1
DIGNOS VS. CA (158 SCRA 375)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-59266 February 29, 1988
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.
BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th
Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated
August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled
Atilano G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo
Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its
Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for
reconsideration, for lack of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of land, known as Lot No.
3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965,
appellants (petitioners) Dignos spouses sold the said parcel of land to
plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00,
payable in two installments, with an assumption of indebtedness with the
First Insular Bank of Cebu in the sum of P12,000.00, which was paid and
acknowledged by the vendors in the deed of sale (Exh. C) executed in favor
of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be
paid on or before September 15, 1965.
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 deed of absolute sale (Exh.
J, also marked Exh. 3) was executed by the Dignos spouses in favor of the
Cabigas spouses, and which was registered in the Office of the Register of
Deeds pursuant to the provisions of Act No. 3344.
As the Dignos spouses refused to accept from plaintiff-appellant the balance
of the purchase price of the land, and as plaintiff- appellant discovered the
second sale made by defendants-appellants to the Cabigas spouses,
plaintiff-appellant brought the present suit. (Rollo, pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972,
the decretal portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale 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 sale executed by defendants Silvestre T. Dignos and
Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff
Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand
Pesos (P16,000.00) to the defendants-spouses upon the execution of the
Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the
decision of this case becomes final and executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano
Cabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo
Jabalde, reasonable amount corresponding to the expenses or costs of the
hollow block fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela
Lumungsod de Dignos should return to defendants-spouses Luciano
Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity
demands that nobody shall enrich himself at the expense of another.
The writ of preliminary injunction issued on September 23, 1966,
automatically becomes permanent in virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners
herein) appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No.
54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to
the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the

building of a fence upon the land in question. The disposive portion of said decision of the
Court of Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the
modification of the judgment as pertains to plaintiff-appellant above indicated,
the judgment appealed from is hereby AFFIRMED in all other respects.
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the defendants- appellants
(petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the
Court of Appeals denying the motion for lack of merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this Court denied 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, 1982 and a reply thereto was filed on July 26, 1982 in
compliance with the resolution of June 16,1 982. On August 9,1982, acting on the motion for
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 instant petition. On September
6, 1982, respondents filed a rejoinder to reply of petitioners which was noted on the resolution
of September 20, 1982.
Petitioners raised the following assignment of errors:
I
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY,
INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING
IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE
PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO
SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE
1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF
ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A
CONTRACT OF PROMISE TO SELL.
2
II
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY
APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS
WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION,
EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS
IT A NOTARIAL ACT.
III
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
ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND
ATTORNEY'S FEES TO PETITIONERS.
IV
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN
DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS.
V
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING
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.
The foregoing assignment of errors may be synthesized into two main issues, to wit:
I. Whether or not subject contract is a deed of absolute sale or a contract Lot
sell.
II. Whether or not there was a valid rescission thereof.
There is no merit in this petition.
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 motion for reconsideration and
on the basis of all subsequent pleadings filed, the petition was given due course.
I.

The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:
1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos
P12,000.00) Phil. Philippine Currency as advance payment;
2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos
(P12,000.00) Loan from the First Insular Bank of Cebu;
3. That Atilano G. Jabil is to pay the said spouses the balance of Four.
Thousand Pesos (P4,000.00) on or before September 15,1965;
4. That the said spouses agrees to defend the said Atilano G. Jabil from
other claims on the said property;
5. That the spouses agrees to sign a final deed of absolute sale in favor of
Atilano G. Jabil over the above-mentioned property upon the payment of the
balance of Four Thousand Pesos. (Original Record, pp. 10-11)
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 sale; that the same is subject to
two (2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on
or before September 15,1965 and the immediate assumption of the mortgage of P12,000.00
with the First Insular Bank of Cebu. It is further contended that in said contract, title or
ownership over the property was expressly reserved in the vendor, the Dignos spouses until
the suspensive condition of full and punctual payment of the balance of the purchase price
shall have been met. So that there is no actual sale until full payment is made (Rollo, pp. 51-
52).
In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that
there is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey
or transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a
private instrument and the absence of a formal deed of conveyance is a very strong indication
that the parties did not intend "transfer of ownership and title but only a transfer after full
payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms
and conditions of the contract, more particularly paragraph four which reads, "that said
spouses has agreed to sell the herein mentioned 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."
Such contention is untenable.
3
By and large, the issues in this case have already been settled by this Court in analogous
cases.
Thus, it has been held that a deed of sale is absolute in nature although denominated as a
"Deed of Conditional Sale" where nowhere in the contract in question is a proviso or
stipulation to the effect that title to the property sold is reserved in the vendor until full
payment of the purchase price, nor is there a stipulation giving the vendor the right to
unilaterally rescind the contract the moment the vendee fails to pay within a fixed period
Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co.,
Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such stipulation reserving the title
of the property on the vendors nor does it give them the right to unilaterally rescind the
contract upon non-payment of the balance thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil
Code, are present, such as: (1) consent or meeting of the minds; (2) determinate subject
matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same
Code provides that "The ownership of the thing sold shall be transferred to the vendee upon
actual or constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental
Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the
contrary, the ownership of the thing sold passes to the vendee upon actual or constructive
delivery thereof.
While it may be conceded that there was no constructive delivery of the land sold in the case
at bar, as subject Deed of Sale is a private instrument, it is beyond question that there was
actual delivery thereof. As found by the trial court, the Dignos spouses delivered the
possession of the land in question to Jabil as early as March 27,1965 so that the latter
constructed thereon Sally's Beach Resort also known as Jabil's Beach Resort in March,
1965; Mactan White Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on
September 1, 1965. Such facts were admitted by petitioner spouses (Decision, Civil Case No.
23-L; Record on Appeal, p. 108).
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 contract to sell.
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.
 4

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.
 5

TAN VS. BENORILAO (G.R. #153820; OCT. 16, 2009) THE ANTECEDENTS
Republic of the Philippines
Supreme Court The facts are not disputed. Spouses Lamberto and Erlinda Benolirao and the Spouses
Manila Reynaldo and Norma Taningco were the co-owners of a 689-square meter parcel of land
(property) located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No.
26423. On October 6, 1992, the co-owners executed a Deed of Conditional Sale over the
SECOND DIVISION property in favor of Tan for the price of P1,378,000.00. The deed stated:

a) An initial down-payment of TWO HUNDRED (P200,000.00) THOUSAND

DELFIN TAN, G.R. No. 153820 PESOS, Philippine Currency, upon signing of this contract; then the remaining
Petitioner, balance of ONE MILLION ONE HUNDRED SEVENTY EIGHT THOUSAND
Present: (P1,178,000.00) PESOS, shall be payable within a period of one hundred fifty
*QUISUMBING, J., (150) days from date hereof without interest;
CARPIO-MORALES,
**NACHURA, b) That for any reason, BUYER fails to pay the remaining balance within above
- versus - BRION, and mentioned period, the BUYER shall have a grace period of sixty (60) days within
ABAD, JJ. which to make the payment, provided that there shall be an interest of 15% per
annum on the balance amount due from the SELLERS;

c) That should in case (sic) the BUYER fails to comply with the terms and
ERLINDA C. BENOLIRAO, conditions within the above stated grace period, then the SELLERS shall have
ANDREW C. BENOLIRAO, the right to forfeit the down payment, and to rescind this conditional sale without
ROMANO C. BENOLIRAO, need of judicial action;
DION C. BENOLIRAO,
SPS. REYNALDO TANINGCO Promulgated: d) That in case, BUYER have complied with the terms and conditions of this
and NORMA D. BENOLIRAO, contract, then the SELLERS shall execute and deliver to the BUYER the
EVELYN T. MONREAL, and appropriate Deed of Absolute Sale;
ANN KARINA TANINGCO, October 16, 2009
Respondents.
Pursuant to the Deed of Conditional Sale, Tan issued and delivered to the co-
x-------------------------------------------------------------------------------------- x owners/vendors Metrobank Check No. 904407 for P200,000.00 as down payment for the
property, for which the vendors issued a corresponding receipt.
DECISION
On November 6, 1992, Lamberto Benolirao died intestate. Erlinda Benolirao (his
BRION, J.: widow and one of the vendors of the property) and her children, as heirs of the deceased,
executed an extrajudicial settlement of Lambertos estate on January 20, 1993. On the basis
Is an annotation made pursuant to Section 4, Rule 74 of the Rules of Court (Rules) of the extrajudicial settlement, a new certificate of title over the property, TCT No. 27335, was
on a certificate of title covering real property considered an encumbrance on the property? issued on March 26, 1993 in the names of the Spouses Reynaldo and Norma Taningco and
We resolve this question in the petition for review on certiorari[1] filed by Delfin Tan (Tan) to Erlinda Benolirao and her children. Pursuant to Section 4, Rule 74 of the Rules, the following
assail the decision of the Court of Appeals (CA) in CA-G.R. CV No. 52033[2] and the decision annotation was made on TCT No. 27335:
of the Regional Trial Court (RTC)[3] that commonly declared the forfeiture of his P200,000.00
down payment as proper, pursuant to the terms of his contract with the respondents. x x x any liability to credirots (sic), excluded heirs and other persons
having right to the property, for a period of two (2) years, with respect only to
the share of Erlinda, Andrew, Romano and Dion, all surnamed Benolirao

