areas of the defendants at the extremities
Acting on a joint agreement and motion, dated January 2, 1962, the Court of each of the respective lots of the defendants; without special
ordered the plaintiff to deposit P500,000 as additional provisional value of the pronouncement as to costs.
property, with the understanding that plaintiff would be relieved from paying
6% interest on said amount of P500,000 from the date of the delivery of From this decision, plaintiff appealed, by reason of the amount involved,
possession of the expropriated property and that the then standing crops directly to this Court.
would belong to the plaintiff.
Defendants Jose Manuel Lichauco, Trinidad Gonzales Castillo, and Francisco
After hearing on the reports, the Court rendered its decision on October 26, and Jose Castillo moved for the reconsideration of the decision in connection
1962, the dispositive portion of which reads as follows: with the areas possessed by them, with (1) respect to the valuation and (2) the
areas expropriated under their different classifications. In its order dated
IN VIEW OF THE FOREGOING, decision is hereby rendered November 19, 1962, the court denied the motion for reconsideration with
confirming the order of this Court, dated March 23, 1961, respect to the value of the land, and in its order dated February 9, 1963, the
decreeing the condemnation of the properties of the court amended the decision, such that:
defendants covered by certificate of title No. 7 of the Land
Records of the Province of Pangasinan to the extent of 990 In the dispositive part, page 23, decision, delete the last two
hectares, 17 ares and 25 centares situated in the municipalities of lines under "To" and insert the following:
89
Trinidad Castillo P286,034.30 contract of professional services entered into between said defendants-
appellees and the attorney. Pursuant to the resolutions of this court of June 15
Francisco and Jose 398,460.74. and June 23, 1970, and of July 8, 1970, the sum of P495,086.20 was released by
Castillo the Secretary of Finance in April 1971 and paid by the Land Authority to the
defendants-appellees.3

From this order dated February 9, 1963, as well as from the order dated
The issues raised by plaintiff-appellant will first be discussed, followed by those
November 19, 1962 and the decision of October 26, 1962, defendants Trinidad
raised by defendants-appellants.
Gonzales, Francisco and Jose Castillo, and Jose M. Lichauco appealed
directly to this Court.
Plaintiff-appellant, in its brief, submits that the trial court committed ten errors
in its decision, as follows:
Another motion for reconsideration filed by defendant Amanda L. de la Cruz,
asking an additional amount of P4,500.00 as value of a sugar cane mill, was
denied on January 17, 1963. 1. In considering as a guide in endeavoring to fix the resonable and fair
market value of the lands now under expropriation the case of
"Municipality of Bustos vs. Natividad Santos et al., CA-G.R. No. 22547-R;
On February 22, 1964, plaintiff moved that the Land Tenure Administration be
the case of "Commonwealth of the Philippines vs. Pedro de Guzman,"
substituted by the Land Authority.
Civil Case No. 8425 of the Court of First Instance of Pangasinan,
Lingayen Branch, and CA-G.R. No. 20358-R; and the case of "Republic
A motion, dated October 4, 1965 for an additional advance payment of of the Philippines vs. Irene R. Ombac," Civil Case No. 13555 of the same
P490,172.50, filed by counsel for defendants with the conformity of plaintiff, Court of First Instance of Pangasinan, without basis in fact and in law
was granted by this Court in its resolution dated October 12, 1965. A motion and contrary to existing jurisprudence.
was filed by Atty. Rafael Dinglasan, counsel for defendants-appellants Jose
Manuel Lichauco, Trinidad Gonzales Castillo and Francisco and Jose Castillo,
2. In concurring with the findings of the majority report of the
praying that said amount of P490,172.50 be ordered paid separately to each
Commissioners of Appraisal as to the classifications of the lots involved
of the defendants, pro-rata, based on the respective areas of the properties
in this expropriation which is not sustained by the evidence on record
they have agreed to sell to the government, and that from the shares of his
and which is contrary to law.
clients, defendants-appellees Jose M. Lichauco, Trinidad G. Castillo, Francisco
and Jose Castillo, his 5% attorney's fees be deducted and paid to him, which
motion was granted by this Court in its resolution of April 20, 1966. 3. In finding and fixing the reasonable and fair market value of the lands
under expropriation as P5,500.00 per hectare of 1st class irrigated
ricelands; P4,500.00 per hectare of 2nd class irrigated ricelands;
By resolution of June 15, 1970, and of June 23, 1970, this Court, upon motions
P4,000.00 per hectare of 3rd class irrigated ricelands; P4,500.00 per
by counsel for the defendants-appellees, with the written conformity of the
hectare of 1st class sugarcane land; P3,000.00 per hectare of 4th class
Governor of the Land Authority, ordered the Land Authority to give advanced
sugarcane land; P4,000.00 per hectare of 1st class upland; P3,500.00 per
payment in the amount of P500.00 per hectare of the expropriated lands
hectare of 2nd class upland; P1,500.00 per hectare of rolling lands and
belonging to the defendants-appellees in the manner agreed upon by them.
P1.00 per square meter of residential land thus giving a total just
On July 8, 1970 this Court issued a supplemental resolution directing that the
compensation to the land-owners for the 990 hectares, 17 ares and 25
additional advanced payment of P500.00 per hectare be paid separately to
centares of land expropriated the amount of P4,957,601.86 and net
each of the defendants-appellees based on the respective areas possessed
P1,980,345.00 which is the fair market value of the property
by each of them pursuant to the Agreement and Joint Motion of the parties
expropriated and should be its "just compensation."
dated March 23, 1961, and that of the amount to be paid each to
defendants-appellees Jose M. Lichauco, Trinidad G. Castillo, Francisco Castillo
and Jose Castillo the attorney's fee of Atty. Rafael Dinglasan, equivalent to 5% 4. In not finding that the valuation made by the defendant landowners
of the amount paid to each of them, be paid to said attorney as per the of their property as demanded by them in their "Motion to Dismiss"

90
(Answer) is an admission and evidence of the highest order so much so Pangasinan, and CA-G.R. No. 20358-R; and Republic of the Philippines v. Irene
that their demand of P4,000.00 per hectare in their answer, should set R. Ombac, Civil Case No. 13555 also of the Court of First Instance of
the ceiling price for the just compensation to be awarded them. Pangasinan, upon the grounds that the lands expropriated in said cases,
respectively, being: a small parcel of land with an area of 4,626.6 square
5. In considering the property under expropriation as subdivided among meters located in Barrio Bonga Mayor, Bustos, Bulacan; a parcel of land
the heirs and thus made a lot by lot classification and valuation of the situated in Barrio, Balbalino, San Carlos, Pangasinan, with an area of 98,970
property without considering the said property as one whole mass square meters; and two parcels of land situated in the poblacion of Bugallon
owned by several co-owners, without basis in law and in contravention Pangasinan those lands being situated in places different from those where
of accepted principles of evaluation. the lands included in the Hacienda El Porvenir are located, so that their values
can not be considered evidentiary facts of the value of the lands comprised
in the Hacienda El Porvenir.
6. In not providing in the decision, as stipulated by the parties in the
"Agreement and Joint Motion" that in case an increase in area in
G.L.R.O. No. 1 is adjusted and/or adjudicated in favor of the defendant On the other hand, defendants-appellees Maria Lichauco and Amanda de la
co-owners, "the plaintiff shall have the option to buy the said portions in Cruz contend that the trial court did not make as basis, much less as the sole
question as adjudicated and to pay the corresponding price as in this basis, the cases mentioned, but considered them simply as a guide.4
expropriation case."
We find plaintiff-appellant's first assigned error untenable. We gather, upon
7. In not deducting from the total valuation of the property the value for reading the decision, that the trial court did not base the market value of the
two parcels of land, namely; one hectare for the school site at barrio Hacienda El Porvenir on the prices of the land expropriated in the cases
Saleng and 1.8 hectare for the school site at barrio C. Lichauco, which mentioned by the plaintiff-appellant. The trial court simply considered the
were previously donated by the landowners to the municipal principles enunciated in those cases as guided in fixing the market value of
government of Tayug, Pangasinan. the lands sought to be expropriated in the present case. The principles
regarding evaluation enunciated in the Bustos case, namely: that the
reasonable market value of a property is what it would bring when offered for
8. In finding and holding that the plaintiff does not have the right and
sale by one who desires but is not obliged to sell, and is purchased by one
option to choose where the retained areas should be taken from the
who is under no necessity of having it; that the value of the property should be
whole property, contrary to established jurisprudence.
fixed as of the date of proceedings; and that the sales of properties in the
same locality are creditable in determining the market value of lots in that
9. In not providing that the amount of P500,000.00 additional provisional vicinity, can not be said to be erroneous and without basis in law, as claimed
value should be deducted from the total balance due the defendants, by plaintiff-appellant, because said principles are taken from the decisions of
and should not earn legal interest from the date of plaintiffs possession this Court in the cases of Manila Railroad Co. vs. Caligsahan, 40 Phil. 326; and
of the property, in accordance with the motion of the parties and the Manila Railroad Co. vs. Fabie, 17 Phil. 206. The trial court, therefore, did not err
order of the trial court dated January 3, 1962. when it relied on the principles enunciated in those cases.

10. In not providing in the decision that payment be made to creditor 2. Plaintiff-appellant discusses jointly the second and third errors assigned.
banks, as stipulated by the parties in the "Agreement and Joint Motion," Regarding the second error assigned, plaintiff-appellant contends that the
in order that all liens and encumbrances be cancelled, so that title to trial court erred in concurring with the majority report on the classification of
the property be transferred to the government free and clear thereof. the lots involved; and regarding the third error assigned, plaintiff-appellant
contends that the trial court erred in fixing the fair market value of the different
1. Regarding the first error assigned, plaintiff contends that the trial court erred classes of land, giving a total compensation of P4,957,601.86, instead of
in considering as a guide in fixing the fair market value of the lands under Pl,980,345.00.
expropriation the cases of Municipality of Bustos v. Natividad Santos, et al.,
CA-G.R. No. 22547-R; Civil Case No. 8425 of the Court of First Instance of

