4. Velarde vs.
CA (361 SCRA 56)
G.R. No. 108346 July 11, 2001
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners,
vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE
RAYMUNDO, respondents.
PANGANIBAN, J.:
A substantial breach of a reciprocal obligation, like failure to pay the price in the
manner prescribed by the contract, entitled the injured party to rescind the obligation.
Rescission abrogates the contract from its inception and requires a mutual restitution
of benefits received.
The Case
Before us is a Petition for Review on Certiorari1 questioning the Decision2 of the Court
of Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its
Resolution3 dated December 29, 1992 denying petitioner's motion for
reconsideration.4
The dispositive portion of the assailed Decision reads:
"WHEREFORES the Order dated May 15, 1991 is hereby ANNULLED and
SET ASIDE and the Decision dated November 14, 1990 dismissing the
[C]omplaint is RESINSTATED. The bonds posted by plaintiffs-appellees and
defendants-appellants are hereby RELEASED."5
The Facts
The factual antecedents of the case, as found by the CA, are as follows:
"x x x. David Raymundo [herein private respondent] is the absolute and
registered owner of a parcel of land, together with the house and other
improvements thereon, located at 1918 Kamias St., Dasmariñas Village,
Makati and covered by TCT No. 142177. Defendant George Raymundo
[herein private petitioners] is David's father who negotiated with plaintiffs
Avelina and Mariano Velarde [herein petitioners] for the sale of said
property, which was, however, under lease (Exh. '6', p. 232, Record of Civil
Case No. 15952).
"On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A';
Exh. '1', pp. 11-12, Record) was executed by defendant David Raymundo,
as vendor, in favor of plaintiff Avelina Velarde, as vendee, with the following
terms and conditions:
'x x x xxx xxx
'That for and in consideration of the amount of EIGHT HUNDRED
THOUSAND PESOS (P800,000.00), Philippine currency, receipt of
which in full is hereby acknowledged by the VENDOR from the
VENDEE, to his entire and complete satisfaction, by these presents
the VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS
AND DELIVERS, freely and voluntarily, with full warranty of a legal
and valid title as provided by law, unto the VENDEE, her heirs,
successors and assigns, the parcel of land mentioned and
described above, together with the house and other improvements
thereon.
'That the aforesaid parcel of land, together with the house and other
improvements thereon, were mortgaged by the VENDOR to the
BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila to
secure the payment of a loan of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, as
evidenced by a Real Estate Mortgage signed and executed by the
VENDOR in favor of the said Bank of the Philippine Islands, on
_____ and which Real Estate Mortgage was ratified before Notary
Public for Makati, _____, as Doc. No. ______, Page No._____,
Book No.___, Series of 1986 of his Notarial Register.
'That as part of the consideration of this sale, the VENDEE hereby
assumes to pay the mortgage obligations on the property herein
sold in the amount of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor
of Bank of Philippine Islands, in the name of the VENDOR, and
further agrees to strictly and faithfully comply with all the terms and
conditions appearing in the Real Estate Mortgage signed and
executed by the VENDOR in favor of BPI, including interests and
other charges for late payment levied by the Bank, as if the same
were originally signed and executed by the VENDEE.
'It is further agreed and understood by the parties herein that the
capital gains tax and documentary stamps on the sale shall be for
the account of the VENDOR; whereas, the registration fees and
transfer tax thereon shall be the account of the VENDEE.' (Exh. 'A',
pp. 11-12, Record).'
"On the same date, and as part of the above-document, plaintiff Avelina
Velarde, with the consent of her husband, Mariano, executed an
Undertaking (Exh. 'C', pp. 13-14, Record).'
'x x x xxx xxx
'Whereas, as per deed of Sale with Assumption of Mortgage, I paid
Mr. David A. Raymundo the sum of EIGHT HUNDRED
THOUSAND PESOS (P800,000.00), Philippine currency, and
assume the mortgage obligations on the property with the Bank of
the Philippine Islands in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in accordance with the terms and conditions of the Deed
of Real Estate Mortgage dated _____, signed and executed by Mr.
David A. Raymundo with the said Bank, acknowledged before
Notary Public for Makati, _____, as Doc. No. _____, Page
No._____, Book No._____, Series of 1986 of his Notarial Register.