As stated in the Deed of Conditional Sale, Tan had until March 15, 1993 to pay the
balance of the purchase price. By agreement of the parties, this period was extended by two
months, so Tan had until May 15, 1993 to pay the balance. Tan failed to pay and asked for
another extension, which the vendors again granted. Notwithstanding this second extension,
Tan still failed to pay the remaining balance due on May 21, 1993. The vendors thus wrote
him a letter demanding payment of the balance of the purchase price within five (5) days from
notice; otherwise, they would declare the rescission of the conditional sale and the forfeiture
of his down payment based on the terms of the contract.
Tan refused to comply with the vendors demand and instead wrote them a letter
(dated May 28, 1993) claiming that the annotation on the title, made pursuant to Section 4,
Rule 74 of the Rules, constituted an encumbrance on the property that would prevent the
vendors from delivering a clean title to him. Thus, he alleged that he could no longer be
required to pay the balance of the purchase price and demanded the return of his down
payment.
When the vendors refused to refund the down payment, Tan, through counsel, sent
another demand letter to the vendors on June 18, 1993. The vendors still refused to heed
Tans demand, prompting Tan to file on June 19, 1993 a complaint with the RTC of Pasay City
for specific performance against the vendors, including Andrew Benolirao, Romano
Benolirao, Dion Benolirao as heirs of Lamberto Benolirao, together with Evelyn Monreal and
Ann Karina Taningco (collectively, the respondents). In his complaint, Tan alleged that there
was a novation of the Deed of Conditional Sale done without his consent since the annotation
on the title created an encumbrance over the property. Tan prayed for the refund of the down
payment and the rescission of the contract.
On August 9, 1993, Tan amended his Complaint, contending that if the respondents
insist on forfeiting the down payment, he would be willing to pay the balance of the purchase
price provided there is reformation of the Deed of Conditional Sale. In the meantime, Tan
caused the annotation on the title of a notice of lis pendens.
On August 21, 1993, the respondents executed a Deed of Absolute Sale over the
property in favor of Hector de Guzman (de Guzman) for the price of P689,000.00.
Thereafter, the respondents moved for the cancellation of the notice of lis
pendens on the ground that it was inappropriate since the case that Tan filed was a personal
action which did not involve either title to, or possession of, real property. The RTC issued an
order dated October 22, 1993 granting the respondents motion to cancel the lis
pendens annotation on the title.
Meanwhile, based on the Deed of Absolute Sale in his favor, de Guzman registered
the property and TCT No. 28104 was issued in his name. Tan then filed a motion to carry
6
over the lis pendens annotation to TCT No. 28104 registered in de Guzmans name, but the
RTC denied the motion.
On September 8, 1995, after due proceedings, the RTC rendered judgment ruling that the
respondents forfeiture of Tans down payment was proper in accordance with the terms and
conditions of the contract between the parties.[4] The RTC ordered Tan to pay the
respondents the amount of P30,000.00, plus P1,000.00 per court appearance, as attorneys
fees, and to pay the cost of suit.
On appeal, the CA dismissed the petition and affirmed the ruling of the trial court in
toto. Hence, the present petition.
THE ISSUES
Tan argues that the CA erred in affirming the RTCs ruling to cancel the lis
pendens annotation on TCT No. 27335. Due to the unauthorized novation of the agreement,
Tan presented before the trial court two alternative remedies in his complaint either the
rescission of the contract and the return of the down payment, or the reformation of the
contract to adjust the payment period, so that Tan will pay the remaining balance of the
purchase price only after the lapse of the required two-year encumbrance on the title. Tan
posits that the CA erroneously disregarded the alternative remedy of reformation of contract
when it affirmed the removal of the lis pendens annotation on the title.
Tan further contends that the CA erred when it recognized the validity of the forfeiture
of the down payment in favor of the vendors. While admitting that the Deed of Conditional
Sale contained a forfeiture clause, he insists that this clause applies only if the failure to pay
the balance of the purchase price was through his own fault or negligence. In the present
case, Tan claims that he was justified in refusing to pay the balance price since the vendors
would not have been able to comply with their obligation to deliver a clean title covering the
property.
Lastly, Tan maintains that the CA erred in ordering him to pay the
respondents P30,000.00, plus P1,000.00 per court appearance as attorneys fees, since he
filed the foregoing action in good faith, believing that he is in the right.
The respondents, on the other hand, assert that the petition should be dismissed for raising
pure questions of fact, in contravention of the provisions of Rule 45 of the Rules which
provides that only questions of law can be raised in petitions for review on certiorari.
THE COURTS RULING
The petition is granted.

No new issues can be raised in the
Memorandum
At the onset, we note that Tan raised the following additional assignment of errors in
his Memorandum: (a) the CA erred in holding that the petitioner could seek reformation of the
Deed of Conditional Sale only if he paid the balance of the purchase price and if the vendors
refused to execute the deed of absolute sale; and (b) the CA erred in holding that the
petitioner was estopped from asking for the reformation of the contract or for specific
performance.
The Courts September 27, 2004 Resolution expressly stated that No new issues may
be raised by a party in his/its Memorandum. Explaining the reason for this rule, we said that:
The raising of additional issues in a memorandum before the
Supreme Court is irregular, because said memorandum is supposed to be in
support merely of the position taken by the party concerned in his petition,
and the raising of new issues amounts to the filing of a petition beyond the
reglementary period. The purpose of this rule is to provide all parties to a
case a fair opportunity to be heard. No new points of law, theories, issues or
arguments may be raised by a party in the Memorandum for the reason that
to permit these would be offensive to the basic rules of fair play, justice and
due process.[5]
Tan contravened the Courts explicit instructions by raising these additional errors.Hence, we
disregard them and focus instead on the issues previously raised in the petition and properly
included in the Memorandum.
Petition raises a question of law
Contrary to the respondents claim, the issue raised in the present petition defined in the
opening paragraph of this Decision is a pure question of law. Hence, the petition and the
issue it presents are properly cognizable by this Court.
Lis pendens annotation not proper in
personal actions
Section 14, Rule 13 of the Rules enumerates the instances when a notice of lis
pendens can be validly annotated on the title to real property:
Sec. 14. Notice of lis pendens.
In an action affecting the title or the right of possession of real
property, the plaintiff and the defendant, when affirmative relief is claimed in
7
his answer, may record in the office of the registry of deeds of the province in
which the property is situated a notice of the pendency of the action. Said
notice shall contain the names of the parties and the object of the action or
defense, and a description of the property in that province affected thereby.
Only from the time of filing such notice for record shall a purchaser, or
encumbrancer of the property affected thereby, be deemed to have
constructive notice of the pendency of the action, and only of its pendency
against the parties designated by their real names.
The notice of lis pendens hereinabove mentioned may be cancelled
only upon order of the court, after proper showing that the notice is for the
purpose of molesting the adverse party, or that it is not necessary to protect
the rights of the party who caused it to be recorded.
The litigation subject of the notice of lis pendens must directly involve a specific
property which is necessarily affected by the judgment.[6]
Tans complaint prayed for either the rescission or the reformation of the Deed of
Conditional Sale. While the Deed does have real property for its object, we find that Tans
complaint is an in personam action, as Tan asked the court to compel the respondents to do
something either to rescind the contract and return the down payment, or to reform the
contract by extending the period given to pay the remaining balance of the purchase
price. Either way, Tan wants to enforce his personal rights against the respondents, not
against the property subject of the Deed. As we explained in Domagas v. Jensen:[7]
The settled rule is that the aim and object of an action determine its
character. Whether a proceeding is in rem, or in personam, or quasi in
rem for that matter, is determined by its nature and purpose, and by these
only. A proceeding in personam is a proceeding to enforce personal rights
and obligations brought against the person and is based on the jurisdiction of
the person, although it may involve his right to, or the exercise of ownership
of, specific property, or seek to compel him to control or dispose of it in
accordance with the mandate of the court. The purpose of a proceeding in
personam is to impose, through the judgment of a court, some responsibility
or liability directly upon the person of the defendant. Of this character are
suits to compel a defendant to specifically perform some act or actions to
fasten a pecuniary liability on him.
Furthermore, as will be explained in detail below, the contract between the parties was
merely a contract to sell where the vendors retained title and ownership to the property until
Tan had fully paid the purchase price. Since Tan had no claim of ownership or title to the
property yet, he obviously had no right to ask for the annotation of a lis pendens notice on the
title of the property.