91
Regarding lot 7-E, owned by defendant-appellee Amanda L. de la Cruz, On the other hand, defendants-appellees Jose M. Lichauco, Trinidad G.
plaintiff-appellant claims that the upgrading to second class of the irrigated Castillo and Francisco and Jose Castillo contend that creeks and canals have
land, which was classified by Mr. Juvenal Raguini, Real Estate Appraiser of the beds and form part of the irrigated land; consequently, they should have the
Land Tenure Administration, as third class, was not supported by the evidence; same classification as the land in which they are found; that it is not true that
that the upgrading and reclassification of the 20.1478 hectares classified as hill said creeks and canals are not used for production, because it is a fact that
by Raguini to first class sugarland, and the 21.2260 hectares classified as first they increase the yield of the land.
class upland by Raguini to first class sugar land, was an error, upon the ground
that those lands did not have sugar quotas; that the portion classified by Anent plaintiff-appellant's contention that the classification by the
Raguini as creeks and canals was erroneously classified by the court as first government expert of the hill should have been maintained, defendants-
and second class riceland, because creeks and canals did not produce crops appellees Jose M. Lichauco, Trinidad Castillo and Francisco and Jose Castillo
and should not have been given any valuation for purposes of determining contend that the classification made by the government expert was, besides
the fair market value.5 being incompetent, not authorized by the court; that there was testimonial
evidence showing that the portions, classified as hill are really low elevated
Defendants-appellees Maria Lichauco and Amanda de la Cruz, on the portions. 11
contrary, contend that the Commissioners on Appraisal were unanimous in the
reclassification of the area marked Exhibit 6-AM in Exhibit A-1 as first class sugar Regarding Lot 6, owned by the heirs of Macario H. Lichauco, plaintiff-
land, and the areas marked Exhibits A-2 and A-8 in Exhibit A-l as fourth class appellant contends that the upgrading by the trial court to first class irrigated
sugar land as could be seen in the Minority Report 6 and in the Majority Report land of the portions classified by the government expert as second class
7; that even the government expert Raguini testified that the area marked (47.8669 hectares) and third class (47.6852 hectares) was not supported by the
Exhibit 6-AM of Lot 7-E was more adopted to sugar cane such that he would evidence; that the upgrading to residential land of the portion (9.0786
classify it as first class sugar cane land8; that by soil composition and the use hectares) classified by the government expert as roads, as well as that portion
to which they are put, the areas marked Exh. 6-AM and Exhs. A-2 and A-8 (2.4380 hectares) classified as creeks and canals to first class irrigated, was not
were actually first class and fourth class sugar cane lands and actually reasonable; and that the roads and canals as public easements should not be
planted to sugar cane, that during the ocular inspection by the paid for. 12
Commissioners, they found that the creek itself was planted to palay; that the
river bed mentioned by the plaintiff-appellant was an abandoned river bed,
Counsels for defendants-appellees Mariano F. Lichauco and the heirs of
actually a dry land planted to sugar cane, peanuts, mongo and others; that
Macario H. Lichauco contends, in connection with Lot 6 owned by the Heirs of
the roads were dirt roads, at the same level as the residential lots and equally
Macario H. Lichauco, that the trial court did not in fact upgrade the creeks
suitable for residential purposes; that the valuation of the different kinds of
and canals, but only recognized their inherent quality when they were
lands was based on the evidence presented; and that neither in the
classified as first class irrigated land; that the feeder roads (which do not
Commissioners' report nor in the decision of the trial court can it be shown that
include the Tayug-San Quintin provincial road) are privately owned, that they
the classification action and valuation of the Hacienda El Porvenir was not
form part of the private property of defendants-appellees and were
made at the proper time according to law.6
considered by both patties as portions of the total area under expropriation
that plaintiffs counsel did not interpose any objection, during the field hearings
Regarding the property owned by Jose M. Lichauco, plaintiff- appellant also and ocular inspections conducted by the Commissioners, to the upgrading of
contends that the upgrading to first class irrigated land of the 1.3861 hectares portions of Lot 6; that the trial court classified Lot 6 on the basis of the findings
in Lot 1, which was classified by the government expert as creeks and canals, and recommendations of the Commitee on Appraisal, and plaintiff-appellant
was erroneous because creeks and canals can not be used for production; did not make an objection, neither in its pleadings nor in its consolidated
that the reclassification to first class upland of the 48.2220 hectares of Lot 7-B objection to the majority and minority reports, to the classification of the
which was classified by the government expert as second class upland, and portions marked on Exhibit A-1 as 1-RM 3-RM6-RM, 7-RM, 9-RM, 10-RM, 16-RM
to rolling land of 29.6741 which was classified as hill by the said expert, was and 17-RM.13
without evidentiary support. 10

92
But plaintiff-appellant urges that even if the irrigation canals might be Lot 7-C and that the amendment on paragraph 19, page 18 of the decision
considered registerable, they still form part of the amenities already included while referring to 7-C should actually refer to Lot 5, is simply a clerical error
in the valuation of the property and that without them the valuation of the committed by the typist and not a mistake of fact committed by the trial
property should have been lower; that the 17 hectares occupied by roads court, hence there is absolutely no basis for plaintiff-appellant's imputation of
refer only to provincial and feeder roads excluding the hacienda roads.14 "lack of care and scrutiny and failure of the trial court to fully appreciate the
matter presented before it for determination."18
Regarding Lot 7-D,,property of the heirs of Renato Lichauco plaintiff-appellant
contends that the reclassification of the portions classified by the government Regarding the share of Mariano Lichauco in Lot 5, plaintiff-appellant contends
expert as creek and canals to first, second and third class irrigated land the that the upgrading made by the court of the 15.4957 hectares of second class
upgrading of the roads to residential land, and of the river bed to fourth class irrigated land to first class irrigated land, and the 6.8362 hectares of roads to
sugar land, was not justifiable.15 first class irrigated land, as well as the 3.9545 canals and creeks into first class
irrigated land, was without basis. Regarding the portion of Lot 7-A of Mariano
Regarding the portions belonging to Trinidad Castillo Francisco and Jose Lichauco, plaintiff-appellant contends that the evidence does not support the
Castillo, plaintiff-appellant contends that the evidence did not support the reclassification by the court of the 10.7734 hectares second class upland as
upgrading of the second class irrigated ricelands and creeks and canals in Lot first class upland, and the 10.7757 hill as rolling land.19
2 tofirst class irrigated land; that what was stated in the order of the court of
February 9, 1963 as referring to Lot 5 should refer to Lot 7-C, and what was Counsel for the heirs of Macario M. H. Lichauco contends that the
stated to refer Lot 7-C really referred to Lot 5; that regarding Lot 7-C, the reclassification of Lots 7-A and the bigger northern portion of Lot 5 belonging
upgrading of the 3rd class irrigated land as well as the creeks and canals to to said heirs was correct, based on the evidence on record regarding the
first class irrigated land; the upgrading of the 9.2771 hectares of second class actual description and productive capabilities as verified during the field
upland together with the .5823 hectares of roads to first class upland; the hearings and ocular inspection held by the Committee on Appraisal; that the
upgrading of the hill with an area of 24.2374 hectares to second class upland; classification made by plaintiff-appellant was vitally defective in that it was
as well as the upgrading of the 23.6284 hectares of river bed as rolling land, based upon land capability for rice production alone instead of considering
were not supported by the evidence.16 all the legitimate uses to which the land might be put that the parcellary plan
proposed by plaintiff-appellant did not reflect the true nature of the land at
Defendants-appellees Jose M. Lichauco, Trinidad G. Castillo and Francisco the time of the expropriation, because said plan had been made many years
and Jose Castillo contend, however, that the reclassification made by the trial previous to the expropriation and did not take into account the improvements
court of the areas in Lot 2 was supported by sufficient evidence. 17 Anent introduced. 20
plaintiff-appellant's claim that the roads could not be considered residential
land because they were not registrable, defendants-appellees contend that Anent the valuation of the different classes of land, plaintiff-appellant
the area occupied by the roads had not been previously expropriated or paid contends that the valuation made by the trial court was not fair because the
for by the government, and their acreage is included in the certificate of title court took into consideration the following: the sale of two parcels of land
covering the hacienda. Regarding the reclassification of portions of Lot 7-C, which were very far from the hacienda, the valuation of property as of 1961
defendants-appellees argue that said reclassification was resorted to by the when hearings before the Commissioners were made, instead of December 2,
trial court "in order to cure the defect in both the majority and minority reports 1957, which was the date of the filing of the complaint, pursuant to Section 5
which do not mention any river bed, hill or roads." Defendants- appellees of Rule 69 of the old Rules of Court; and the decreasing purchasing power of
further contend that the 23.6284 hectares of river bed was reclassified as the peso. Plaintiff's-Appellant insists that the appraisal of the government
rolling lands because such portion is found in the area classified as rolling expert should be maintained. 21
lands, suitable for sugar cane or other crops production; that the roads were
classified as first class irrigated riceland because they were found in first class Regarding the valuation of the property, counsel for defendants-appellees
irrigated rice lands. The alleged "error" pointed to by plaintiff-appellant, stating Jose M. Lichauco, Trinidad Castillo and Francisco and Jose Castillo maintains
that while the order of February 9, 1963 states that the amendment on that it was not a mistake for the commissioners on appraisal to consider the
paragraph 23, page 18 of the decision refers to Lot 5 it should actually refer to valuation as of 1961, that is, at the time of the taking, instead of at the time of
93
the filing of the complaint, and in support thereof cites, among others, the Joint Motion" must be taken to have been intentionally omitted, and that the
decisions in the cases of Manila Railroad Co. v. Caligsahan, 40 Phil. parties agreed further that the valuation was to be left to the court.27
326; Provincial Government of Rizal vs. Caro de Araullo, 58 Phil. 308; Republic
of the Philippines vs. Narciso, et al., No. L- 6594, May 18, 1956; and Municipal 4. In discussing the fifth and sixth assigned errors, plaintiff-appellant contends
Government of Sagnay v. Jison, et al., No. L-10484, December 29, 1958.22. that the trial court erred in not considering the property being expropriated as
one whole mass owned by several co-owners, but instead made a lot by lot
3. In discussing the fourth assigned error plaintiff-appellant contends that the classification and evaluation; and that the trial court erred in not providing in
trial court erred in not finding that the valuation of P4,000.00 per hectare the decision that the plaintiff shall have the right to buy any increase in area in
demanded by the defendant landowners in their "motion to dismiss" which G.L.R.O. No. 1 as adjusted and/or adjudicated in favor of the defendants-co-
value included sentimental value, should set the ceiling price for the just owners.
compensation to be awarded them, citing the rulings of this Court in Republic
vs. Narciso, supra and in Republic vs. Yaptinchay, et al., No. L-13684, July 26, Plaintiff-appellant argues that in the "Agreement and Joint Motion" signed by
1960. Plaintiff-appellant points out that as per decision of the lower court the the parties on March 23, 1961,the defendants-appellees considered
total value fixed is P4,957,601.86 for the 990.1725 hectares, which gives a value themselves as co-owners of the property being expropriated, and so they
of P5,006.80 per hectare, a price that is more than the P4,000.00 demanded should be considered not as owners in fee simple of separate parcels which
by the are not covered by separate titles, but only as owners of certain rights and
defendants. 23 interests in the property, in which case the appraisal should have been made
of the property as a whole without regard to the separate individual interests
Counsel for defendants-appellees Jose M. Lichauco, Trinidad G. Castillo and of each of the defendants-appellees. Moreover, plaintiff-appellant asserts that
Francisco and Jose Castillo con. tends that defendants-appellees did not an area of about 144.0681 hectares, which was still the subject of judicial
demand in their motion to dismiss P4,000.00 per hectare, but a higher price, as determination in G.L.R.O. Case No. 1, might be added to the area of
shown by their prayer wherein they ask that, after excluding Lots 8, 9 and 12, 990.17250 hectares which is being expropriated, and in the event said
plaintiff be ordered to pay defendants the amount of P6,378,000.00 for the additional area is adjudicated to defendants-appellees the plaintiff-
land and the improvements thereon 24 ; that the case of Republic vs. Narciso appellant, by the express terms of the "Agreement and Joint Motion" has the
supra, cited by plaintiff- appellant, is not applicable to their case because right to buy the same at the expropriation price, but this price cannot be
herein defendants-appellees testified on the prices demanded by them which known as the classification of the probable excess area is also unknown.
were higher than the average price of P4,000.00 per hectare.25 Plaintiff-appellant, therefore, submits that the whole property should have
been valued in its entirety and a lump sum valuation per hectare should have
Defendants-appellees Mariano F. Lichauco and the Heirs of Macario M. H. been given so that plaintiff-appellant would know at what price it would buy
Lichauco contend that although defendants-appellees had mentioned in the excess portions, if adjudicated in favor of defendants-appellees.28
their motion to dismiss P4,000.00 as the value per hectare, that tentative price
was superseded by the "Agreement and Joint Motion" of March 23, 1961, and Defendants-appellees Jose M. Lichauco, Trinidad G. Castillo and Francisco
that to consider that amount as the ceiling price in determining the value of and Jose Castillo contend that the "entity or unit theory of evaluation"
the property would be a violation of the agreement.26 proposed by plaintiff-appellant is not tenable in the instant case because the
stipulation of the parties in the "Agreement and Joint Motion" provides
Defendants-appellees Maria Lichauco and Amanda de la Cruz contend that precisely for separate sale of the alloted parcels and separate payment to
all the pleadings, the issues raised and allegations made by the parties, have the individual owners thereof.29
been superseded by the "Agreement and Joint Motion" which was approved
by the trial court. The parties had set a minimum price the provisional value Defendants-appellees Maria Lichauco and Amanda de la Cruz argue that the
of P990,172.50 but no maximum price; that the "Agreement and Joint plaintiff-appellant objects to lot by lot classification, and yet it submitted a lot
Motion" was a binding compromise between the parties, and any matter by lot classification of the Hacienda El Porvenir 30 which was later incorporated
alleged in their previous pleadings which are omitted in the "Agreement and in its brief; that the parties agree that the defendant-co-owners should be
paid according to the areas they agreed to sell;31 that on pages 19 and 20 of
94
its brief plaintiff-appellant made classifications of portions of Lot 7-E, and on The commissioners of appraisal, more particularly, the members
page 31, of Lot 7-D.32 who signed the majority report, have not only based their report
on the different deeds of sale presented during the hearings, but
In reply, plaintiff-appellant argues that while it was true that it submitted a lot upon the actual inspections made by all the members of the
by lot classification, it did so upon the instance of the trial court as shown in committee on appraisal. The Court, after having reviewed the
the latter's order of April 11, 1962.33 evidence presented during the hearings of the said committee,
and taking into consideration the various deeds of sale
presented by the defendants, the fact that the purchasing
Defendants-appellees Maria Lichauco and Amanda de la Cruz offer no
power of the peso has been going down from the time the
objection to the sixth assigned error, although they believe that the inclusion in
complaint for eminent domain was filed by the plaintiff, the
the decision of the lower court of the matter treated in the sixth assigned error
majority report of the commissioners, as well as that of the
might be premature, because the option to buy depend upon a condition,
minority and the cases decided heretofore cited, hereby, fixes
that is, in the event the increase in area be adjudicated to defendants
as the reasonable and fair market value of the land under the
which event had not yet happened when the decision was
present expropriation proceedings as follows:
made.34
1st class irrigated riceland ......................... P5,500.00 per ha.
We shall now resolve the issues raised in the second, third, fourth, fifth and sixth 2nd class irrigated riceland ........................ 4,500.00 per ha.
errors assigned. 3rd class irrigated riceland ......................... 4,000.00 per ha.
1st class sugarcane land ............................ 4,500.00 per ha.
We find to be untenable the contention of plaintiff-appellant that the trial 4th class sugarcane land ............................ 3,000.00 per ha.
court erred in making a classification of every lot owned by each of the 1st class upland ........................................... 4,000.00 per ha.
owners of the hacienda rather than considering the whole hacienda as one 2nd class upland .......................................... 3,500.00 per ha.
whole mass owned by several co-owners. The record clearly shows that the Rolling lands ................................................. 1,500.00 per ha.
hacienda had already been partitioned among the several heirs such that Residential land ............................................ 1.00 per sq. m.36
each one of the defendants-appellees owned his/her portion separate and
distinct from that of the others. In this connection, the following ruling is It cannot be said that the lower court erred in not adopting the price
pertinent: proposed by plaintiff-appellant, because the preliminary estimate of value
made upon filing a declaration of taking, in expropriation proceeding, is not
It has been held to be wrong to value three separate owned parcels conclusive as to value. The deposit of estimated compensation by the
as one and allocate the amount among the owner even though the Government is not evidence of value and said deposit of estimated
parcels had originally been in single ownership and were thereafter compensation does not establish a minimum for an award.37
divided among the owners, who were members of one family. (27 Am
Jur 2d p. 17, citing Kessler v. States, 21 App Div 2d 568, 251 NYS 2nd It cannot be said, either, that the lower court erred in not adopting the
487, the court saying that there was not the necessary unity of P4,000.00 per hectare allegedly asked by the owners in their amended motion
ownership for lumping the parcels together for evaluation.) to dismiss the complaint. The sentimental value of the property to its owners is
not an element in the determination of damages. 38 The defendants-
We made a careful study of the record and the evidence, and it is Our appellees simply made an estimate of the price of their lands. Such estimate
considered view that the findings and conclusion of the lower court regarding can not be considered as the maximum price that the defendants-appellees
the classification of the different portions of the lands belonging to the ask, as the motion itself states that the defendants "have no data at this
defendants-appellees and the value for each kind of land should not be moment upon which to base their computation of the market value of the
disturbed. 35 The lower court says: land", and in the prayer of the same motion the price asked which was
P6,878,000.00 for the whole property was certainly more than P4,000.00 per
hectare. Anent the price asked by the owners, it has been said that