'WHEREAS, while my application for the assumption of the
mortgage obligations on the property is not yet approved by the
mortgagee Bank, I have agreed to pay the mortgage obligations on
the property with the Bank in the name of Mr. David A. Raymundo,
in accordance with the terms and conditions of the said Deed of
Real Estate Mortgage, including all interests and other charges for
late payment.
'WHEREAS, this undertaking is being executed in favor of Mr.
David A. Raymundo, for purposes of attesting and confirming our
private understanding concerning the said mortgage obligations to
be assumed.
'NOW, THEREFORE, for and in consideration of the foregoing
premises, and the assumption of the mortgage obligations of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, with the bank of the Philippine Islands, I, Mrs,
Avelina D, Velarde with the consent of my husband, Mariano Z.
Velardo, do hereby bind and obligate myself, my heirs, successors
and assigns, to strictly and faithfully comply with the following terms
and conditions:
'1. That until such time as my assumption of the mortgage
obligations on the property purchased is approved by the
mortgagee bank, the Bank of the Philippine Islands, I shall continue
to pay the said loan in accordance with the terms and conditions of
the Deed of Real Estate Mortgage in the name of Mr. David A.
Raymundo, the original Mortgagor.
'2. That, in the event I violate any of the terms and conditions of the
said Deed of Real Estate Mortgage, I hereby agree that my
downpayment of P800,000.00, plus all payments made with the
Bank of the Philippine Islands on the mortgage loan, shall be
forfeited in favor of Mr. David A. Raymundo, as and by way of
liquidated damages, without necessity of notice or any judicial
declaration to that effect, and Mr. David A. Raymundo shall resume
total and complete ownership and possession of the property sold
by way of Deed of Sale with Assumption of Mortgage, and the
same shall be deemed automatically cancelled and be of no further
force or effect, in the same manner as it (the) same had never been
executed or entered into.
'3. That I am executing the Undertaking for purposes of binding
myself, my heirs, successors and assigns, to strictly and faithfully
comply with the terms and conditions of the mortgage obligations
with the Bank of the Philippine Islands, and the covenants,
stipulations and provisions of this Undertaking.
'That, David A. Raymundo, the vendor of the property mentioned
and identified above, [does] hereby confirm and agree to the
undertakings of the Vendee pertinent to the assumption of the
mortgage obligations by the Vendee with the Bank of the Philippine
Islands. (Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and Mariano Velarde and David
Raymundo.
"It appears that the negotiated terms for the payment of the balance of P1.8
million was from the proceeds of a loan that plaintiffs were to secure from a
bank with defendant's help. Defendants had a standing approved credit line
with the Bank of the Philippine Islands (BPI). The parties agreed to avail of
this, subject to BPI's approval of an application for assumption of mortgage
by plaintiffs. Pending BPI's approval o[f] the application, plaintiffs were to
continue paying the monthly interests of the loan secured by a real estate
mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the
loan secured by the aforementioned mortgage for three (3) months as
follows: September 19, 1986 at P27,225.00; October 20, 1986 at
P23,000.00; and November 19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp.
15, 17and 18, Record).
"On December 15, 1986, plaintiffs were advised that the Application for
Assumption of Mortgage with BPI, was not approved (Exh. 'J', p. 133,
Record). This prompted plaintiffs not to make any further payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the
latter that their non-payment to the mortgage bank constitute[d] non-
performance of their obligation (Exh. '3', p. 220, Record).
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
'This is to advise you, therefore, that our client is willing to pay the
balance in cash not later than January 21, 1987 provided: (a) you
deliver actual possession of the property to her not later than
January 15, 1987 for her immediate occupancy; (b) you cause the
re- lease of title and mortgage from the Bank of P.I. and make the
title available and free from any liens and encumbrances; and (c)
 you execute an absolute deed of sale in her favor free from any
liens or encumbrances not later than January 21, 1987.' (Exhs. 'k',
'4', p. 223, Record).