Contract is a mere contract to sell
A contract is what the law defines it to be, taking into consideration its essential
elements, and not what the contracting parties call it.[8] Article 1485 of the Civil Code defines
a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
The very essence of a contract of sale is the transfer of ownership in exchange for a price
paid or promised.[9]
In contrast, a contract to sell is defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the property despite
delivery thereof to the prospective buyer, binds himself to sell the property exclusively to
the prospective buyer upon fulfillment of the condition agreed, i.e.,full payment of the
purchase price.[10] A contract to sell may not even be considered as a conditional contract
of sale where the seller may likewise reserve title to the property subject of the sale until
the fulfillment of a suspensive condition, because in a conditional contract of sale, the
first element of consent is present, although it is conditioned upon the happening of a
contingent event which may or may not occur.[11]
In the present case, the true nature of the contract is revealed by paragraph D
thereof, which states:
xxx
d) That in case, BUYER has complied with the terms and conditions of this
contract, then the SELLERS shall execute and deliver to the BUYER the
appropriate Deed of Absolute Sale;
xxx
Jurisprudence has established that where the seller promises to execute a deed of
absolute sale upon the completion by the buyer of the payment of the price, the contract is
only a contract to sell.[12] Thus, while the contract is denominated as a Deed of Conditional
Sale, the presence of the above-quoted provision identifies the contract as being a mere
contract to sell.
A Section 4, Rule 74 annotation is an
encumbrance on the property
8
While Tan admits that he refused to pay the balance of the purchase price, he claims
that he had valid reason to do so the sudden appearance of an annotation on the title
pursuant to Section 4, Rule 74 of the Rules, which Tan considered an encumbrance on the
property.
We find Tans argument meritorious.
The annotation placed on TCT No. 27335, the new title issued to reflect the
extrajudicial partition of Lamberto Benoliraos estate among his heirs, states:
x x x any liability to credirots (sic), excluded heirs and other persons
having right to the property, for a period of two (2) years, with respect only
to the share of Erlinda, Andrew, Romano and Dion, all surnamed
Benolirao [Emphasis supplied.]
This annotation was placed on the title pursuant to Section 4, Rule 74 of the Rules,
which reads:
Sec. 4. Liability of distributees and estate. - If it shall appear at any time
within two (2) years after the settlement and distribution of an estate in
accordance with the provisions of either of the first two sections of this rule,
that an heir or other person has been unduly deprived of his lawful
participation in the estate, such heir or such other person may compel the
settlement of the estate in the courts in the manner hereinafter provided for
the purpose of satisfying such lawful participation. And if within the same
time of two (2) years, it shall appear that there are debts outstanding
against the estate which have not been paid, or that an heir or other
person has been unduly deprived of his lawful participation payable in
money, the court having jurisdiction of the estate may, by order for that
purpose, after hearing, settle the amount of such debts or lawful
participation and order how much and in what manner each distributee
shall contribute in the payment thereof, and may issue execution, if
circumstances require, against the bond provided in the preceding
section or against the real estate belonging to the deceased, or both.
Such bond and such real estate shall remain charged with a liability to
creditors, heirs, or other persons for the full period of two (2) years after such
distribution, notwithstanding any transfers of real estate that may have been
made. [Emphasis supplied.]
Senator Vicente Francisco discusses this provision in his book The Revised Rules of
Court in the Philippines,[13] where he states:

The provision of Section 4, Rule 74 prescribes the procedure to be
followed if within two years after an extrajudicial partition or summary
distribution is made, an heir or other person appears to have been deprived
of his lawful participation in the estate, or some outstanding debts which
have not been paid are discovered. When the lawful participation of the
heir is not payable in money, because, for instance, he is entitled to a
part of the real property that has been partitioned, there can be no other
procedure than to cancel the partition so made and make a new
division, unless, of course, the heir agrees to be paid the value of his
participation with interest. But in case the lawful participation of the heir
consists in his share in personal property of money left by the decedent, or in
case unpaid debts are discovered within the said period of two years, the
procedure is not to cancel the partition, nor to appoint an administrator to re-
assemble the assets, as was allowed under the old Code, but the court, after
hearing, shall fix the amount of such debts or lawful participation in
proportion to or to the extent of the assets they have respectively received
and, if circumstances require, it may issue execution against the real estate
belonging to the decedent, or both. The present procedure is more expedient
and less expensive in that it dispenses with the appointment of an
administrator and does not disturb the possession enjoyed by the
distributees.[14][Emphasis supplied.]
An annotation is placed on new certificates of title issued pursuant to the distribution
and partition of a decedents real properties to warn third persons on the possible interests of
excluded heirs or unpaid creditors in these properties. The annotation, therefore, creates a
legal encumbrance or lien on the real property in favor of the excluded heirs or
creditors. Where a buyer purchases the real property despite the annotation, he must
be ready for the possibility that the title could be subject to the rights of excluded
parties. The cancellation of the sale would be the logical consequence where: (a) the
annotation clearly appears on the title, warning all would-be buyers; (b) the sale unlawfully
interferes with the rights of heirs; and (c) the rightful heirs bring an action to question the
transfer within the two-year period provided by law.
As we held in Vda. de Francisco v. Carreon:[15]
And Section 4, Rule 74 xxx expressly authorizes the court to give to
every heir his lawful participation in the real estate notwithstanding any
transfers of such real estate and to issue execution thereon. All this implies
that, when within the amendatory period the realty has been alienated,
the court in re-dividing it among the heirs has the authority to direct
cancellation of such alienation in the same estate proceedings,
whenever it becomes necessary to do so. To require the institution of a
9
separate action for such annulment would run counter to the letter of the
above rule and the spirit of these summary settlements. [Emphasis supplied.]
Similarly, in Sps. Domingo v. Roces,[16] we said:
The foregoing rule clearly covers transfers of real property
to any person, as long as the deprived heir or creditor vindicates his rights
within two years from the date of the settlement and distribution of
estate. Contrary to petitioners contention, the effects of this provision are
not limited to the heirs or original distributees of the estate properties,
but shall affect any transferee of the properties. [Emphasis supplied.]
Indeed, in David v. Malay,[17] although the title of the property had already been
registered in the name of the third party buyers, we cancelled the sale and ordered the
reconveyance of the property to the estate of the deceased for proper disposal among his
rightful heirs.
By the time Tans obligation to pay the balance of the purchase price arose on May
21, 1993 (on account of the extensions granted by the respondents), a new certificate of title
covering the property had already been issued on March 26, 1993, which contained
the encumbrance on the property; the encumbrance would remain so attached until the
expiration of the two-year period. Clearly, at this time, the vendors could no longer compel
Tan to pay the balance of the purchase since considering they themselves could not fulfill
their obligation to transfer a clean title over the property to Tan.
Contract to sell is not rescinded but
terminated
What then happens to the contract?
We have held in numerous cases[18] that the remedy of rescission under Article 1191
cannot apply to mere contracts to sell. We explained the reason for this in Santos v. Court of
Appeals,[19] where we said:
[I]n a contract to sell, title remains with the vendor and does not pass on to
the vendee until the purchase price is paid in full. Thus, in a contract to sell,
the payment of the purchase price is a positive suspensive condition. Failure
to pay the price agreed upon is not a mere breach, casual or serious,
but a situation that prevents the obligation of the vendor to convey title
from acquiring an obligatory force. This is entirely different from the
situation in a contract of sale, where non-payment of the price is a negative
resolutory condition. The effects in law are not identical. In a contract of sale,
 10

the vendor has lost ownership of the thing sold and cannot recover it, unless
the contract of sale is rescinded and set aside. In a contract to sell,
however, the vendor remains the owner for as long as the vendee has
not complied fully with the condition of paying the purchase price. If the
vendor should eject the vendee for failure to meet the condition precedent,
he is enforcing the contract and not rescinding it. x x x Article 1592 speaks of
non-payment of the purchase price as a resolutory condition. It does not
apply to a contract to sell. As to Article 1191, it is subordinated to the
provisions of Article 1592 when applied to sales of immovable property.
Neither provision is applicable [to a contract to sell]. [Emphasis supplied.]
We, therefore, hold that the contract to sell was terminated when the vendors could
no longer legally compel Tan to pay the balance of the purchase price as a result of the legal
encumbrance which attached to the title of the property. Since Tans refusal to pay was due to
the supervening event of a legal encumbrance on the property and not through his own fault
or negligence, we find and so hold that the forfeiture of Tans down payment was clearly
unwarranted.
be 12% per annum from such finality until its satisfaction. Accordingly, the principal obligation
of P200,000.00 shall bear 6% interest from the date of first demand or from May 28,
1993. From the date the liability for the principal obligation and attorneys fees has become
final and executory, an annual interest of 12% shall be imposed on these obligations until
their final satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
WHEREFORE, premises considered, we hereby GRANT the petition and,
accordingly, ANNUL and SET ASIDE the May 30, 2002 decision of the Court of Appeals in
CA-G.R. CV No. 52033. Another judgment is rendered declaring the Deed of Conditional
Sale terminated and ordering the respondents to return the P200,000.00 down payment to
petitioner Delfin Tan, subject to legal interest of 6% per annum, computed from May 28,
1993. The respondents are also ordered to pay, jointly and severally, petitioner Delfin Tan the
amount of P50,000.00 as and by way of attorneys fees. Once this decision becomes final and
executory, respondents are ordered to pay interest at 12% per annum on the principal
obligation as well as the attorneys fees, until full payment of these amounts. Costs against
the respondents.

Award of Attorneys fees SO ORDERED.

As evident from our previous discussion, Tan had a valid reason for refusing to pay
the balance of the purchase price for the property. Consequently, there is no basis for the
award of attorneys fees in favor of the respondents.

On the other hand, we award attorneys fees in favor of Tan, since he was compelled
to litigate due to the respondents refusal to return his down payment despite the fact that they
could no longer comply with their obligation under the contract to sell, i.e., to convey a clean
title. Given the facts of this case, we find the award of P50,000.00 as attorneys fees proper.

Monetary award is subject to legal

interest

Undoubtedly, Tan made a clear and unequivocal demand on the vendors to return
his down payment as early as May 28, 1993. Pursuant to

our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] we hold that the
vendors should return the P200,000.00 down payment to Tan, subject to the legal interest of
6% per annum computed from May 28, 1993, the date of the first demand letter.