95
Neither the price that the owners ask for their property, nor the of the decree of registration was thereby upheld. The increase in area
assessed value thereof, is relevant in determining the reasonable contemplated in the "Agreement and Joint Motion" is a matter that has yet to
market value." (Manila Railroad vs. Mitchell, 49 Phil. 801; be the subject of a hearing before the Court of First Instance of Pangasinan to
Municipality of Tarlac vs. Besa, 55 Phil. 423; Republic v. Lara, et al., determine the exact extent of that "increased area" to be expropriated. There
96 Phil. 170.) is also a need of determining the classification of the lands included in the
"increased area", as well as the value of that increased area", and the
and, as this Court has already said, in cases of expropriations for the benefit of proportion that should correspond to each defendants-appellees and/or their
a few a more liberal interpretation of just compensation may be adopted. successors in interest. It must be stated, that the trial court should be guided
Thus, in the case of Republic v. Gonzales, 94 Phil. 956, 961, this Court said: by the classification and evaluation adopted by it in deciding this case in the
first instance, with particular observance of the stipulations in the "Agreement
and Joint Motion" of March 23, 1961. The hearing in the court regarding the
Parenthetically, in expropriations like this for the benefit of other
"increased area", however, should not delay the finality and execution of the
individuals, not directly benefitting the public it might be
judgment in the present case in so far as the 990.17250 hectares of the
interesting to inquire whether a more liberal interpretation of 'just
Hacienda El Porvenir are concerned.
compensation' should be adapted in favor of the owner who is
compelled to part with his private property for the exclusive benefit
of the few. Consider that unlike other eminent domain proceedings, 5. Plaintiff-appellant, in discussing the seventh assigned error, claims that the
this does not directly benefit him as part of the "public".... trial court erred in not deducting from the total valuation of the property the
value of two school sites previously donated by the landowners to the
municipal government of Tayug, Pangasinan, namely: one hectare for the
Anent the sixth error assigned by plaintiff-appellant, it cannot be denied that
school site at barrio Saleng within Lot 5 which belongs to Mariano Lichauco;
plaintiff-appellant has a right to buy any increase in area in G.L.R.O. No. 1 that
and 1.8 hectares for the school site at barrio C. Lichauco, found in Lot 2 which
might be finally adjudicated by the court to defendants-appellees, because it
belongs to Trinidad G. Castillo, Francisco Castillo and Jose Castillo. Plaintiff-
was expressly stipulated in paragraph 5 of the "Agreement and Joint Motion"
appellant contends that the Committee on Appraisal ruled that said school
of March 23, 1961 that in the event that the difference in area in G.L.R.O. No. 1
sites should be excluded in the computation of the price of the expropriated
still subject of judicial determination is adjusted and/or adjudicated in favor of
lands42; that the school sites had in fact existed for several years; that the
defendant-co-owners, "the plaintiff shall have the option to buy the said
donation of the site at Barrio Saleng is evidenced by Exhibit 4, but that the trial
portions in question as adjudicated and pay the corresponding price as in this
attorney failed to present the deed of donation of the school site at Barrio C.
expropriation case". This stipulation has the force of law between the
Lichauco, which would have been Exhibit K. 43
contracting parties and should be complied with.39

Regarding the 1.8 hectares school site at Barrio C. Lichauco, defendants-


In this connection, this Court takes judicial notice of the fact that on
appellees Jose M. Lichauco, Trinidad G. Castillo and Francisco Castillo
December 29, 1971 it rendered a decision in the case of "Benito Ylarde et al.,
contend that said school site is within the lot that belongs to Trinidad Castillo
petitioners vs. Crisanto Lichauco, et al., etc., respondents", G. R. No. L-
only; that there was no evidence presented to show the donation thereof; but
22115,40 which settled the question regarding the claim of certain parties of
that, on the contrary, there was never any intention to donate that lot for use
portions of the Hacienda El Porvenir that were allegedly in excess of the lands
as a school site; that said lot had never been expropriated or paid for; that the
covered by the survey plan which was the basis of Original Certificate of Title
owner has been trying to collect the price thereof from the government; and
No. 7 that was issued pursuant to the decree of registration No. 1178 in
that the presence of the school therein was merely tolerated by the
G.L.R.O. No. 1. The decision in the Ylarde case relates to the area mentioned
owner.44
in paragraph 5 of the "Agreement and Joint Motion" of March 23, 1961 41 and
in the sixth error assigned by the plaintiff-appellant in the present case. This
decision in the Ylarde case, however, does not determine the definite area In connection with the seventh assigned error, it appears in Exh. "J", which is a
that was the subject of controversy, because this Court simply ruled that the Deed of Donation dated October 5, 1953, that Mariano F. Lichauco donated
decree of registration in G.L.R.O. No. 1 had become final and absolute and for school purposes 5,000 square meters of Lot No. 5, situated in the district of
could no longer be reopened, and so the survey plan that served as the basis Saleng, to the Municipality of Tayug and that the donation was accepted by