"On January 8, 1987 defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended saleof the subject property allegedly
due to the latter's failure to comply with the terms and conditions of the Deed
of Sale with Assumption of Mortgage and the Undertaking (Exh. '5', pp. 225-
226, Record)."6
Consequently, petitioners filed on February 9, 1987 a Complaint against private
respondents for specific performance, nullity of cancellation, writ of possession and
damages. This was docketed as Civil Case No. 15952 at the Regional Trial Court of
Makati, Branch 149. The case was tried and heard by then Judge Consuelo Ynares-
Santiago (now an associate justice of this Court), who dismissed the Complaint in a
Decision dated November 14, 1990.7 Thereafter, petitioners filed a Motion for
Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and
Judge Salvador S. A. Abad Santos was assigned to the sala she vacated. In an Order
dated May 15, 1991,9 Judge Abad Santos granted petitioner's Motion for
Reconsideration and directed the parties to proceed with the sale. He instructed
petitioners to pay the balance of P1.8 million to private respondents who, in turn, were
ordered to execute a deed of absolute sale and to surrender possession of the
disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-
Santiago's earlier Decision dismissing petitioners' Complaint. Upholding the validity of
the rescission made by private respondents, the CA explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as
part of the consideration of this sale, the VENDEE (Velarde)' would assume
to pay the mortgage obligation on the subject property in the amount of P 1.8
million in favor of BPI in the name of the Vendor (Raymundo). Since the
price to be paid by the Vendee Velarde includes the downpayment of
P800,000.00 and the balance of Pl.8 million, and the balance of Pl.8 million
cannot be paid in cash, Vendee Velarde, as part of the consideration of the
sale, had to assume the mortgage obligation on the subject property. In
other words, the assumption of the mortgage obligation is part of the
obligation of Velarde, as vendee, under the contract. Velarde further agreed
'to strictly and faithfully comply with all the terms and conditions appearing in
the Real Estate Mortgage signed and executed by the VENDOR in favor of
BPI x x x as if the same were originally signed and executed by the Vendee.
(p. 2, thereof, p. 12, Record). This was reiterated by Velarde in the
document entitled 'Undertaking' wherein the latter agreed to continue paying
said loan in accordance with the terms and conditions of the Deed of Real
Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that
in the event of violation by Velarde of any terms and conditions of said deed
of real estate mortgage, the downpayment of P800,000.00 plus all payments
made with BPI or the mortgage loan would be forfeited and the [D]eed of
[S]ale with [A]ssumption of [M]ortgage would thereby be Cancelled
automatically and of no force and effect (pars. 2 & 3, thereof, pp 13-14,
Record).
"From these 2 documents, it is therefore clear that part of the consideration
of the sale was the assumption by Velarde of the mortgage obligation of
Raymundo in the amount of Pl.8 million. This would mean that Velarde had
to make payments to BPI under the [D]eed of [R]eal [E]state [M]ortgage the
name of Raymundo. The application with BPI for the approval of the
assumption of mortgage would mean that, in case of approval, payment of
the mortgage obligation will now be in the name of Velarde. And in the event
said application is disapproved, Velarde had to pay in full. This is alleged
and admitted in Paragraph 5 of the Complaint. Mariano Velarde likewise
admitted this fact during the hearing on September 15, 1997 (p. 47, t.s.n.,
September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This being
the case, the non-payment of the mortgage obligation would result in a
violation of the contract. And, upon Velarde's failure to pay the agreed price,
the[n] Raymundo may choose either of two (2) actions - (1) demand
fulfillment of the contract, or (2) demand its rescission (Article 1191, Civil
Code).
"The disapproval by BPI of the application for assumption of mortgage
cannot be used as an excuse for Velarde's non-payment of the balance of
the purchase price. As borne out by the evidence, Velarde had to pay in full
in case of BPI's disapproval of the application for assumption of mortgage.
What Velarde should have done was to pay the balance of P1.8 million.
Instead, Velarde sent Raymundo a letter dated January 7, 1987 (Exh. 'K', '4')
which was strongly given weight by the lower court in reversing the decision
rendered by then Judge Ynares-Santiago. In said letter, Velarde registered
their willingness to pay the balance in cash but enumerated 3 new conditions
which, to the mind of this Court, would constitute a new undertaking or new
agreement which is subject to the consent or approval of Raymundo. These
3 conditions were not among those previously agreed upon by Velarde and
Raymundo. These are mere offers or, at most, an attempt to novate. But
then again, there can be no novation because there was no agreement of all
the parties to the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA
493).