Furthermore, after a judgment has become final and executory, the rate of legal interest,
whether the obligation was in the form of a loan or forbearance of money or otherwise, shall

ARTATES VS. URBI (G.R. # L-29421; JAN. 30, 1971)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-29421 January 30, 1971
LINO ARTATES and MANUELA POJAS, plaintiffs-appellants,
vs.
DANIEL URBI, CRISANTO SOLIVEN, assisted by his Guardian 'ad litem,' MARCELA B.
SOLIVEN, REMEGIO BUTACAN and NEMESIO OÑATE, in their private capacities
and/or as Ex-Oficio Provincial Sheriff and Deputy Sheriff of Cagayan, respectively, and
BIENVENIDO CACATIAN, as Deputy Register of Deeds of Cagayan, defendants-
appellees.
Bienvenido J. Jimenez for plaintiffs-appellants.
Rogelio Re. Ubarde for defendants-appellees Daniel Urbi and Crisanto Soliven.
Alfredo J. Donato for defendant-appellant Nemesio Oñate.
The Provincial Fiscal (Cagayan) for defendants-appellees Provincial Sheriff and Deputy
Register of Deeds.
REYES, J.B.L., J.:
This is an appeal from the decision of the Court of First Instance of Cagayan (Civil Case No.
116-T), involving the public sale of a homestead to satisfy a civil judgment against the
grantee.
The records show that in an action filed in the Court of First Instance of Cagayan, the
spouses Lino Artates and Manuela Pojas sought annulment of the execution of a
homestead1 covered by Patent No. V-12775 issued to them by the proper land authorities on
23 September 1952, and duly registered in their names (OCT No. P-572). The public sale,
conducted by the Provincial Sheriff of Cagayan on 2 June 1962, was made to satisfy a
judgment against Lino Artates in the amount of P1,476.35, and awarded to Daniel Urbi by the
11
Justice of the Peace Court of Camilaniugan, Cagayan, in its Civil Case No. 40, for physical
injuries inflicted by Artates upon Urbi on 21 October 1955. In the execution sale, the property
was sold to the judgment creditor, the only bidder, for P1,476.35. In their complaint, the
plaintiffs spouses alleged that the sale of the homestead to satisfy an indebtedness of Lino
Artates that accrued on 21 October 1955, violated the provision of the Public Land law
exempting said property from execution for any debt contracted within five years from the
date of the issuance of the patent; that defendant Urbi, with the intention of defrauding the
plaintiffs, executed on 26 June 1961 a deed for the sale of the same parcel of land to
defendant Crisanto Soliven, a minor, supposedly for the sum of P2,676.35; that as a result of
the aforementioned transactions, defendants Urbi and Soliven entered into the possession of
the land and deprived plaintiffs of the owners' share in the rice crops harvested during the
agricultural year 1961-1962. Plaintiffs, therefore, prayed that the public sale of the land to
defendant Urbi, as well as the deed of sale executed by the latter in favor of defendant
Soliven, be declared null and void; that defendants be ordered to deliver to plaintiffs
possession of the land; and to pay to plaintiffs compensatory damages at the rate of
P1,000.00 per agricultural year until possession is finally restored to them, the sum of
P2,000.00 as damages for maliciously casting cloud upon plaintiffs' title on the land, plus
attorneys' fees and costs.
The defendants2 filed separate answers disputing the averments of the complaint. On 29
March 1953, the court rendered judgment upholding the regularity and validity of the
execution conducted by the defendant Provincial Sheriff, but finding that the sale of the lands
by defendant Urbi to the minor Soliven was simulated, intended to place the property beyond
the reach of the judgment debtor, and that plaintiffs had offered to redeem the land within the
5-year period allowed by Section 119 of the Public Land law for reacquisition thereof by the
grantee. Consequently, the court declared the sale of the land by defendant Daniel Urbi to
defendant Crisanto Soliven null and void; and Daniel Urbi was ordered to reconvey the
property to the plaintiffs upon the latter's payment (to Urbi) of the sum of P1,476.35 plus the
sheriff's fee incident to the sale at public auction, with interest thereon at the rate of 12% per
annum from 2 June 1961 until said amount shall have been fully paid, and the further sum of
P783.45 representing the amount paid by defendant Daniel Urbi to the Philippine National
Bank for the release of the real estate mortgage on the land, contracted by Lino Artates, with
legal rate of interest thereon from 29 June 1961.
From this decision, the plaintiffs interposed the present appeal assigning several errors
allegedly committed by the court below, all hinged on the validity or invalidity of the public
sale of the lot involved herein.
Section 118 of the Public Land law (Commonwealth Act 141) provides as follows:
SEC. 118. Except in favor of the Government or any of its branches, units, or
institution, or legally constituted banking corporations, lands acquired under
free patent or homestead provisions shall not be subject to encumbrance or

alienation from the date of the approval of the application and for a term of
five years from and after the date of issuance of the patent or grant, nor shall
they become liable to the satisfaction of any debt contracted prior to the
expiration of said period, but the improvements or crops on the land may be
mortgaged or pledged to qualified persons, associations or corporations.
xxx xxx xxx
As thus prescribed by law, for a period of five years from the date of the government grant,
lands acquired by free or homestead patent shall not only be incapable of being encumbered
or alienated except in favor of the government itself or any of its institutions or of duly
constituted banking corporations, but also, they shall not be liable to the satisfaction of any
debt contracted within the said period,3 whether or not the indebtedness shall mature during
or after the prohibited time.4 This provision against the alienation or encumbrance of public
lands granted within five years from the issuance of the patent, it has been held, is
mandatory;5 a sale made in violation thereof is null and void6 and produces no effect
whatsoever. Though it may be a limitation on the right of ownership of the grantee, the
salutary purpose of the provision cannot be denied: it is to preserve and keep for the
homesteader or his family the land given to him gratuitously by the State,7 so that being a
property owner, he may become and remain a contented and useful member of our society. 8
In the case at bar, the homestead patent covering the land in question (No.
V-12775) was issued to appellants on 23 September 1952, and it was sold at public auction
to satisfy the civil liability of appellant Lino Artates to Daniel Urbi, adjudged in the 14 March
1956 decision of the Justice of the Peace Court of Camalaniugan,
Cagayan.lâwphî1.ñèt There can be no doubt that the award of damages to Urbi created for
Artates a civil obligation, an indebtedness, that commenced from the date such obligation
was decreed on 14 March 1956. Consequently, it is evident that it can not be enforced
against, or satisfied out of, the sale of the homestead lot acquired by appellants less than 5
years before the obligation accrued. And this is true even if the sale involved here is not
voluntary. For purposes of complying with the law, it is immaterial that the satisfaction of the
debt by the encumbrancing or alienation of the land grant made voluntarily, as in the case of
an ordinary sale, or involuntarily, such as that effected through levy on the property and
consequent sale at public auction. In both instances, the spirit of the law would have been
violated.9
Doubts have been expressed as to whether the words "debt contracted prior to the expiration
of said period" (of 5 years from and after the grant) would include the civil liability arising from
a crime committed by the homesteader. While there is no direct Philippine precedent on this
point, there are various reasons why the non-liability of the homestead grant should be
extended to extra-contractual obligations. First and foremost, whether it be viewed as an
exemption or as a condition attached to the grant to encourage people to settle and cultivate
public land, the immunity in question is in consonance with the definite public policy
12
underlying these grants, which is to "preserve and keep in the family of the homesteader that
portion of public land which the State has given to him" so he may have a place to live with
his family and become a happy citizen and a useful member of society, 10 and the exemption
should not be given restrictive application. 11 A levy and sale of the homestead on account of
extra-contractual liability incurred would uproot the homesteader and his family and turn them
into homeless waifs as effectively as a levy for non-payment of a contractual debt. Secondly,
the word "debt" in exemption statutes,—
in its wider sense, (it) includes all that is due to a man under any form or
obligation or promise, and covers not only obligations arising under contract,
but also those imposed by law without contract. 12
Considering the protective policy of the law, it becomes apparent that "debt contracted" was
used in it in the sense of "obligation incurred," since Webster gives the verb to "contract" the
meaning of "to bring on; incur; acquire." Finally, our public land laws being copied from
American legislation, 13 resort to American precedents reveals that, under the weight of
authority, exemption from "debts contracted" by a homesteader has been held to include
freedom from money liabilities, from torts or crimes committed by him, such as from bigamy
(State vs. O'Neil, 7 Ore. 141, 11 Words and Phrases 318) or slander (Conway vs. Sullivan, 44
Ill. 451, 452), breach of contract (Flanagan vs. Forsythe, 50 Pac. 152, 153) or other torts (In
Re Radway, 20 Fed. Cas. 154, 162).
The execution sale in this case being null and void, the possession of the land should be
returned to the owners, the herein appellants. There would even be no need to order appellee
Urbi to execute a deed of reconveyance thereof to the owners. It appears that what was
issued here to the judgment creditor/purchaser was only the sheriff's provisional certificate,
under which he derived no definite title or right until the period for redemption has expired,
without a redemption having been made, 14 or issuance of a final deed or certificate of sale. In
other words, the purchaser herein has not acquired an absolute ownership or title in fee over
the land that would necessitate a deed of reconveyance to revert ownership back to the
appellant spouses. As things now stand, title to the property covered by OCT No. P-572
remains with the appellants, but Lino Artates shall continue to be under obligation to satisfy
the judgment debt to Daniel Urbi in the sum of P1,476.35, with legal interest thereon accruing
from the date the writ of execution was first returned unsatisfied. It appearing also that
appellee Daniel Urbi paid to the Philippine National Bank the sum of P783.45 to release the
mortgage on the land, appellants should reimburse him of said amount or of whatever
amount appellants have actually been benefited by the said payment.
FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby reversed,
and appellants are declared entitled to the return and possession of the lot covered by
Original Certificate of Title No. P-572, without prejudice to their continuing obligation to pay
the judgment debt, and expenses connected therewith. No costs.