96
the Municipal Mayor in representation of the Municipal Council of Tayug. Said of Court on eminent domain should be applied. The one seeking to exercise
school site, therefor, belongs to the Municipality of Tayug, and is no longer a the right of eminent domain should initially determine the property or portion
Part of the Hacienda El Porvenir. Consequently, it should not be considered as to be expropriated. The owner of the property may in turn object thereto for
part of the lands sought to be expropriated, and the lower court should have valid reasons. Once the issues have been joined, the court shall settle the
deducted its value from the expropriation price. same in accordance with law. This Court said:

It is not disputed between the parties that the 1.8 hectare school site at Barrio It is, therefore, our considered opinion that Congress did not intend to
C. Lichauco is part of the Hacienda El Porvenir. One of the characteristics of give the landowner the power to choose, either what portion shall be
ownership is perpetuity. Ownership lasts for as long as the thing owned lasts, expropriated or what portion shall be exempt from expropriation that,
and it is not extinguished by non-user but only by adverse possession when initially, the parties are, therefore, expected to try to reach an
ownership is transferred to another. 45Moreover, lands covered by a Torrens agreement, if they can, on the area to be expropriated and/or the area
title, as in the case of this school site which is a part of Lot 2 of the Hacienda El to be excluded from exropriation proceedings; and that, in the event or
Porvenir, cannot be the subject of prescription.46 Plaintiff-appellant claims that disagreement, the courts of justice shall settle the issue,in accordance
this school site had been donated to the Municipality of Tayug. However, no with the spirit and purpose of the law and the demands of justice, equity
public instrument has been presented by plaintiff-appellant to prove that it and fair play.
had been donated to the Municipality of Tayug. A donation of a piece of
land is effected only through a public document executed in accordance It appears in the "Agreement and Joint Motion" of March 23, 1961 that the
with law.47 It cannot, therefore, be said that the lower court erred in not parties had agreed that the different owners retain certain portions "reflected
deducting from the expropriation price of the Hacienda El Porvenir the value on the sketch plan hereto attached and made an integral part hereof as
of the 1.8-hectare school site at Barrio C. Lichauco. Annex "A". 51 The parties having agreed on the area to be retained and the
location thereof, plaintiff-appellant cannot claim that it had the right to
6. In discussing the eighth error assigned, plaintiff-appellant contends that the choose where the retained areas should be taken, but should comply with the
trial court erred in holding that the plaintiff-appellant did not have the right agreement. The trial court simply gave effect to that agreement.
and option to choose where the areas to be retained by defendants-
appellees should be taken out of the whole property. Plaintiff-appellant 7. Regarding the ninth assigned error, plaintiff-appellant contends that the trial
argues that it should have been given the right to choose because certain court erred in not providing that the additional provisional payment of
areas of the property were occupied by tenants for whose benefit the P500,000.00 should be deducted from the total balance due to defendants-
expropriation was instituted, and if said occupied areas were the ones appellees and that said amount should not earn interest from September 10,
segregated more serious problems would arise.48 1961 when plaintiff-appellant took possession of the property to August 30,
1962 when said amount was paid, because that was the agreement of the
Defendants-appellees Maria Lichauco and Amanda de la Cruz contend that parties as evidenced by motion of the parties and the order of the court
the plaintiff did not have the option to choose where the retained areas dated January 3, 1962.52
should be taken from, because, as plaintiff-appellant says in its brief, "there is
an agreement on the general configuration of the area, and the location of Defendants-appellees Jose M. Lichauco, Trinidad Gonzales Castillo and
the lands that are to be retained by the defendant-landowners".49 Francisco and Jose Castillo agree that the plaintiff- appellant is relieved of the
payment of interest on the additional provisional payment of P500,000.00 from
This Court has ruled that as regards the area to be retained by the owner of September 10, 1961 to August 30, 1962.53
the property under expropriation, the parties are expected to come to an
agreement on the portion to be exempt from expropriation, and that in case Plaintiff-appellant's contention in the ninth assignment of error is meritorious.
the parties cannot agree the court shall settle the issue. Thus, in the case There is no question that the additional provisional payment of P500,000.00
of Land Tenure Administration vs. Ceferino Ascue, et al., L-14969, April 29, ordered by the trial court on January 3, 1962, 54 and complied with by plaintiff-
1961, 50 it was held that since Republic Act No. 1400 is silent on how the portion appellant on August 30, 1962, 55 should be deducted from the total balance
exempt from expropriation should be determined, the procedure in the Rules of the value of the property expropriated and should not earn interest. Said
97
amount should have earned interest from the date plaintiff-appellant took P5,500 per hectare and that of the residential land is Pl.20 per sq.
possession of the property on September 10, 1961 until the date it was paid on m. which plaintiff-appellee should pay.
August 30, 1962, had it not been for the waiver of said interest, as appears in
paragraph of the "Joint Agreement and Motion" dated January 2, 4. In not finding and holding that the 15.85 hectares of non-
1962. 56Consequently said amount of P500,000.00 should not earn interest from irrigated rice land and 65.80 hectares of sugar upland of Lot No.
September 10, 1961 to August.30, 1962. 7-B has a true, correct, fair and reasonable market value of
P4,500 per hectare as sugar cane land or P4,000 as first class rice
8. Regarding the tenth assigned error, plaintiff-appellant claims that the trial upland which plaintiff-appellee should pay.
court erred in not providing in the decision that payment be made to the
creditor banks in order that all liens and encumbrances on the property be 5. In not finding and holding that the 37.7912 hectares of rice
cancelled, inasmuch as that was the agreement of the parties as evidenced land or sugar cane upland of Lot No. 7-C has a true, correct, fair
by the "Agreement and Joint Motion".57 and reasonable value of P4,500 per hectare as sugar land or
P3,000 per hectare as rice upland which plaintiff-appellee should
The tenth error assigned by plaintiff-appellant is also meritorious. The lower pay.
court should really have approved in the decision that the mortgages on the
expropriated lands should be paid to the creditor banks out of the value of 6. In not fixing and determining the true, correct, and fair market
the expropriated lands, for it is but right that the government acquires the values of the disputed excess areas separately owned by the
lands free from all liens and encumbrances.58 defendants-appellants which should be paid to them
respectively should the same be adjudicated to them.
We now take up the errors assigned by some of the defendants.
9. In support of their first assigned error, herein defendants-appellants contend
Defendants Jose M. Lichauco, Trinidad Gonzales Castillo, and Francisco and that the trial court ordered on April 11, 1962 the Land Tenure Administration,
Jose Castillo, as appellants, contend that the trial court committed the more particularly Mr. Juvenal R. Raguini, to submit a report supplementary to
following errors: Exhibit A indicating what lots the irrigated lst class and the irrigated 2nd class
lands were found, etc., and in compliance therewith Mr. Raguini submitted on
1. In following the "Supplementary Report to Exh. A" in deciding October 1, 1962 the "Memorandum of Mr. Juvenal Raguini, Lot by Lot Area
this case insofar as it affected Lots No. 1, 2, portions of 5, 7-B and and Classification of Hda. El Porvenir", against which memorandum herein
7-C of defendants-appellants herein. defendants-appellants filed their opposition. In its decision, the lower court
stated that Mr. Raguini, on complying with the order of the court, exceeded
his authority "because he had reclassified the land not in accordance with the
2. In not finding and holding that Lots Nos. 1 and 2 and portions
report of the commissioners but, perhaps, in accordance with his opinion."
of Lot No. 5 belonging to defendants-appellants are first class
Notwithstanding said observation, however, the trial court followed in toto the
naturally irrigated rice lands yielding annually from 60 to 85
classification made by Mr. Raguini in the Supplementary Report, Exh. A-1
cavanes per hectare; and that the true, correct and fair market
Supplement, and it thus erred when it found that in Lot No. 7-B only 2.4696
value thereof is P6,500.00 per hectare and that of the residential
hectares are first class irrigated riceland, 4.1865 hectares are second class
land is Pl.20 per sq. m. which values plaintiff-appellee should pay.
irrigated riceland, 48.2220 are first class upland, and 29.6741 hectares are
rolling land; and that in Lot No. 7-C there are 21.3487 hectares of first class
3. In not finding and holding that 18.67 hectares of Lot No. 7-B riceland, 9.8595 of first class upland, 24.2378 hectares of second class upland,
and 37.18 hectares of Lot No. 7-C belonging to defendants- and 23.6286 hectares rolling land. These defendants-appellants further
appellants are first class naturally irrigated rice lands yielding contend that said supplementary report was not presented as evidence
annually from 40 to 60 cavanes of palay per hectare, and that during the hearings before the Commissioners, and did not, therefore, form
the true, correct, fair and reasonable market value thereof is part of the competent evidence to be considered by the court.59

98
Plaintiff as appellee, on the other hand, contends that although defendants- lands was already far in excess of the P4,000 per hectare demanded by the
appellants considered the presentation of Supplementary Report to Exh. A as defendants-appellants.
an error committed by the trial court, it appears that defendants-appellants
adopted the same and contest only the correctness of the respective The first to the fifth errors assigned by defendants-appellants Jose M. Lichauco,
classification of the land made by Mr. Raguini.63 Trinidad Gonzales and Francisco and Jose Castillo question the correctness of
the finding of the lower court regarding the valuation of the lands owned by
In reply, defendants-appellants state that they did not adopt the them. We have already ruled that the lot classification and the valuation
Supplementary Report to Exh. A, as shown by the fact that they submitted made by the lower court of the lands sought to be expropriate are
their own parcellary plans, Exhibits "1" and "1-A, Trinidad Manolo and Minors."61 reasonable and fair, and should not be disturbed.