"It was likewise agreed that in case of violation of the mortgage obligation,
the Deed of Sale with Assumption of Mortgage would be deemed
'automatically cancelled and of no further force and effect, as if the same
had never been executed or entered into.' While it is true that even if the
contract expressly provided for automatic rescission upon failure to pay the
price, the vendee may still pay, he may do so only for as long as no demand
for rescission of the contract has been made upon him either judicially or by
a notarial act (Article 1592, Civil Code). In the case at bar, Raymundo sent
 Velarde notarial notice dated January 8, 1987 of cancellation/rescission of
the contract due to the latter's failure to comply with their obligation. The
rescission was justified in view of Velarde's failure to pay the price (balance)
which is substantial and fundamental as to defeat the object of the parties in
making the agreement. As adverted to above, the agreement of the parties
involved a reciprocal obligation wherein the obligation of one is a resolutory
condition of the obligation of the other, the non-fulfillment of which entitles
the other party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28).
Thus, the non-payment of the mortgage obligation by appellees Velarde
would create a right to demand payment or to rescind the contract, or to
criminal prosecution (Edca Publishing & Distribution Corporation vs. Santos,
184 SCRA 614). Upon appellee's failure, therefore, to pay the balance, the
contract was properly rescinded (Ruiz vs. IAC, 184 SCRA 720).
Consequently, appellees Velarde having violated the contract, they have lost
their right to its enforcement and hence, cannot avail of the action for
specific performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA
635)."10
Hence, this appeal. 11
The Issues
Petitioners, in their Memorandum,12 interpose the following assignment of errors:
"I.
The Court of Appeals erred in holding that the non-payment of the mortgage
obligation resulted in a breach of the contract.
"II
The Court of Appeals erred in holding that the rescission (resolution) of the
contract by private respondents was justified.
"III
The Court of Appeals erred in holding that petitioners' January 7, 1987 letter
gave three 'new conditions' constituting mere offers or an attempt to novate
necessitating a new agreement between the parties."
The Court's Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioner aver that their nonpayment of private respondents' mortgage obligation did
not constitute a breach of contract, considering that their request to assume the
obligation had been disapproved by the mortgagee bank. Accordingly, payment of the
monthly amortizations ceased to be their obligation and, instead, it devolved upon
private respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they also
failed to pay the balance of the purchase price. As admitted by both parties, their
agreement mandated that petitioners should pay the purchase price balance of P1.8
million to private respondents in case the request to assume the mortgage would be
disapproved. Thus, on December 15, 1986, when petitioners received notice of the
bank's disapproval of their application to assume respondents' mortgage, they should
have paid the balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to make
such payment only upon the fulfillment of certain conditions not originally agreed upon
in the contract of sale. Such conditional offer to pay cannot take the place of actual
payment as would discharge the obligation of a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver
a determinate things, and the buyer to pay therefor a price certain in money or its
equivalent.13
Private respondents had already performed their obligation through the execution of
the Deed of Sale, which effectively transferred ownership of the property to petitioner
through constructive delivery. Prior physical delivery or possession is not legally
required, and the execution of the Deed of Sale is deemed equivalent to delivery. 14
Petitioners, on the other hand, did not perform their correlative obligation of paying
the contract price in the manner agreed upon. Worse, they wanted private
respondents to perform obligations beyond those stipulated in the contract before
fulfilling their own obligation to pay the full purchase price.
Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of the contract by private respondents
was not justified, inasmuch as the former had signified their willingness to pay the
balance of the purchase price only a little over a month from the time they were
notified of the disapproval of their application for assumption of mortgage. Petitioners
also aver that the breach of the contract was not substantial as would warrant a
rescission. They cite several cases15 in which this Court declared that rescission of a
contract would not be permitted for a slight or casual breach. Finally, they argue that
they have substantially performed their obligation in good faith, considering that they
have already made the initial payment of P800,000 and three (3) monthly mortgage
payments.
As pointed out earlier, the breach committed by petitioners was not so much their
nonpayment of the mortgage obligations, as their nonperformance of their reciprocal
obligation to pay the purchase price under the contract of sale. Private respondents'
right to rescind the contract finds basis in Article 1191 of the Civil Code, which
explicitly provides as follows:
"Art. 1191. -- The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission even after he has chosen fulfillment, if the latter should become
impossible."
The right of rescission of a party to an obligation under Article 1191 of the Civil Code
is predicated on a breach of faith by the other party who violates the reciprocity
between them.16 The breach contemplated in the said provision is the obligor's failure
to comply with an existing obligation.17 When the obligor cannot comply with what is
incumbent upon it, the obligee may seek rescission and, in the absence of any just
cause for the court to determine the period of compliance, the court shall decree the
rescission.18
In the present case, private respondents validly exercised their right to rescind the
contract, because of the failure of petitioners to comply with their obligation to pay the
balance of the purchase price. Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that consequently gave rise to private
respondent's right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price
one month after it became due; however, this was not equivalent to actual payment
as would constitute a faithful compliance of their reciprocal obligation. Moreover, the
offer to pay was conditioned on the performance by private respondents of additional
burdens that had not been agreed upon in the original contract. Thus, it cannot be
said that the breach committed by petitioners was merely slight or casual as would
preclude the exercise of the right to rescind.