HEIRS OF ENRIQUE ZAMBALES VS. CA (120 SCRA 897)
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-54070 February 28, 1983
HEIRS OF ENRIQUE ZAMBALES and JOAQUINA ZAMBALES, petitioners,
vs.
COURT OF APPEALS, NIN BAY MINING CORPORATION, ANGELA C. PREYSLER and
JOAQUIN B. PREYSLER, respondents.
MELENCIO-HERRERA, J.:
The Decision of respondent Court of Appeals in the case entitled "Enrique Zambales and
Joaquina Zambales, Plaintiffs-appellees vs. Atty. Perfecto de los Reyes, Nin Bay Mining
Corporation and Joaquin B. Preysler, Defendants-appellants" (CA-G.R. No. 59386-R), setting
aside the judgment of the Court of First Instance of Palawan in Civil Case No. 678 for
Annulment of a Deed of Sale with Recovery of Possession and Ownership with Damages", is
the subject of this Petition for Review on Certiorari.
Joaquin B. Preysler is now deceased and was substituted by Angela C. Preysler, his widow.
Atty. Perfecto de los Reyes was originally a defendant in Civil Case No. 678 but he did not
appeal from the Decision of the lower Court.
The Zambales spouses (Zambaleses, for brevity) were the homestead patentees of a parcel
of land with an area of 17,8474 hectares situated in the Municipality of Del Pilar, Roxas,
Palawan, covered by Original Certificate of Title No. G 1193 of the Registry of Deeds for the
Province of Palawan, issued pursuant to Homestead Patent No. V-59502 dated September 6,
1955.
Claiming that the Nin Bay Mining Corporation (Corporation, for short) had removed silica
sand from their land and destroyed the plants and others improvements thereon, the
Zambaleses instituted, on November 10, 1958, Civil Case No. 316 before the Court of First
Instance of Palawan claiming damages in the total sum of P48,000.00.
13
The Corporation denied having caused any damages and claimed that it had excavated and
extracted silica sand only from its own mining claims and on which it had mining lease
contracts with the Philippine Government.
On October 29, 1959, the Zambaleses, duly assisted by their counsel, Atty. Perfecto de los
Reyes, and the Corporation, entered into a Compromise Agreement, the portions of which,
pertinent to this case, read:
1. DEFENDANT shall pay the PLAINTIFFS a rental of TWENTY (P20.00)
PESOS per hectare per year from September 9, 1955 to September 30,
1960, or a total rental price of ONE THOUSAND SEVEN HUNDRED
EIGHTY-FOUR PESOS AND SEVENTY- FOUR CENTAVOS (P1,784.74),
Philippine currency, in lieu of all damages...
2. The payment to the PLAINTIFFS of the above-mentioned rental price shall
be considered full, absolute and final payment and indemnity for all the
alleged damages to PLAINTIFFS' property and its improvements, or any
other actual, moral, exemplary or other damages that PLAINTIFFS may have
suffered or will suffer in connection with the mining operations of
DEFENDANT on the property in question, which property, by virtue of the
terms of this Agreement shall be used by DEFENDANT as occupant thereof
until September 30, 1960.
3. PLAINTIFFS hereby agree and bind themselves to sell, transfer and
convey, and DEFENDANT or its assigns, qualified to acquire or hold lands of
the public domain, hereby agrees to purchase and pay for, the aforesaid
property of the PLAINTIFFS, containing an area of 17.8474 hectares,
situated in the Municipality of Del Pilar, Roxas, Palawan, and covered by
Original Certificate of Title No. G1193 of the Registry of Deeds of Palawan,
at the fixed selling price of FIVE HUNDRED (P500.00) PESOS per hectare
or a total purchase price of EIGHT THOUSAND NINE HUNDRED TWENTY
THREE PESOS and SEVENTY CENTAVOS (P8,923.70), Philippine
currency. The contract to purchase and sell herein provided for, shall be
reciprocally demandable and enforceable by the parties hereto on
September 10, 1960. PLAINTIFFS hereby irrevocably constitute and appoint
DEFENDANT, its successors and/or assigns their true and lawful attorney-in-
fact with full power and authority to sell, transfer and convey on September
10, 1960 or at any time thereafter the whole or any part of PLAINTIFFS'
property hereinabove mentioned to the DEFENDANT, its successors and/or
assigns, or to any third party, and to execute and deliver all instruments and
documents whatsoever necessary for the purpose, and all acts done and to
be done by DEFENDANT, its successors and/or assigns in conformity with

the powers herein granted are hereby ratified and confirmed by the
PLAINTIFFS. ...
4. In consideration of the payment of the amount of P1,784.74 by
DEFENDANT, and of other good and valuable consideration, PLAINTIFFS,
jointly and severally, hereby forever release, fully and completely, said
DEFENDANT, its successors and/or assigns in interest, from any and all
liabilities, whether arising from past, present or future excavation or removal
of silica sand from the property in question or otherwise, and from all the
other claims against the DEFENDANT contained in their Complaint in Civil
Case No. 316 of the Court of First Instance of Palawan. 1
The Trial Court rendered judgment on October 29, 1959 based on the Compromise
Agreement. The document was duly annotated an OCT No. G - 1193 (Exhibit " A ") the day
after, or on October 30, 1959 (Exhibit " 10 A ").
On September 10, 1960, the Corporation, as attorney-in-fact for the Zambaleses, as Vendors,
sold the disputed property to Joaquin B. Preysler for the sum of P8,923.70 fixed in the
Compromise Agreement (Exhibit " 11 "). Transfer Certificate of Title No. T-970 was issued in
the vendee's name on December 19, 1960 (Exhibit " 2 ").
The Deed of Sale to Preysler contained the following proviso:
The VENDORS hereby represent and warrant that the five-year restrictive
period on alienation of lands acquired under the homestead provisions of
Commonwealth Act No. 141, as amended, otherwise known as the Public
Land Act, has already expired, the date of issuance of the herein homestead
patent to the VENDORS as aforesaid being September 6, 1955 as shown in
Original Certificate of Title No. G-1193.
On October 18, 1960, the Secretary of Agriculture and Natural Resources approved the sale
to Preysler of the subject property (Exhibit "13 ").
On. December 6, 1969, or ten (10) years after the Trial Court's Decision based on the
Compromise Agreement, and nine (9) years after the sale to Preysler, the Zambaleses filed
Civil Case No. 678 before the Court of First Instance of Palawan for "Annulment of a Deed of
Sale with Recovery of Possession and Ownership with Damages". They contended that it
was their lawyer who prevailed upon them to sign the Compromise Agreement; that they are
unschooled and did not understand the contents thereof; that they were made to understand
that they would receive the sum of P10,700.00, only as payment for damages sustained by
the land from 1955 to 1960; that through fraud, deceit and manipulation by their lawyer and
the Corporation, they were made to agree to appoint the Corporation as their attorney-in-fact
with full power and authority to sell; that it was never their intention to sell the land; that in
14
September 1969, they were surprised to learn that the land was already titled in the name of
Joaquin B. Preysler; that the land was acquired and registered in the latter's name through
fraud and deceit. The Zambaleses then prayed that the deed of sale and the title in Preysler's
name be annulled on the ground of fraud and that the property be reconveyed to them.
In their Answer, the Corporation denied all allegations that the Zambaleses had signed the
Compromise Agreement without understanding the contents thereof, the truth being that it
was read to them by their counsel, Atty. Perfecto de los Reyes, who explained thoroughly the
full implication and legal consequence of each and every provision, which was then submitted
and approved by then Presiding Judge Juan L. Bocar; and that the Corporation had sold the
property to Preysler as a duly constituted attorney-in-fact pursuant to the Compromise
Agreement.
After trial, the lower Court rendered judgment in favor of the Zambaleses, the dispositive part
of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants as follows:
1) That the deed of sale executed by Nin Bay Mining Corporation through its
president, to Joaquin B. Preysler is hereby declared null and void;
2) That the defendant Joaquin B. Preysler is hereby ordered to reconvey the
land subject matter of this litigation to the plaintiffs;
3) That the defendants Nin Bay Mining Corporation and Joaquin B. Preysler
shall pay the plaintiffs the sum of P85,000.00 as actual damages plus the
legal rate of interest from September 30, 1960 up to the time the amount is
fully paid;
4) That the defendants to pay the sum of FIVE THOUSAND (P5,000.00)
PESOS as attorneys fees; and
5) The defendants to pay the costs.
On appeal by the Corporation, the Court of Appeals reversed the Trial Court, after finding that
the alleged fraud or misrepresentation in the execution of the Compromise Agreement had
not been substantiated by evidence.
The case is now before us on review.