10. Regarding the second, third, fourth, and fifth errors assigned, defendants- 11. Regarding the sixth error assigned by the defendants-appellants, that the
appellants Jose M. Lichauco, etc., argue that Mr. Raguini classified Lots Nos. 1, trial court should have fixed and determined the fair market value of the
2 and 5 of plan Exhibit "1", from which plan Exh. "A-1" was copied, as first class disputed excess area, We have already adverted to that the matter of
irrigated land, but he opined that the productivity per hectare was only from determining the exact area of that excess or "increased area", its
40 to 60 cavanes per hectare basing his opinion on the rates of production classification, its valuation, and the proportionate share of the defendants-
found for the different kinds of soil in the books of the College of Agriculture of appellees are matters that should be determined by the lower court in a
the University of the Philippines, as set by the Bureau of Lands. These hearing specially held for the purpose. 65
appellants, however, claim that the uncontradicted testimonies of witnesses
for the defendants-appellants was that the actual production was from 60 to We find that the findings of the lower court regarding the areas of the portions
85 cavanes per hectare. Mr. Raguini also classified portions of Lots 7-B and 7-C or lots belonging to each of the defendants-appellees and/or their successors
basing their productivity in the books of the College of Agriculture as against in interest, the classification of the lands and the value of the lands according
the uncontradicted testimonies of defendants-appellants, which parcels are to classification, are supported by the evidence. Excepting possible errors in
naturally irrigated, unlike the Hacienda Gonzales which was irrigated by mathematical computation, the following, based on the findings of the lower
pump.62 court as regards the area, land classification, and valuation per hectare as
classified, should be the amounts representing the value of the portions of the
Plaintiff as appellee maintains that defendants-appellants do not claim that Hacienda El Porvenir respectively owned by the defendants-appellees and/or
the classification by the trial court of Lot 1 owned by Jose Manuel Lichauco as their successors in interest which are expropriated by the plaintiff-appellant:
first class land irrigated was erroneous, but only that it should be a special kind A. OF AMANDA DE LA CRUZ
of first class irrigated land which should be evaluated at P6,500.00 per Kind Area in Price
hectare, allegedly because the actual production is from 60 to 85 cavanes per
per heetare.63
hectare hectare Value
Regarding Lot 7-B, plaintiff as appellee contends that it was at a loss as to how
defendants-appellants arrive at their conclusion and claim that an area of 1st class riceland 24.0721 P5,500 P132,396.55
18.67 hectares should be classified as first class irrigated riceland, to be valued 2nd class riceland 12.4740 P4,500 56,133.00
at P5,500 per hectare, and that 15.85 hectares should be considered non-
irrigated riceland to be valued at P4,000 per hectare. In relation to Lot 7-C, 1st class sugarcane land 21.2260 P4,500 95,517.00
plaintiff as appellee also claims that it does not know how defendants-
appellants arrived at the size of 37.7912 hectares which the latter claimed 4th class sugarcane land 20.1487 P3,000 60,446.10
either to be sugar land to be valued at P4,500 per hectare, or rice upland to
be valued at P3,000 per hectare. 64 Furthermore, the demand of the 1st class riceland(creeks & .3806 P5,500 2,093.30
defendants-appellants in their motion to dismiss was only P4,000 per hectare. canals)
The average price of P5,006.80 given by the trial court for the expropriated
99
2nd class riceland (creeks .1902 P4,500 855.90 1st class
& canals) irrigated

Residential 1.9946 Pl/sq.m. 19,946.00 riceland 145.0072 P5,500 P797,539.60

______ ________ 1st class upland 57.7698 P4,000 231,079.20


80.4862 P367,387.85.
Residential 15.3777 Pl/sq.m. 153,777.00
B. OF JOSE M. LICHAUCO
Kind Area sold Price 1st class
in per irrigated

hectares hectares Value (creeks & 2.4380 P5,500 13,409.00


canals)
Lot 1 1st
class _______ __________
220.5927 P1,195,804.80
irrigated 121.9865 P5,500 P670,925.75 D. OF THE HEIRS OF RENATO (RENE) LICHAUCO, namely, Maria R. Vda. de
Lot 7-B 1st Lichauco, Crisanto Lichauco, and Marieta Lichauco.
class Kind Area in Price per

irrigated 2.4696 P5,500 13,582.20 hectares hectare Value

2nd class 4.1865 P4,500 18,839.25 Irrigated first class 18.8845 P5,500 P103,864.75
irrigated
Irrigated second 5.9578 P4,500 26,810.10
3rd class 5.3748 P4,000 21,499.20 class
irrigated
Irrigated third class 15.6157 P4,000 62,462.80
1st class 48.2220 P4,000 192,888.00
upland Residential .9463 P1/sq.m. 9,463.00

Rolling land 29.6741 P1,500 44,511.15 First class upland 27.2508 P4,000 109,003.20

______ ________ Fourth class 15.4831 P3,000 46,449.80


211.9135 P962,246.15 sugarland
C. OF THE HEIRS OF MACARIO H. LICHAUCO namely, Romeo, Lourdes,
Mauricio, Narcisa, Walter, Daisy, Herminia, Orlando, Titania, Norman, Jesus, 84.1382 P358,053.15
Salvador, Mario, Helena, and Arturo, all surnamed Lichauco and Modesto
E. OF MARIANO LICHAUCO
Cabato.
Kind Area in Price per
Kind Area sold Price per
in hectares hectare Value
hectares hectare Value Lot 5:

100
1st class 129.27935 P5,500 P711,036.43 Lot 7-C:
irrigated
1st class irrigated 10.6743 P5,500 58,708.65
1st class upland 4.3765 P4,000 17,506.00
1st class upland 4.0000 P4,000 16,000.00
Lot 7-A:
2nd class upland 21.447226 P3,500 75,065.29
1st class 31.1835 P5,500 171,509.25
irrigated Rolling land 5.2074084 Pl,500
7,811.11
2nd class 11.3272 P4,500 50,972.40
irrigated Lot 5:

1st class upland 10.7734 P4,000 43,093.64 1st class irrigated 10.61356 P5,500 58,374.58

Rolling land 10.7757 P1,500 16,163.55 Residential 3.8944 P1/sq.m. 28,944.00

_______ __________ ________ _________


197.71565 P1,010,281.23 77.6310944 P405,093.63.
G. PORTION OF FRANCISCO & JOSE CASTILLO
From the value of Mariano Lichauco's land is to be deducted the value of Kind Area in Price per
5000 square meters in Lot No. 5 donated to the Municipality of Tayug for
school purposes in Barrio Saleng. The evidence does not disclose where this hectares hectare Value
school site is located, whether in the first class irrigated or in the first class Lot 2:
upland. Instead of having the value of this school site determined by the lower
court in a hearing for the purpose, in order to avoid delay, We may just as well 1st class 67.7104 P5,500 P372,407.20
compute the value of the 5000 square meter on the basis of the average irrigated
value of the hectare in Lot No. 5. The portion of Lot No. 5 pertaining to
Mariano Lichauco is 133,65585 hectares, having a value of P728,542.43, thus Residential .40 P1/sq.m. 4,000.00
giving P5450.88 as the value per hectare. The 5000 sq.m., or hectare, will
then be valued at P2725.44; and deducting this P2725.44 from Pl,010,281.23 Lot 7-C:
there will remain Pl,007,555.79 as the total value of the land corresponding to
1st class 10.6743 P5,500 58,708.65
Mariano Lichauco.
irrigated

F. OF TRINIDAD CASTILLO GONZALES 1st class 5.8595 P4,000 23,438.00


upland
Kind Area in Price per
2nd class 2.621772 P3,500 9,176.20
hectares hectare Value
upland
Lot 2:
Rolling land 18.42119160 Pl,500 27,631.79
1st class irrigated 15.056 P5,500 P82,808.00
Lot 5:
Residential 6.7382 Pl/Sq.m. 67,382.00
1st class 8.49759 P5,500 46,736.75

101
irrigated (4) The sum of P495,086.20, representing the
advance payment of P500.00 per hectare,
Residential 3.1340 P1/sq.m. 31,340.59 as authorized by the resolutions of this Court
of June 15 and 23, 1970 and July 8, 1970. 68
117.31875360 P573,348.59 The record shows that the Secretary of
Finance released said amount sometime in
April 1971, although it does not appear when
It results that the total value of the lands in the Hacienda El Porvenir that are
said amount was actually paid to the
being expropriated is P4,872,305.40 which, divided by 990.1725, gives
defendants-appelees and/or their,
P4,920.66 as the average value per hectare.
successors in interest. At any rate, the
plaintiff-appellant must also pay interest at
As shown in the record, the following payments have been made by the the legal rate on this sum of P495,086.20 from
plaintiff-appellant to the defendants-appellees and/or their successors in September 10, 1961 up the time said sum was
interest: paid. This would give a total P2,475,431.20
thus paid as of the time the P495,086.20 was
(1) The provisional payment of P990,172.50, actually paid to the defendants-appellees
deposited in court on July 1, 1961. and/or their sucessors in interest.

(2) The additional provisional payment of As We have hereinbefore indicated, the total value the lands in the Hacienda
P500,000.00, deposited in court on August 30, El Porvenir being expropriated is P4,872,305.40. Considering that the sum of
1962. By agreement of the parties, approved P2,475,431.2 had already been paid by plaintiff-appellant, it results that there
by the court, this sum of P500,000.00 should still remains the balance of P2,396,874.20 that the plaintiff-appellant should
not earn interest from September 10, 1961, pay to the defendants-appellants and/or their successors in interest. The
when plaintiff-appellant took possession of defendant-appellant should pay interest at the legal rate on this sum
the lands being expropriated, to August 30, P2,396,874.20 from September 10, 1961 until complete payment is made.69
1962 when payment was made. 66 This would
give a total of P1,490,172.50 paid as of The record shows that the provisional payments of P990,172.50 and
August 30, 1962 which did not earn P500,000.00 were divided among the defendant-appellees and/or their
interest. corresponding successors in interest in the manner as provided in the
"Agreement and Joint Motion" of March 23, 1961". 70 The record does not show
(3) The sum of P490,172.50, authorized by this the subsequent payments of P490,172.50 and P495,086.20 were divided
Court in itsresolution of October 12, among the defendants-appellees and/or their successors in interest, but it is
1965. 67 The record does not show when this assumed that those sums were divided among them also in the manner as
sum was actually paid to the defendants- provided in the "Agreement and Joint Motion" of March 23, 1961. The balance
appellees and/or their successors in interest. of P2,396,874.20 and all the accrued interests, when paid, must be divided
At any rate, the plaintiff-appellant should among the defendants-appellees and/or their successors in interest, also in
pay interest at the legal rate on this amount the manner as provided in the "Agreement and Joint Motion" of March 23,
from September 10, 1961 up to the time 1961.71
when said amount was paid. This would give
a total of P1,980,345.00 thus paid, as of the From the amount due to each of the defendants-appellees and/or their
time the P490,172.50 was actually paid to the successors in interest must be taken and paid directly to the creditor banks
defendants-appellees and/or their such amount as may still be due for any mortgage obligation affecting any
successors in interest.

102
parcel of the lands being expropriated, in order that the government would
acquire title to these lands free of all liens and encumbrances.

WHEREFORE, with modifications as stated in this opinion, the decision, dated


October 26, 1962, and the order, dated February 9, 1963, appealed from, are,
in all other respects, affirmed.

Let the record of this case be remanded to the court of origin for the
determination of the exact area, land classification, value and the division
among defendants-appellees and/or their successors in interest, of the
additional area that may still be the subject of expropriation by the plaintiff-
appellant as a result of the decision of this Court in the case of "Ylarde, et al.
vs. Crisanto Lichauco, et al., (G.R. No. L-22115).