Misplaced is petitioners' reliance on the cases19 they cited, because the factual
circumstances in those cases are not analogous to those in the present one. In Song
Fo there was, on the part of the buyer, only a delay of twenty (20) days to pay for the
goods delivered. Moreover, the buyer's offer to pay was unconditional and was
accepted by the seller.
In Zepeda, the breach involved a mere one-week delay in paying the balance of
1,000 which was actually paid.
In Tan, the alleged breach was private respondent's delay of only a few days, which
was for the purpose of clearing the title to the property; there was no reference
whatsoever to the nonpayment of the contract price.
In the instant case, the breach committed did not merely consist of a slight delay in
payment or an irregularity; such breach would not normally defeat the intention of the
parties to the contract. Here, petitioners not only failed to pay the P1.8 million
balance, but they also imposed upon private respondents new obligations as
preconditions to the performance of their own obligation. In effect, the qualified offer
to pay was a repudiation of an existing obligation, which was legally due and
demandable under the contract of sale. Hence, private respondents were left with the
legal option of seeking rescission to protect their own interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the nonperformance of
a reciprocal obligation, not a violation of the terms and conditions of the mortgage
contract. Therefore, the automatic rescission and forfeiture of payment clauses
stipulated in the contract does not apply. Instead, Civil Code provisions shall govern
and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil
Code, mutual restitution is required to bring back the parties to their original situation
prior to the inception of the contract. Accordingly, the initial payment of P800,000 and
the corresponding mortgage payments in the amounts of P27,225, P23,000 and
P23,925 (totaling P874,150.00) advanced by petitioners should be returned by private
respondents, lest the latter unjustly enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be carried
out only when the one who demands rescission can return whatever he may be
obliged to restore.20 To rescind is to declare a contract void at its inception and to put
an end to it as though it never was. It is not merely to terminate it and release the
parties from further obligations to each other, but to abrogate it from the beginning
and restore the parties to their relative positions as if no contract has been made. 21
Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it no longer necessary to discuss
the third issue raised by petitioners. Suffice it to say that the three conditions
appearing on the January 7, 1987 letter of petitioners to private respondents were not
part of the original contract. By that time, it was already incumbent upon the former to
pay the balance of the sale price. They had no right to demand preconditions to the
fulfillment of their obligation, which had become due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with
the MODIFICATION that private respondents are ordered to return to petitioners the
amount of P874,150, which the latter paid as a consequence of the rescinded
contract, with legal interest thereon from January 8, 1987, the date of rescission. No
pronouncement as to costs.
SO ORDERED.1âwphi1.nêt
5. Acap vs. CA (251 SCRA 30)
G.R. No. 118114 December 7, 1995
TEODORO ACAP, petitioner,
vs.
COURT OF APPEALS and EDY DE LOS REYES, respondents.
PADILLA, J.:
This is a petition for review on certiorari of the decision1 of the Court of Appeals, 2nd
Division, in CA-G.R. No. 36177, which affirmed the decision2 of the Regional Trial
Court of Himamaylan, Negros Occidental holding that private respondent Edy de los
Reyes had acquired ownership of Lot No. 1130 of the Cadastral Survey of Hinigaran,
Negros Occidental based on a document entitled "Declaration of Heirship and Waiver
of Rights", and ordering the dispossession of petitioner as leasehold tenant of the
land for failure to pay rentals.
The facts of the case are as follows:
The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was
evidenced by OCT No. R-12179. The lot has an area of 13,720 sq. meters. The title
was issued and is registered in the name of spouses Santiago Vasquez and Lorenza
Oruma. After both spouses died, their only son Felixberto inherited the lot. In 1975,
Felixberto executed a duly notarized document entitled "Declaration of Heirship and
Deed of Absolute Sale" in favor of Cosme Pido.