The controversy revolves around the issue of due execution and validity of the Compromise
Agreement (Exhibit "8") dated October 29; 1959, and of the subsequent Deed of Sale (Exhibit
"11 "), dated 10 September 1960.
I demeanor of the witness, it had no observation that the witness, Joaquina
The general rule is that whoever alleges fraud or mistake must substantiate his allegation,
since the presumption is that a person takes ordinary care of his concerns and that private
transactions have been fair and regular. The rule admits of an exception in Article 1332 of the
Civil Code which provides:
When one of the parties is unable to read, or if the contract is in a language
not understood by him, and mistake or fraud is alleged, the person enforcing
the contract must show that the terms thereof have been fully explained to
the former.
For the proper application of said provision, it has first to be established convincingly that the
illiterate or the party at a disadvantage could not read or understand the language in which
the contract was written. 2 The evidence discloses that the spouses Zambales are
unschooled. They cannot read, speak, much less understand English or write, except to sign
their names. 3 The Zambaleses alleged in their Complaint that the Compromise Agreement
(Exhibit "8") was executed through fraud by the Corporation and by their counsel Atty.
Perfecto de los Reyes, whom they included as a defendant. The burden of proof, therefore,
shifted to the Corporation to show that the compromise agreement had been fully explained
to the plaintiffs.
In refuting the allegation that plaintiffs were misled into signing the compromise agreement,
their former counsel, Atty. Perfecto de los Reyes, and the notary, Atty. Salomon Reyes, a
lawyer for Nin Bay Mining Corporation, established that the terms and conditions of the
Compromise Agreement were thoroughly explained and fully understood by the spouses
Zambales in accordance with their proposal to sell the land at P500.00 a hectare; that before
the signing of the Compromise Agreement, the notary requested Atty. de los Reyes to read
and explain each and every provision to the spouses, and with the help of Ricardo Nunala,
Atty. de los Reyes did so in their dialect (Cuyuno). Thereafter, the parties went to Judge Juan
Bocar, who was assured that the spouses Zambales understood and signed the Compromise
Agreement. 4
We sustain the finding of the Court of Appeals that fraud and misrepresentation did not vitiate
petitioners' consent to the Agreement when it observed:
Taking into account the foregoing observations, this Court is not convinced
that indeed appellees were victims of a fraudulent scheme employed upon
them by their former counsel by reason of their alleged illiteracy and
15
ignorance. The evidence discloses that appellees, although unschooled, are
intelligent, well-informed and intelligent people. They are not the kind of
persons who could easily be fooled of their rights and interests. Even as
commented by the court a quo, which had a chance to observe the
Zambales, is ignorant. As correctly observed by appellants, appellees 'are
political leaders and chief campaigners; they speak in the platform during
political rallies; and they are widely travelled' (p. 28, Appellants' Brief). As a
matter of fact they are knowledgeable of the right connections in the
government. They had approached former Sen. Rogelio de la Rosa, no less,
the congressman and the governor. Even the lawyers they have retained
previous to their present counsel are the Padilla Law Office and the Diokno
Law Office, It is common knowledge that these law offices are among the
established law offices in Manila. It is far convincing that an ignorant couple
would have knowledge of these law firms. All these are obvious
manifestations of their being well-informed and the way they have conducted
their way of living apparently is inconsistent with the plea of being illiterate
and/or ignorant. They cannot capitalize on the fact that they are uneducated
only because they had no formal schooling inasmuch as one's knowledge of
the facts of life is not dependent on whether one had formal schooling or not
and it does not necessarily follow always that if one is unschooled he is
ignorant.
Furthermore, when plaintiffs-appellees signed the questioned compromise
agreement they were duly assisted and represented by their counsel, Atty.
de los Reyes. When Atty. de los Reyes testified in court he categorically
declared that it was to the best interest of his clients that they compromise
Civil Case No. 316. This declaration finds support in Joaquina Zambales'
testimony wherein she stated thus:
ATTY. SEMBRANO:
Q. Except for this present case, would you say to the Court
that Atty. de los Reyes extended to you legal assistance to
your satisfaction?
A. Yes, sir, he is good to us.
xxx xxx xxx
Q. So these people never gave their services to you?

A. Nobody was able to help us except Atty. de los Reyes.
(Tsn., pp. 29, 31 & 32, June 19, 1974)
... Thus, it having been established that appellees could not have been
misled by their former counsel into signing the compromise agreement and
taking into account the acts of the appellees and their children subsequent to
the execution of the compromise agreement perforce the court a quo erred in
not giving credence to the clear and convincing testimonies of Atty. Perfecto
de los Reyes and Atty. Salomon Reyes anent the execution of the
compromise agreement. 5
However, although we find that the Zambaleses were not misled into signing the Compromise
Agreement, we hold that there has been violation of the Public Land Act. The evidence on
record shows that the land in question was awarded t the Zambaleses as a homestead on
September 6, 1955 (Exhibit "A"). Before us, the Zambaleses now argue that the Compromise
Agreement executed on October 29, 1959 is in violation of the Public Land Act, which
prohibits alienation and encumbrance of a homestead lot within five years from the issuance
of the patent. 6
We sustain that contention. The fact that the issue was not raised in the Courts below is not a
deterrent factor considering that the question affects the validity of the agreement between
the parties. The Supreme Court has the authority to review matters even if they are not
assigned as errors in the appeal, if it is found that their consideration is necessary in arriving
at a just decision of the case. 7 Moreover, a party may change his legal theory on appeal only
when the factual bases thereof would not require presentation of any further evidence by the
adverse party in order to enable it to properly meet the issue raised in the new theory. 8 In the
case at bar it is indisputable that Homestead Patent No. V-59502 was issued on September
6, 1955 as shown in Original Certificate of Title No. 1193 (Exhibit "A ").
The sale of a homestead lot within the five-year prohibitory period is illegal and void. The law
does not distinguish between executory and consummated sales.
The law prohibiting any transfer or alienation of homestead land within five
years from the issuance of the patent does not distinguish between
executory and consummated sales; and it would hardly be in keeping with
the primordial aim of this prohibition to preserve and keep in the family of the
homesteader the piece of land that the state had gratuitously given to them,
to hold valid a homestead sale actually perfected during the period of
prohibition but with the execution of the formal deed of conveyance and the
delivery of possession of the land sold to the buyer deferred until after the
expiration of the prohibitory period, purposely to circumvent the very law that
prohibits and declares invalid such transaction to protect the homesteader
and his family. 9
16
In the compromise agreement executed between the parties, (1) the Zambaleses promised to
sell and the Corporation agreed to buy the disputed lot at P500.00 per hectare, the contract to
be reciprocally demandable and enforceable on September 10, 1960; and as a substitute
procedure, (2) an irrevocable agency was constituted in favor of the Corporation as attorney-
in-fact to sell the land to any third person on September 10, 1960 or any time thereafter.
Clearly, the bilateral promise to buy and sell the homestead lot at a price certain, which was
reciprocally demandable 10, was entered into within the five-year prohibitory period and is
therefore, illegal and void. Further, the agency to sell the homestead lot to a third party was
coupled with an interest inasmuch as a bilateral contract was dependent on it and was not
revocable at will by any of the parties.11 To all intents and purposes, therefore, there was an
actual executory sale perfected during the period of prohibition except that it was reciprocally
demandable thereafter and the agency to sell to any third party was deferred until after the
expiration of the prohibitory period. That "rentals" were ostensibly to be paid during the five-
year prohibitory period, and the agency to sell made effective only after the lapse of the said
period, was merely a devise to circumvent the prohibition.
To hold valid such an arrangement would be to throw the door wide open to all possible
subterfuges that persons interested in homesteads may devise to defeat the legal prohibition
against alienation within five years from the issuance of the patent.
We hold, therefore, that the bilateral promise to buy and sell, and the agency to sell, entered
into within five years from the date of the homestead patent, was in violation of section 118 of
the Public Land Law, although the executed sale was deferred until after the expiration of the
five-year- prohibitory period.
As the contract is void from the beginning, for being expressly prohibited by law 12 the action
for the declaration of its inexistence does not prescribe. 13 Being absolutely void, it is entitled
to no authority or respect, the sale may be impeached in a collateral proceeding by any one
with whose rights and interest it conflicts. There is no presumption of its validity. 14 The
approval of the sale by the Secretary of Agriculture and Natural Resources after the lapse of
five years from the date of the patent would neither legalize the sale. 15
The homestead in question should be returned to the Zambaleses, petitioners herein, who
are, in turn, bound to restore to the Corporation the sum of P8,923.70 as the price thereof.
The actual damages awarded by the Trial Court of P85,000.00 have not been adequately
substantiated. Moreover, under the agreement, the total rental price of P1,784.74 was
intended to be "in lieu of all damages, or any other actual, moral, exemplary or other
damages.
This is without prejudice to the corresponding action on the part of the State for reversion of
the property and its improvements, if any, under Section 124 of the Public Land Act. 16
 17

WHEREFORE, the judgment under review is hereby REVERSED, and another one entered
(1) declaring null and void a) the bilateral promise to buy and sell entered into between
Enrique Zambales and Joaquina Zambales, on the one hand, and the Nin Bay Mining
Corporation on the other, and b) the sale executed by Nin Bay Mining Corporation in favor of
Joaquin B. Preysler; (2) ordering Angela C. Preysler to reconvey the land subject matter of
this litigation to petitioners upon refund by the latter to the Nin Bay Mining Corporation of the
sum of P8,923.70, all expenses for the reconveyance to be borne by private respondents; (3)
ordering Nin Bay Mining Corporation to pay rentals to petitioners at the price of P20.00 per
hectare per year from December 6, 1969, the date of the institution of the Complaint, till the
date that possession is turned over to petitioners; and (4) ordering the Register of Deeds for
the Province of Palawan to cancel Transfer Certificate of Title No. T-970 of his Registry, and
reissue to the Heirs of Enrique Zambales and Joaquina Zambales the title to the homestead
in question.

Let a copy of this Decision be served on the Solicitor General.

No costs.

SO ORDERED.