The attorney's lien of Atty. Rafael Dinglasan, representing 5% of whatever


payment is due to his clients, the defendants-appellees Jose M. Lichauco,
Trinidad G. Castillo, Francisco Castillo and Jose Castillo, as previouslymade of
record in this case by said attorney, is ordered enforced.

No pronouncement as to costs. It is so ordered.

103
SUBJECT TO RESOLUTORY CONDITION question is part of and must be reverted to the estate of Cipriana
Yaeso, the lone surviving relative and heir of Francisco Yaeso at the
G.R. No. L-12957 March 24, 1961 death of Andrea Gutang as of December 13, 1951. No
pronouncement as to the costs.
CONSTANCIO SIENES, ET AL., plaintiffs-appellants,
vs. From the above decision the Sienes spouse interposed the present appeal,
FIDEL ESPARCIA, ET AL., defendants-appellees. their principal contentions being, firstly, that the lower court erred in holding
that Lot 3368 of the Cadastral Survey of Ayuquitan was a reservable property;
secondly, in annulling the sale of said lot executed by Andrea Gutang in their
DIZON, J.:
favor; and lastly, in holding that Cipriana Yaeso, as reservee, was entitled to
inherit said land.
Appellants commenced this action below to secure judgment (1) declaring
null and void the sale executed by Paulina and Cipriana Yaeso in favor of
There is no dispute as to the following facts:
appellees, the spouses Fidel Esparcia and Paulina Sienes; (2) ordering the
Esparcia spouses to reconvey to appellants Lot 3368 of the Cadastral Survey
of Ayuquitan (now Amlan), Oriental Negros; and (3) ordering all the appellees Lot 3368 originally belonged to Saturnino Yaeso. With his first wife, Teresa
to pay, jointly and severally, to appellants the sum of P500.00 as damages, Ruales, he had four children named Agaton, Fernando, Paulina and Cipriana,
plus the costs of suit. In their answer appellees disclaimed any knowledge or while with his second wife, Andrea Gutang, he had an only son named
information regarding the sale allegedly made on April 20, 1951 by Andrea Francisco. According to the cadastral records of Ayuquitan, the properties left
Gutang in favor of appellants and alleged that, if such sale was made, the by Saturnino upon his death the date of which does not clearly appear of
same was void on the ground that Andrea Gutang had no right to dispose of record were left to his children as follows: Lot 3366 to Cipriana, Lot 3367 to
the property subject matter thereof. They further alleged that said property Fernando, Lot 3375 to Agaton, Lot 3377 (southern portion) to Paulina, and Lot
had never been in possession of appellants, the truth being that appellees, as 3368 (western portion) to Francisco. As a result of the cadastral proceedings,
owners, had been in continuous possession thereof since the death of Original Certificate of Title No. 10275 covering Lot 3368 was issued in the name
Francisco Yaeso. By way of affirmative defense and counterclaim, they further of Francisco. Because Francisco was a minor at the time, his mother
alleged that on July 30, 1951, Paulina and Cipriana Yaeso, as the only surviving administered the property for him, declared it in her name for taxation
heirs of Francisco Yaeso, executed a public instrument of sale in favor of the purposes (Exhs A & A-1), and paid the taxes due thereon (Exhs. B, C, C-1 & C-
spouses Fidel Esparcia and Paulina Sienes, the said sale having been 2). When Francisco died on May 29, 1932 at the age of 20, single and without
registered together with an affidavit of adjudication executed by Paulina and any descendant, his mother, as his sole heir, executed the public instrument
Cipriana on July 18, 1951, as sole surviving heirs of the aforesaid deceased; Exhibit F entitled EXTRAJUDICIAL SETTLEMENT AND SALE whereby, among other
that since then the Esparcias had been in possession of the property as things, for and in consideration of the sum of P800.00 she sold the property in
owners. question to appellants. When thereafter said vendees demanded from
Paulina Yaeso and her husband Jose Esparcia, the surrender of Original
Certificate of Title No. 10275 which was in their possession the latter
After trial upon the issues thus joined, the lower court rendered judgment as
refused, thus giving rise to the filing of the corresponding motion in the
follows:
cadastral record No. 507. The same, however, was denied (Exhs. 8 & 9).

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered


Thereafter, or more specifically, on July 30, 1951, Cipriana and Paulina Yaeso,
declaring (1) that the sale of Lot No. 3368 made by Andrea Gutang to
the surviving half-sisters of Francisco, and who as such had declared the
the plaintiff spouses Constancio Sienes and Genoveva Silay is void,
property in their name, on January 1, 1951 executed a deed of sale in favor of
and the reconveyance prayed for by them is denied; (2) that the sale
the spouses Fidel Esparcia and Paulina Sienes (Exh. 2) who, in turn, declared it
made by Paulina and Cipriana Yaeso in favor of defendants Fidel
in their name for tax purposes and thereafter secured the issuance in their
Esparcia and Paulina Sienes involving the same lot is also void, and
name of Transfer Certificate of Title No. T-2141 (Exhs. 5 & 5-A).
they have no valid title thereto; and (3) that the reservable property in

104
As held by the trial court, it is clear upon the facts already stated, that the obliged to reserve, died. Thus the former became the absolute owner of the
land in question was reservable property. Francisco Yaeso inherited it by reservable property upon Andrea's death. While it may be true that the sale
operation of law from his father Saturnino, and upon Francisco's death, made by her and her sister prior to this event, became effective because of
unmarried and without descendants, it was inherited, in turn, by his mother, the occurrence of the resolutory condition, we are not now in a position to
Andrea Gutang. The latter was, therefore, under obligation to reserve it for the reverse the appealed decision, in so far as it orders the reversion of the
benefit of relatives within the third degree belonging to the line from which property in question to the Estate of Cipriana Yaeso, because the vendees
said property came, if any survived her. The record discloses in this connection the Esparcia spouses did not appeal therefrom.
that Andrea Gutang died on December 13, 1951, the lone reservee surviving
her being Cipriana Yaeso who died only on January 13, 1952 (Exh. 10). WHEREFORE, the appealed decision as above modified is affirmed, with
costs, and without prejudice to whatever action in equity the Esparcia spouses
In connection with reservable property, the weight of opinion is that the may have against the Estate of Cipriana Yaeso for the reconveyance of the
reserve creates two resolutory conditions, namely, (1) the death of the property in question.
ascendant obliged to reserve and (2) the survival, at the time of his death, of
relatives within the third degree belonging to the line from which the property
came (6 Manresa 268-269; 6 Sanchez Roman 1934). This Court has held in
connection with this matter that the reservista has the legal title and dominion
to the reservable property but subject to a resolutory condition; that he is like
a life usufructuary of the reservable property; that he may alienate the same
but subject to reservation, said alienation transmitting only the revocable and
conditional ownership of the reservists, the rights acquired by the transferee
being revoked or resolved by the survival of reservatarios at the time of the
death of the reservista (Edroso vs. Sablan, 25 Phil. 295; Lunsod vs. Ortega, 46
Phil. 664; Florentino vs. Florentino, 40 Phil. 480; and Director of Lands vs. Aguas,
65 Phil. 279).

The sale made by Andrea Gutang in favor of appellees was, therefore,


subject to the condition that the vendees would definitely acquire ownership,
by virtue of the alienation, only if the vendor died without being survived by
any person entitled to the reservable property. Inasmuch much as when
Andrea Gutang died, Cipriana Yaeso was still alive, the conclusion becomes
inescapable that the previous sale made by the former in favor of appellants
became of no legal effect and the reservable property subject matter thereof
passed in exclusive ownership to Cipriana.

On the other hand, it is also clear that the sale executed by the sisters Paulina
and Cipriana Yaeso in favor of the spouses Fidel Esparcia and Paulina Sienes
was subject to a similar resolutory condition. The reserve instituted by law in
favor of the heirs within the third degree belonging to the line from which the
reservable property came, constitutes a real right which the reservee may
alienate and dispose of, albeit conditionally, the condition being that the
alienation shall transfer ownership to the vendee only if and when the
reservee survives the person obliged to reserve. In the present case, Cipriana
Yaeso, one of the reservees, was still alive when Andrea Gutang, the person

105
SUBJECT TO RESOLUTORY CONDITION On March 14, 1967, said Filomeno Palaos and his wife executed a
notarial Deed of Sale (Exh. 1 for the defendant) in consideration of
G.R. No. L-66696 July 14, 1986 the amount of P800.00, Philippine Currency, supposedly for the
remaining three (3) hectares of their land without knowing that the
document covered the entirety of Lot 81 including the four-hectare
FRANCISCA ARSENAL and REMEDIO ARSENAL, petitioners,
portion previously deeded by them to the plaintiff. The deed of sale
vs.
was presented to the Office of the Commission on National
THE INTERMEDIATE APPELLATE COURT, HEIRS OF TORCUATO SURALTA, and
Integration at Malaybalay for approval because Palaos and his wife
SPOUSES FILOMENO PALAOS and MAHINA LAGWAS, respondents.
belong to the cultural minorities and unlettered. The field
representative and inspector of that office subsequently approved
GUTIERREZ, JR., J.: the same (Exh. K and Exh. 2) without inspecting the land to
determine the actual occupants thereon.
The question to be resolved in this case is who among the two alleged
purchasers of a four-hectare portion of land granted in homestead has The defendants Arsenal took possession of the three-hectare portion
acquired a valid title thereto. of Lot 81 after their purchase and have cultivated the same up to
the present time but they never disturbed the plaintiff's possession
The facts as stated by the trial court are: over the four-hectare portion that he had purchased in 1957. On
March 28, 1967, Francisca Arsenal caused the tax declaration of the
On January 7, 1954, the defendant Filomeno Palaos secured OCT entire lot to be transferred in her name (Exh. 6). The plaintiff learned
No. P-290 (Exh. A) from the Register of Deeds of Bukidnon for Lot 81, of the transfer of the tax declaration to Francisca Arsenal and
Pls-112, consisting of 87,829 sq. m. more or less, situated at former because of their good relations at the time, he agreed with Arsenal
barrio of Kitaotao now a municipality of Bukidnon, by virtue of to contribute in the payment of the land taxes and paid yearly from
Homestead Patent No. V-23602 granted to him. 1968 to 1973 the amount of P10.00 corresponding to his four-hectare
portion to Francisca Arsenal (Exhs. F, F-1, G, G-1, H, and H-1).
On September 10, 1957, said Filomeno Palaos and his wife Mahina
Lagwas executed in favor of the plaintiff, Torcuato Suralta, sold four On July 11, 1973, the plaintiff presented his Sales Contract in the
(4) hectares of the land embraced in his Torrens Certificate for the Office of the Register of Deeds but it was refused registration for
sum of P 890.00, Philippine Currency, by means of a deed of having been executed within the prohibitive period of five years
acknowledged before a Notary (Exh. C). Plaintiff Suralta from the issuance of the patent. In order to cure the defect, he
immediately took possession of the four-hectare portion of Lot 81 caused Filomeno Palaos to sign a new Sales Contract (Exh. D) in his
above-mentioned cultivated and worked the same openly, favor before Deputy Clerk of Court Florentina Villanueva covering
continuously and peacefully up to the present time in concept of the same four-hectare portion of Lot 81. In August 1973, the plaintiff
owner thereof. He built a house and introduced permanent caused the segregation of his portion from the rest of the land by
improvements thereon now valued at no less than P20,000.00. Geodetic Engineer Benito P. Balbuena, who conducted the
subdivision survey without protest from Francisca Arsenal who was
notified thereof. The subdivision plan (Exh. E) was approved by the
Sometime in 1964, the defendant-spouses Francisca Arsenal and Commissioner of Land Registration on April 18, 1974.
Remedio Arsenal became tenants of an adjoining land owned by
Eusebio Pabualan that is separated from the land in question only by
a public road. They also came to know the plaintiff as their neighbor In December 1973, however, the plaintiff saw for the first time the
who became their compadre later, and saw him very often working Deed of Sale embracing the whole Lot 81 signed by Filomeno Palaos
and cultivating the land in question. In the course of their in favor of Francisca Arsenal. Immediately he asked Palaos for
relationship the plaintiff came to know of their intention to buy the explanation but the latter told him that he sold only three hectares
remaining land of Filomeno Palaos (t.s.n., pp. 13-14, 45-47). to Arsenal. Plaintiff approached Francisca Arsenal for a satisfactory

106
arrangement but she insisted on abiding by her contract. Because document of sale so as to include the entire 87,829 sq. m.covered by their
of their disagreement, Francisca Arsenal registered her Deed of Sale original title.
on December 6, 1973 and obtained Transfer Certificate of Title No. T-
7879 (Exh. E) for the entire Lot 81 without the knowledge of the On May 4, 1976, the trial court rendered judgment in favor of Suralta. It
plaintiff. imputed bad faith to the Arsenals and declared them disqualified to avail of
the protection afforded by the provisions of the Civil Code to innocent
On January 7, 1974, the plaintiff sent a telegram (Exh. 1) to the purchasers although they registered their purchase ahead of Suralta.
Secretary of Agriculture and Natural Resources requesting
suspensions of the approval of the sale executed by Filomeno The court held that:
Palaos in favor of Francisca Arsenal, not knowing that the latter had
already secured a transfer certificate of title from the Register of
xxx xxx xxx
Deeds.

The defendants Arsenal could not also avail of the prohibition in


In the middle part of said month of January 1974, plaintiff however
the Public Land Act against the disposal of any land granted to a
learned of the cancellation of the original certificate of title of
citizen under that law because the benefit of said prohibition
Palaos and the issuance of the Transfer Certificate to Arsenal so he
does not inure to any third party. Only the government could
sought the help of the municipal authorities of Kitaotao to reach an
have filed the adequate proceedings for confiscation of the land
amicable settlement with Francisca Arsenal who, on the other hand,
for violation of the condition of the grant by Palaos. Moreover, a
refused to entertain all overture to that effect. ... .
verbal sale of land is valid and effective as between the parties
to the agreement and Filomeno Palaos had reaffirmed the sale
On March 6, 1974, Torcuato Suralta filed a case against Filomeno Palaos, he made in favor of the plaintiff in 1957 by executing another
Mahina Lagwas, Francisca Arsenal, Remedio Arsenal and the Register of instrument in 1973 to cure whatever defects which may have
Deeds of Bukidnon for the annulment of Transfer Certificate of Title No. T-7879 affected their formal contract.
issued to the Arsenals insofar as it covers the four-hectare portion previously
sold to him.
Likewise, Francisca Arsenal cannot take advantage of the lack of
approval by the Commission on National Integration of the sale
In answer to the complaint, the Arsenals denied previous knowledge of the made by Filomeno Palaos in favor of plaintiff Torcuato Suralta.
sale to Suralta of the land in question. As a special defense, they assailed the Only the latter, in whose favor the protection is afforded, could
validity of the purchase by Suralta in 1957, pointing to the prohibition contest the document on the ground, as Francisca Arsenal was
contained in the Public Land Law against its disposal within the period of five not a party to said contract and even if she is also a member of
years from the issuance of the homestead patent. They also questioned the the cultural minority for being only half a native of Bukidnon
legality of the sale made to Suralta in 1957 by Filomeno Palaos and Mahina because she and her husband who is from Cebu are both
Lagwas for not having been approved by the Commission on National literates.
Integration despite the fact that Palaos and his wife belong to the cultural
minorities, are illiterates, and do not understand the English language in which
On appeal to the Intermediate Appellate Court, the aforestated decision was
the deed of sale in favor of Suralta was written.
affirmed in toto on October 24, 1983. The Court maintained that:

In their answer, the spouses Filomeno Palaos and Mahina Lagwas sustained
The disquisition of the lower court having been made mainly upon
the sale made by them to Suralta. They alleged that they verbally sold one
assessment of the facts as borne by the testimonies of witnesses
hectare to one Tiburcio Tadena and sold the remaining 3.7829 hectares to the
presented as resolved in a long line of decisions, this Court is loath
Arsenals. They stated that they informed the Arsenals about the previous sale
to overturn findings of facts of the court a quo, which is more in a
of four hectares to Suralta. They also claimed that the Arsenals took undue
advantage of their ignorance and illiteracy and caused them to sign the
107
position to determine their truth or falsity, having heard the beginning, it cannot be ratified and "No amount of bad faith on the part of
witnesses testify ... . the petitioners could make it valid and enforceable in the courts of law."

On March 20, 1984, the spouses Arsenal went to this Court in a petition for These arguments are impressed with merit.
review on certiorari assigning the following alleged errors of the court below:
The law on the matter which is the Public Land Act (Commonwealth Act No.
I 141, as amended) provides:

THE INTERMEDIATE APPELLATE COURT ERRED IN NOT DISMISSING Sec. 118. Except in favor, of the Government or any of its
THE APPEALED CASE FOR LACK OF CAUSE OF ACTION. branches, units or institutions, lands acquired under free patent or
II homestead provisions shall not be subject to encumbrance or
THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE alienation from the date of the approval of the application and
TRIAL COURT'S ARGUMENT TO THE EFFECT THAT THE BENEFIT OF for a term of five years from and after the date of issuance of the
THE PROHIBITION IN THE PUBLIC LAND LAW AGAINST THE patent or grant nor shall they become liable to the satisfaction of
DISPOSAL OF ANY LAND GRANTED TO A CITIZEN UNDER THAT LAW any debt contracted prior to the expiration of said period, but the
DOES NOT INSURE TO ANY THIRD PARTY, HENCE, PETITIONERS improvements or crops on the land may be mortgaged or
COULD NOT AVAIL OF THE SAID PROHIBITION. pledged to qualified persons, associations, or corporations.
III
THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE No alienation, transfer, or conveyance of any homestead after
TRIAL COURT'S ARGUMENT THAT THE PETITIONERS COULD NOT five years and before twenty-five years after issuance of title shall
TAKE ADVANTAGE OF THE LACK OF APPROVAL BY THE be valid without the approval of the Secretary of Agriculture and
COMMISSION ON NATIONAL INTEGRATION OF THE SALE MADE BY Natural Resources, which approval shall not be denied except on
RESPONDENT TORCUATO SURALTA. constitutional and legal ground (As amended by Com. Act No.
IV 456, approved June 8, 1939).
THE INTERMEDIATE APPELLATE COURT ERRED IN GIVING TOO
MUCH WEIGHT TO THE ALLEGED BAD FAITH OF PETITIONERS.
xxx xxx xxx
V
THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE
DECISION OF THE TRIAL COURT DECLARING RESPONDENT Sec. 120. Conveyance and encumbrance made by persons
TORCUATO SURALTA TO BE THE LEGITIMATE OWNER OF THE belonging to the so-called 'non-Christian Filipinos' or national
DISPUTED LAND AND IN ORDERING THE REGISTER OF DEEDS OF cultural minorities, when proper, shall be valid if the person making
BUKIDNON TO CANCEL TCT NO. T-7879 AND ORDERING THE the conveyance or encumbrance is able to read and can
ISSUANCE OF ANOTHER TITLE FOR THE PORTION DESIGNATED AS understand the language in which the instrument or conveyance
LOT 8l-A OF THE SUBDIVISION PLAN LRC-PLD-198451. or encumbrance is written. Conveyances and encumbrances
VI made by illiterate non-Christians or literate non-Christians where
THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE the instrument of conveyance is in a language not understood by
AWARD OF MORAL DAMAGES AND ATTORNEY's FEES TO PRIVATE the said literate non-Christian shall not be valid unless duly
RESPONDENTS. approved by the Chairman of the Commission on National
Integration. (As amended by Rep. Act No. 3872, approved June
18, 1964).
In resisting respondent Suralta's claim, the petitioners rely heavily on the nullity
of the contract of sale executed in 1957 between the respondents Palaos and
Suralta. They allege that because the previous sale was void from the xxx xxx xxx

108
Sec. 124. Any acquisition, conveyance, alienation, transfer, or Public Land Act "does not inure to any third party." Such a sweeping
other contract made or executed in violation of any of the declaration does not find support in the law or in precedents. A third person
provisions of sections one hundred and eighteen, one hundred who is directly affected by a void contract may set up its nullity. In this case, it
and twenty, one hundred and twenty-one, one hundred and is precisely the petitioners' interest in the disputed land which is in question.
twenty-two, and one hundred twenty-three of this Act shall be
unlawful and null and void from its execution and shall produce As to whether or not the execution by the respondents Palaos and Suralta of
the effect of annulling and cancelling the grant, title, patent, or another instrument in 1973 cured the defects in their previous contract, we
permit originally issued, recognized or confirmed, actually or reiterate the rule that an alienation or sale of a homestead executed within
presumptively, and cause the reversion of the property and its the five-year prohibitory period is void and cannot be confirmed or ratified.
improvements to the State. This Court has on several occasions ruled on the nature of a confirmatory sale
and the public policy which proscribes it. In the case of Menil v. Court of
The above provisions of law are clear and explicit. A contract which purports Appeals(84 SCRA 413), we stated that:
of alienate, transfer, convey or encumber any homestead within the
prohibitory period of five years from the date of the issuance of the patent is It cannot be claimed that there are two contracts: one which is
void from its execution. In a number of cases, this Court has held that such undisputably null and void, and another, having been executed
provision is mandatory (De los Santos v. Roman Catholic Church of Midsayap, after the lapse of the 5-year prohibitory period, which is valid. The
94 Phil. 405). second contract of sale executed on March 3, 1964 is admittedly
a confirmatory deed of sale. Even the petitioners concede this
Under the provisions of the Civil Code, a void contract is inexistent from the point. (Record on Appeal, pp. 55-56). Inasmuch as the contract of
beginning. It cannot be ratified neither can the right to set up the defense of sale executed on May 7, 1960 is void for it is expressly prohibited or
its illegality be waived. (Art. 1409, Civil Code). declared void by law (CA 141, Section 118), it therefore cannot
be confirmed nor ratified. ... .
To further distinguish this contract from the other kinds of contract, a
commentator has stated that: xxx xxx xxx