QUIROGA VS. PARSONS (38 PHIL 501)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEÑA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered into
by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and
obligations the present defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the
Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's
establishment in Iloilo, and shall invoice them at the same price he has fixed for
sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25
per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall
order the beds by the dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a
period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and
the freight, insurance, and cost of unloading from the vessel at the point where the
beds are received, shall be paid by Mr. Parsons.
18
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said
payment when made shall be considered as a prompt payment, and as such a
deduction of 2 per cent shall be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr. Parsons
may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any
alteration in price which he may plan to make in respect to his beds, and agrees that
if on the date when such alteration takes effect he should have any order pending to
be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the
price thereby be lowered, but shall not be affected by said alteration if the price
thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to
invoice the beds at the price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the benefit of
both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga
assumes the obligation to offer and give the preference to Mr. Parsons in case
anyone should apply for the exclusive agency for any island not comprised with the
Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of
"Quiroga" beds in all the towns of the Archipelago where there are no exclusive
agents, and shall immediately report such action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by
either of the contracting parties on a previous notice of ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them
constitute the subject matter of this appeal and both substantially amount to the averment
that the defendant violated the following obligations: not to sell the beds at higher prices than
those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to
keep the beds on public exhibition, and to pay for the advertisement expenses for the same;
and to order the beds by the dozen and in no other manner. As may be seen, with the
exception of the obligation on the part of the defendant to order the beds by the dozen and in
no other manner, none of the obligations imputed to the defendant in the two causes of action
are expressly set forth in the contract. But the plaintiff alleged that the defendant was his
agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of
commercial agency. The whole question, therefore, reduced itself to a determination as to
whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser
or an agent of the plaintiff for the sale of his beds.

In order to classify a contract, due regard must be given to its essential clauses. In the
contract in question, what was essential, as constituting its cause and subject matter, is that
the plaintiff was to furnish the defendant with the beds which the latter might order, at the
price stipulated, and that the defendant was to pay the price in the manner stipulated. The
price agreed upon was the one determined by the plaintiff for the sale of these beds in
Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be
made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant
so preferred, and in these last two cases an additional discount was to be allowed for prompt
payment. These are precisely the essential features of a contract of purchase and sale. There
was the obligation on the part of the plaintiff to supply the beds, and, on the part of the
defendant, to pay their price. These features exclude the legal conception of an agency or
order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its
price, but delivers to the principal the price he obtains from the sale of the thing to a third
person, and if he does not succeed in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily
obliged to pay their price within the term fixed, without any other consideration and regardless
as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the defendant and the
plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of
a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with
each other. But, besides, examining the clauses of this contract, none of them is found that
substantially supports the plaintiff's contention. Not a single one of these clauses necessarily
conveys the idea of an agency. The words commission on sales used in clause (A) of article
1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice
price. The word agency, also used in articles 2 and 3, only expresses that the defendant was
the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the
remaining clauses, the least that can be said is that they are not incompatible with the
contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the
defendant corporation and who established and managed the latter's business in Iloilo. It
appears that this witness, prior to the time of his testimony, had serious trouble with the
defendant, had maintained a civil suit against it, and had even accused one of its partners,
Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit
A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied
that it was to be an agent for his beds and to collect a commission on sales. However,
according to the defendant's evidence, it was Mariano Lopez Santos, a director of the
corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the
truth, his statement as to what was his idea in contracting with the plaintiff is of no
importance, inasmuch as the agreements contained in Exhibit A which he claims to have
drafted, constitute, as we have said, a contract of purchase and sale, and not one of
commercial agency. This only means that Ernesto Vidal was mistaken in his classification of
19
the contract. But it must be understood that a contract is what the law defines it to be, and not
what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it could not
sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and
that the defendant received its commission for the beds sold by the plaintiff directly to
persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there
was mutual tolerance in the performance of the contract in disregard of its terms; and it gives
no right to have the contract considered, not as the parties stipulated it, but as they performed
it. Only the acts of the contracting parties, subsequent to, and in connection with, the
execution of the contract, must be considered for the purpose of interpreting the contract,
when such interpretation is necessary, but not when, as in the instant case, its essential
agreements are clearly set forth and plainly show that the contract belongs to a certain kind
and not to another. Furthermore, the return made was of certain brass beds, and was not
effected in exchange for the price paid for them, but was for other beds of another kind; and
for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds,
which shows that it was not considered that the defendant had a right, by virtue of the
contract, to make this return. As regards the shipment of beds without previous notice, it is
insinuated in the record that these brass beds were precisely the ones so shipped, and that,
for this very reason, the plaintiff agreed to their return. And with respect to the so-called
commissions, we have said that they merely constituted a discount on the invoice price, and
the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo
was because, as the defendant obligated itself in the contract to incur the expenses of
advertisement of the plaintiff's beds, such sales were to be considered as a result of that
advertisement.
In respect to the defendant's obligation to order by the dozen, the only one expressly
imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the
orders which the defendant might place under other conditions; but if the plaintiff consents to
fill them, he waives his right and cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff
and the defendant was one of purchase and sale, and that the obligations the breach of
which is alleged as a cause of action are not imposed upon the defendant, either by
agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
 20

CONCRETE AGGREGATES, INC. VS. COURT OF TAX APPEALS (185 SCRA 461) The records disclose that petitioner is a domestic corporation, duly organized and existing
under the laws of the Philippines, with business address at Longos, Quezon City. It has an
Republic of the Philippines aggregate plant at Montalban, Rizal which processes rock aggregates mined by it from
SUPREME COURT private lands. Petitioner also maintains and operates a plant at Longos, Quezon City for the
Manila production of ready-mixed concrete and plant-mixed hot asphalt.

SECOND DIVISION Sometime in 1968, the agents of respondent commissioner conducted an investigation of
petitioner's tax liabilities. As a consequence thereof, in a letter dated December 14, 1970 said
respondent assessed and demanded payment from petitioner of the amount of P244,002.76
as sales and ad valorem taxes for the first semester of 1968, inclusive of surcharges.
Petitioner disputed the said assessment in its letter dated February 2, 1971 without, however,
G.R. No. 55793 May 18, 1990 contesting the portion pertaining to the ad valorem tax.

CONCRETE AGGREGATES, INC., petitioner, In his letter dated July 24, 1972, respondent reiterated the said assessment of sales and ad
vs. valorem taxes which, as explained in his preceding letter, had been arrived at as follows. 3
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.
Taxable sales P 4,164,092.44
Santiago, Tinga & Associates for petitioner. ——————

7% sales tax due thereon P 291,486.47

REGALADO, J.:
Less: Tax already paid 116,523.55
This petition for review on certiorari seeks the annulment of the decision of respondent Court ——————
of Tax Appeals, 1 dated September 19, 1980, and its resolution denying reconsideration
thereof, dated December 3, 1980, both promulgated in CTA Case No. 2433, entitled
Deficiency tax due P 174,962.92
"Concrete Aggregates, Inc. vs. Commissioner of Internal Revenue," the decretal portion of
which decision reads:
Add: 25% surcharge 43,740.73
——————
Having reached the conclusion that petitioner is a manufacturer subject to
the 7% sales tax under Section 186 of the then National Internal Revenue
Code, the decision of respondent dated July 24, 1972 should therefore be Total deficiency tax and surcharge P 218,703.65
sustained. Accordingly, petitioner Concrete Aggregates, Inc. is hereby
ordered to pay to respondent Commissioner of Internal Revenue the total Add: 1 1/2% ad valorem on P20,239.29
amount of P244,022.76 representing sales and ad valorem taxes for the first
semester of 1968 inclusive of surcharges, plus interest at the rate of 14% per 25% surcharge thereon 5,059.82 25,299.11
centum from January 1, 1973 up to the date of full payment thereof pursuant ———— —————
to Section 183 (now 193) of the National Internal Revenue Code.
TOTAL AMOUNT DUE & COLLECTIBLE P244,002.76
WHEREFORE, the decision appealed from is hereby affirmed at petitioner's
costs.
Consequently, demand for the payment of the said amount within ten days from receipt of the
letter was made by respondent on petitioner, otherwise the same would be collected thru the
SO ORDERED. 2 summary remedies provided for by law. Instead of paying, petitioner appealed to respondent
court.