The right to set up the nullity of a void or non-existent contract is Further, noteworthy is the fact that the second contract of sale
not limited to the parties as in the case of annullable or voidable over the said homestead in favor of the same vendee, petitioner
contracts; it is extended to third persons who are directly Potenciano Menil, is for the same price of P415.00. Clearly, the
affected by the contract. (Tolentino, Civil Code of the Philippines, unvarying term of the said contract is ample manifestation that
Vol. IV, p. 604, [1973]). the same is simulated and that no object or consideration passed
between the parties to the contract. It is evident from the whole
Any person may invoke the inexistence of the contract whenever record of the case that the homestead had long been in the
juridical effects founded thereon are asserted against him. (Id. p. possession of the vendees upon the execution of the first contract
595). of sale on May 7, 1960; likewise, the amount of P415.00 had long
been paid to Agueda Garan on that same occasion. ...
Concededly, the contract of sale executed between the respondents Palaos
and Suralta in 1957 is void. It was entered into three (3) years and eight (8) In another case, Manzano v. Ocampo (1 SCRA 691, 697), where the sale was
months after the grant of the homestead patent to the respondent Palaos in perfected during the prohibitory period but the formal deed of conveyance
1954. was executed after such period, this Court ruled that:

Being void, the foregoing principles and rulings are applicable. Thus, it was xxx xxx xxx
erroneous for the trial court to declare that the benefit of the prohibition in the

109
... This execution of the formal deed after the expiration of the The petitioner's view that the court erred in giving too much weight to their
prohibitory period did not and could not legalize a contract that alleged bad faith has no merit. The issue of bad faith constitutes the
was void from its inception. Nor was this formal deed of sale 'a fundamental barrier to their claim of ownership.
totally distinct transaction from the promissory note and the deed
of mortgage', as found by the Court of Appeals, for it was The finding of bad faith by the lower court is binding on us since it is not the
executed only in compliance and fulfillment of the vendor's function of this Court to analyze and review evidence on this point all over
previous promise, under the perfected sale of January 4, 1938, to again (Sweet Lines, Inc. v. Court of Appeals, 121 SCRA 769) but only to
execute in favor of his vendee the formal act of conveyance determine its substantiality (Dela Concepcion v. Mindanao Portland Cement
after the lapse of the period of inhibition of five years from the Corporation, 127 SCRA 647).
date of the homestead patent. What is more, the execution of
the formal deed of conveyance was postponed by the parties
In this case, there is substantial evidence to sustain the verdict of bad faith.
precisely to circumvent the legal prohibition of their sale.
We find several significant findings of facts made by the courts below, which
were not disputed by the petitioners, crucial to its affirmance.
The law prohibiting any transfer or alienation of homestead land
within five years from the issuance of the patent does not
First of all, we agree with the lower court that it is unusual for the petitioners,
distinguish between executory and consummated sales; and it
who have, been occupying the disputed land for four years with respondent
would hardly be in keeping with the primordial aim of this
Suralta to believe, without first verifying the fact, that the latter was a mere
prohibition to preserve and keep in the family of the
mortgagee of the portion of the land he occupies.
homesteader the piece of land that the State had gratuitously
given to them, (Pascua v. Talens, 45 O.G. No. 9 [Supp.] 413; De
los Santos v. Roman Catholic Church of .Midsayap, G.R. No. L- Second, it is unlikely that the entire 8.7879 hectares of land was sold to them
6088, Feb. 25, 1954.) to hold valid a homestead sale actually for only P800,00 in 1967 considering that in 1957, a four-hectare portion of the
perfected during the period of prohibition but with the execution same was sold to the respondent Suralta for P819.00. The increased value of
of the formal deed of conveyance and the delivery of possession real properties through the years and the disparity of the land area show a
of the land sold to the buyer deferred until after the expiration of price for the land too inadequate for a sale allegedly done in good faith and
the prohibitory period, purposely to circumvent the very law that for value.
prohibits and declares invalid such transaction to protect the
homesteader and his family. To hold valid such arrangements Third, contrary to the usual conduct of good faith purchasers for value, the
would be to throw the door wide open to all possible fraudulent petitioners actively encouraged the respondent Suralta to believe that they
subterfuges and schemes that persons interested in land given to were co-owners of the land. There was no dispute that the petitioners, without
homesteaders may devise to circumvent and defeat the legal informing the respondent Suralta of their title to the land, kept the latter in
provision prohibiting their alienation within five years from the peaceful possession of the land he occupies and received annual real estate
issuance of the homestead's patent. tax contributions from him. It was only in 1973 when the respondent Suralta
discovered the petitioners' title to the land and insisted on a settlement of the
The respondents Palaos and Suralta admitted that they executed the adverse claim that the petitioners registered their deed of sale and secured a
subsequent contract of sole in 1973 in order to cure the defects of their transfer certificate of title in their favor.
previous contract. The terms of the second contract corroborate this fact as it
can easily be seen from its terms that no new consideration passed between Clearly, the petitioners were in bad faith in including the entire area of the
them. The second contract of sale being merely confirmatory, it produces no land in their deed of sale. They cannot be entitled to the four-hectare portion
effect and can not be binding. of the land for lack of consideration. To uphold their claim of ownership over
that portion of land would be contrary to the well-entrenched principle
Notwithstanding the above circumstances of the case, however, we still think against unjust enrichment consecrated in our Civil Code to the end that in
that the petitioners' claim to the land must fail.

110
cases not foreseen by the lawmaker, no one may unjustly benefit himself to his heirs, and that until the State had taken steps to annul the grant and asserts
the prejudice of another (Report of the Code Commission, p. 41). title to the homestead the purchaser is, as against the vendor or his heirs, no
more entitled to keep the land than any intruder." (Acierto et al. v. De los
Who then is entitled to the portion of the land which is under litigation? Santos, et al. 95 Phil. 887; de los Santos v. Roman Catholic Church of
Midsayap, et al., supra) We should stress that the vendors of the homestead
are unlettered members of a tribe belonging to the cultural minorities.
The peculiar circumstances of the case seem to make a categorical
pronouncement on the case difficult.
We see, however, a distinguishing factor in this case that sets it apart from the
above cases. The original owners in this case, the respondent Palaos and his
At first blush, the equities of the case seem to lean in favor of the respondent
wife, have never disaffirmed the contracts executed between them and the
Suralta who, since 1957, has been in possession of the land which was almost
respondent Suralta. More than that, they expressly sustained the title of the
acquired in an underhanded manner by the petitioners. We cannot, however,
latter in court and failed to show any interest in recovering the land.
gloss over the fact that the respondent Suralta was himself guilty of
Nonetheless, we apply our earlier rulings because we believe that as in pari
transgressing the law by entering, in 1957, into a transaction clearly prohibited
delicto may not be invoked to defeat the policy of the State neither may the
by law. It is a long standing principle that equity follows the law. Courts
doctrine of estoppel give a validating effect to a void contract. Indeed, it is
exercising equity jurisdiction are bound by rules of law and have no arbitrary
generally considered that as between parties to a contract, validity cannot
discretion to disregard them. Equitable reasons will not control against any
be given to it by estoppel if it is prohibited by law or is against public policy (19
well-settled rule of law or public policy (McCurdy v. County of Shiawassee, 118
Am. Jur. 802). It is not within the competence of any citizen to barter away
N.W. 625). Thus, equity cannot give validity to a void contract. If, on the basis
what public policy by law seeks to preserve (Gonzalo Puyat & Sons, Inc. v. De
of equity, we uphold the respondent Suralta's claim over the land which is
los Amas and Alio, supra). Of course, this pronouncement covers only the
anchored on the contracts previously executed we would in effect be giving
previous transactions between the respondents. We cannot pass upon any
life to a void contract.
new contract, between the same parties involving the same land if this is their
clear intention. Any new transaction, however, would be subject to whatever
There is another observation worthy of consideration. This Court has ruled in a steps the Government may take for the reversion of the property to it.
number of cases that the reversion of a public land grant to the government is
effected only at the instance of the Government itself (Gacayan v. Leano,
With the resolution of the principal issues and in view of our own conclusions of
121 SCRA 260; Gonzalo Puyat & Sons, Inc. v. De las Ama and Alio, 74 Phil. 3).
facts and law, we hold untenable the lower court's award of moral damages,
The reversion contemplated in the Public Land Act is not automatic. The
attorney's fees and litigation expenses.
Government has to take action to cancel the patent and the certificate of
title in order that the land involved may be reverted to it (Villacorta v.
Ulanday, 73 Phil. 655). Considering that this is an ordinary civil action in which WHEREFORE, the decision of the Intermediate Appellate Court is REVERSED
the Government has not been included as a party and in view of the settled and SET ASIDE. Judgment is hereby rendered:
jurisprudence, we rule against the automatic reversion of the land in question
to the State. (a) Declaring null and void the sale of the four-hectare portion of the
homestead to respondent Torcuato Suralta and his heirs;
Lastly, in cases where the homestead has been the subject of void
conveyances, the law still regards the original owner as the rightful owner (b) Declaring null and void the sale of the same portion of land to the
subject to escheat proceedings by the State. In the Menil and Monzano cases petitioners Francisca Arsenal and Remedio Arsenal:
earlier cited, this Court awarded the land back to the original owner
notwithstanding the fact that he was equally guilty with the vendee in (c) Ordering the Register of Deeds of Bukidnon to cancel Transfer Certificate
circumventing the law. This is so because this Court has consistently held that of Title No. T-7879 as to the disputed four-hectare portion and to reissue an
"the pari delicto doctrine may not be invoked in a case of this kind since it Original Certificate of Title for the portion designated as Lot 81-A of the
would run counter to an avowed fundamental policy of the State, that the Subdivision Plan LRC-PLD-198451 prepared by Geodetic Engineer Benito P.
forfeiture of a homestead is a matter between the State and the grantee or
111
Balbuena and approved by the Commission on Land Registration, in favor of
the respondents Filomeno Palaos and Mahina Lagwas;

(d) Ordering the respondents Filomeno Palaos and Mahina Lagwas to


reimburse the heirs of the respondent Torcuato Suralta the sum of EIGHT
HUNDRED NINETY PESOS (P890.00), the price of the sale. The value of any
improvements made on the land and the interests on the purchase price are
compensated by the fruits the respondent Suralta and his heirs received from
their long possession of the homestead.

This judgment is without prejudice to any appropriate action the Government


may take against the respondents Filomeno Palaos and Mahina Lagwas
pursuant to Section 124 of Commonwealth Act No. 141, as amended.

SO ORDERED.

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