As earlier stated, a judgment adverse to petitioner was handed down by respondent court,
whereupon he came to this Court on a petition for review. In its resolution dated September 7,
1981, the Court, through its First Division, denied the petition for review for lack of
merit. 4 Petitioner filed a motion for reconsideration which was likewise denied in the
resolution of October 19, 1981 for lack of merit, the denial being expressly declared to be
final. 5 With leave of court, petitioner filed its second motion for reconsideration which was
granted by the Court in its resolution dated November 23, 1981. 6
The sole issue in this case is whether petitioner is a contractor subject to the 3% contractor's
tax under Section 191 of the 1968 National Internal Revenue Code or a manufacturer subject
to the 7% sales tax under Section 186 of the same Code.
Petitioner disclaims liability on the ground that it is a contractor within the meaning of Section
191 of the 1968 Tax Code, the pertinent portion of which reads:
Sec. 191. Percentage tax on road, building, irrigation, artesian well,
waterworks, and other construction work contractors, proprietors or operators
of dockyards, and others. — Road, building, irrigation, artesian well,
waterworks, and other construction work contractors; . . . and other
independent contractors, . . . shall pay a. tax equivalent to three per
centum of their gross receipts.
xxx xxx xxx
Petitioner contends that its business falls under "other construction work contractors" or
"other independent contractors" and, as such, it was a holder of a license under Republic Act
No. 4566, otherwise known as the "Contractors Licensing Law" and was classified thereunder
as a "general engineering contractor" and "specialty asphalt and concrete contractor. 7 It
advances the theory that it produced asphalt and concrete mix only upon previous orders,
which may be proved by its system of requiring the filling of job orders where the customers
specify the construction requirements, and that without such order, it would not do so
considering the highly perishable nature of the asphalt and concrete mix. 8
It emphasizes that the mixing of asphalt and cement, if they were to be sold to the public, is
not a simple matter of putting things together in a rotating bowl but involves a careful
selection of components, proper measuring and weighing of ingredients, calibration of the
plant to arrive at the right mixing temperature, and testing of the strength of the material,
altogether using its own means and methods without submitting itself to control by the
customers. 9
Thus, it adopts the view that if the article subject of the sale is one which is not ready for
delivery, as it is yet to be manufactured according to the order, the seller thereof is a
contractor. However, if the article subject of the sale is one which is ready for delivery when
21
the order therefor is placed, the seller is a manufacturer. 10 Complementary to this, it
postulates that as a contractor dealing exclusively in the construction of roads, buildings and
other building or construction works, its business consists of rendering service by way of
furnishing its customers with pre-mixed concrete or asphalt, in effect merely doing for the
customers what the latter used to do themselves, that is, to buy the ingredients and then mix
the concrete or asphalt. 11 It concludes that in doing so, it does not become a manufacturer.
We have had the occasion to construe Section 191, now Section 205, of the Tax Code
in Commissioner of Internal Revenue vs. The Court of Tax Appeals, et al. 12 where we
reiterated the test as to when one may be considered a contractor within its context, thus;
The word "contractor" has come to be used with special reference to a
person who, in the pursuit of the independent business, undertakes to do
a specific job or piece of work for other persons, using his own means and
methods without submitting himself to control as to the petty details. (Aranas,
Annotations and Jurisprudence on the National Internal Revenue Code, p.
318, par. 191(2), 1970 Ed.) The true test of a contractor as was held in the
cases of Luzon Stevedoring Co. vs. Trinidad, 43 Phil. 803, 807-808, and La
Carlota Sugar Central vs. Trinidad, 43 Phil. 816, 819, would seem to be that
he renders service in the course of an independent occupation, representing
the will of his employer only as to the result of his work, and not as to the
means by which it is accomplished. (Emphasis supplied)
It is quite evident that the percentage tax imposed in Section 191 is generally a tax on the
sale of services or labor. In its factual findings, respondent court found that petitioner was
formed and organized primarily as a manufacturer; that it has an aggregate plant at
Montalban, Rizal, which processes rock aggregates mined by it from private lands; it operates
a concrete batching plant at Longos, Quezon City where the specified aggregates from its
plant at Montalban are mixed with sand and cement, after which water is added and the
concrete mixture is sold and delivered to customers; and at its plant site at Longos, Quezon
City, petitioner has also an asphalt mixing machinery where bituminous asphalt mix is
manufactured. 13
We see no reason to disturb the findings of respondent court. Petitioner is a manufacturer as
defined by Section 194(x), now Section 187(x), of the Tax Code.
Sec. 1 94. Words and phrases defined. — In applying the provisions of this
Title words and phrases shall be taken in the sense and extension indicated
below:
xxx xxx xxx

(x) "Manufacturer" includes every person who by physical or chemical
process alters the exterior texture or form or inner substance of any raw
material or manufactured or partially manufactured product in such manner
as to prepare it for a special use or uses to which it could not have been put
in its original condition, or who by any such process alters the quality of any
such raw material or manufactured or partially manufactured product so as to
reduce it to marketable shape or prepare it for any of the uses of industry, or
who by any such process combines any such raw material or manufactured
or partially manufactured products with other materials or products of the
same or different kinds and in such manner that the finished product of such
process or manufacture can be put to a special use or uses to which such
raw material or manufactured or partially manufactured products, in their
original condition could not have been put, and who in addition alters such
raw material or manufactured or partially manufactured products, or
combines the same to produce such finished products for the purpose of
their sale or distribution to others and not for his own use or consumption.
As aptly pointed out by the Solicitor General, petitioner's raw materials are processed under a
prescribed formula and thereby changed by means of machinery into a finished product,
altering their quality, transforming them into marketable state or preparing them for any of the
specific uses of industry. Thus, the raw materials become a distinct class of merchandise or
"finished products for the purpose of their sales or distribution to others and not for his own
use or consumption." Evidently, without the above process, the raw materials or aggregates
could not, in their original form, perform the uses of the finished product. 14
In a case involving the making of ready-mixed concrete, it was held that concrete is a product
resulting from a combination of sand or gravel or broken bits of limestones with water and
cement; a combination which requires the use of skill and most generally of machinery.
Concrete in forms designed for use and supplied to others for buildings, bridges and other
structures is a distinct article of commerce and the making of them would be manufacturing
by the corporation doing so. 15
Selling or distribution is an essential ingredient of manufacturing. The sale of a manufactured
product is properly incident to manufacture. The power to sell is an indispensable adjunct to a
manufacturing business. 16 Petitioner, as a manufacturer, not only manufactures the finished
articles but also sells or distributes them to others. This is inferable from the testimonial
evidence of petitioner's witness that, in the marketing of its products, the company has
marketing personnel who visit the client, whether he is a regular or a prospective customer,
and that it is the customer who specifies the requirement according to his needs by filling up a
purchase order, after which a job order is issued. This is followed by the delivery of the
finished product to the job site. 17
22
Petitioner relies heavily on the case of The Commissioner of Internal Revenue
vs. Engineering Equipment and Supply Co., et al. 18 and on the basis thereof posits that it has
passed the test of a contractor under Article 1467 of the Civil Code which provides:
Art. 1467. A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures for
the general market, whether the same is on hand at the time or not, is a
contract of sale but if the goods are to be manufactured specially for the
customer and upon his special order, and not for the general market, it is a
contract for a piece of work.
It is readily apparent that, in declaring private respondent in the aforesaid Engineering
Equipment case as a contractor, the Court relied on findings of fact distinguishable from
those in the case at bar.
. . . We find that Engineering did not manufacture air conditioning units for
sale to the general public, but imported some items (as refrigeration coils, . .
.) which were used in executing contracts entered into by it. Engineering,
therefore, undertook negotiations and execution of individual contracts for the
design, supply and installation of air conditioning units of the central type . . .,
taking into consideration in the process such factors as the area of the space
to be air conditioned; the number of persons occupying or would be
occupying the premises; the purpose for which the various air conditioning
areas are to be used; and the sources of heat gain or cooling load on the
plant such as the sun load, lighting, and other electrical appliances which are
or may be in the plan. . . . Engineering also testified during the hearing in the
Court of Tax Appeals that relative to the installation of air conditioning
system, Engineering designed and engineered complete each particular
plant and that no two plants were identical but each had to be engineered
separately.
As found by the lower court, which finding We adopt —
Engineering, in a nutshell, fabricates, assembles, supplies and installs in the
buildings of its various customers the central type air conditioning system;
prepares the plans and specifications therefor which are distinct and different
from each other; the air conditioning units and spare parts or accessories
thereof used by petitioner are not the window type of air conditioners which
are manufactured, assembled and produced locally for sale to the general
market; and the imported air conditioning units and spare parts or
accessories thereof are supplied and installed by petitioner upon previous
orders of its customers conformably with their needs and requirements.
 23

The facts and circumstances aforequoted support the theory that ON THE FOREGOING CONSIDERATIONS, certiorari is DENIED and the appealed decision
Engineering is a contractor rather than a manufacturer. of respondent Court of Tax Appeals is AFFIRMED.

It is still good law that a contract to make is a contract of sale if the article is already SO ORDERED.
substantially in existence at the time of the order and merely requires some alteration,
modification or adaptation to the buyer's wishes or purposes. A contract for the sale of an
article which the vendor in the ordinary course of his business manufactures or procures for
the general market, whether the same is on hand at the time or not is a contract for the sale
of goods. 19

Petitioner insists that it would produce asphalt or concrete mix only upon previous job orders
otherwise it would not do so. It does not and will not carry in stock cement and asphalt
mix. 20 But the reason is obvious. What practically prevents the petitioner from mass
production and storage is the nature of its products, that is, they easily harden due to
temperature change and water and cement reaction. 21 Stated differently by respondent court,
"it is self-evident that it is due to the highly perishable nature of asphalt and concrete mix, as
petitioner itself argues, that makes impossible for them to be carried in stock because they
cool and harden with time, and once hardened, they become useless. 22

Had it not been for this fact, petitioner could easily mass produce the ready-mixed concrete or
asphalt desired and needed by its various customers and for which it is mechanically
equipped to do. It is clear, however, that petitioner does nothing more than sell the articles
that it habitually manufactures. It stocks raw materials, ready at any time, for the manufacture
of asphalt and/or concrete mix. 23 Its marketing system would readily disclose that its
products are available for sale to anyone needing them. Whosoever would need its products,
whether builder, contractor, homeowner or payer with sufficient money, may order
aggregates, concrete mix or bituminous asphalt mix of the kind manufactured by
petitioner.24 The habituality of the production of goods for the general public characterizes the
business of petitioner.

We are likewise persuaded by the submissions of the Solicitor General that the ruling
in Celestino Co & Company vs. Collector of Internal Revenue 25 is applicable to this case in
that unless an activity is covered by Section 191 of the Tax Code, one who manufactures
articles, although upon a previous order and subject to the specifications of the buyer, is
nonetheless a manufacturer.

We also reject petitioner's theory that, with the amendment of Section 191 of the Tax Code, it
can be considered as a "specialty contractor." As observed by respondent, a specialty
contractor is one whose operations pertain to construction work requiring special skill and
involves the use of specialized building trades or crafts. The manufacture of concrete and
cement mix do not involve the foregoing requirements as to put it within such special
category.