The evidence before the court a quo established that since 1960, petitioner Teodoro
Acap had been the tenant of a portion of the said land, covering an area of nine
thousand five hundred (9,500) meters. When ownership was transferred in 1975 by
Felixberto to Cosme Pido, Acap continued to be the registered tenant thereof and
religiously paid his leasehold rentals to Pido and thereafter, upon Pido's death, to his
widow Laurenciana.
The controversy began when Pido died intestate and on 27 November 1981, his
surviving heirs executed a notarized document denominated as "Declaration of
Heirship and Waiver of Rights of Lot No. 1130 Hinigaran Cadastre," wherein they
declared; to quote its pertinent portions, that:
. . . Cosme Pido died in the Municipality of Hinigaran, Negros
Occidental, he died intestate and without any known debts and
obligations which the said parcel of land is (sic) held liable.
That Cosme Pido was survived by his/her legitimate heirs, namely:
LAURENCIANA PIDO, wife, ELY, ERVIN, ELMER, and ELECHOR
all surnamed PIDO; children;
That invoking the provision of Section 1, Rule 74 of the Rules of
Court, the above-mentioned heirs do hereby declare unto [sic]
ourselves the only heirs of the late Cosme Pido and that we hereby
adjudicate unto ourselves the above-mentioned parcel of land in
equal shares.
Now, therefore, We LAURENCIANA3 , ELY, ELMER, ERVIN and
ELECHOR all surnamed PIDO, do hereby waive, quitclaim all our
rights, interests and participation over the said parcel of land in
favor of EDY DE LOS REYES, of legal age, (f)ilipino, married to
VIRGINIA DE LOS REYES, and resident of Hinigaran, Negros
Occidental, Philippines. . . .4 (Emphasis supplied)
The document was signed by all of Pido's heirs. Private respondent Edy de los Reyes
did not sign said document.
It will be noted that at the time of Cosme Pido's death, title to the property continued
to be registered in the name of the Vasquez spouses. Upon obtaining the Declaration
of Heirship with Waiver of Rights in his favor, private respondent Edy de los Reyes
filed the same with the Registry of Deeds as part of a notice of an adverse
claimagainst the original certificate of title.
Thereafter, private respondent sought for petitioner (Acap) to personally inform him
that he (Edy) had become the new owner of the land and that the lease rentals
thereon should be paid to him. Private respondent further alleged that he and
petitioner entered into an oral lease agreement wherein petitioner agreed to pay ten
(10) cavans of palay per annum as lease rental. In 1982, petitioner allegedly complied
with said obligation. In 1983, however, petitioner refused to pay any further lease
rentals on the land, prompting private respondent to seek the assistance of the then
Ministry of Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited
petitioner to a conference scheduled on 13 October 1983. Petitioner did not attend
the conference but sent his wife instead to the conference. During the meeting, an
officer of the Ministry informed Acap's wife about private respondent's ownership of
the said land but she stated that she and her husband (Teodoro) did not recognize
private respondent's claim of ownership over the land.
On 28 April 1988, after the lapse of four (4) years, private respondent filed a
complaint for recovery of possession and damages against petitioner, alleging in the
main that as his leasehold tenant, petitioner refused and failed to pay the agreed
annual rental of ten (10) cavans of palay despite repeated demands.
During the trial before the court a quo, petitioner reiterated his refusal to recognize
private respondent's ownership over the subject land. He averred that he continues to
recognize Cosme Pido as the owner of the said land, and having been a registered
tenant therein since 1960, he never reneged on his rental obligations. When Pido
died, he continued to pay rentals to Pido's widow. When the latter left for abroad, she
instructed him to stay in the landholding and to pay the accumulated rentals upon her
demand or return from abroad.
Petitioner further claimed before the trial court that he had no knowledge about any
transfer or sale of the lot to private respondent in 1981 and even the following year
after Laurenciana's departure for abroad. He denied having entered into a verbal
lease tenancy contract with private respondent and that assuming that the said lot
was indeed sold to private respondent without his knowledge, R.A. 3844, as
amended, grants him the right to redeem the same at a reasonable price. Petitioner
also bewailed private respondent's ejectment action as a violation of his right to
security of tenure under P.D. 27.
On 20 August 1991, the lower court rendered a decision in favor of private
respondent, the dispositive part of which reads:
WHEREFORE, premises considered, the Court renders judgment
in favor of the plaintiff, Edy de los Reyes, and against the
defendant, Teodoro Acap, ordering the following, to wit:
1. Declaring forfeiture of defendant's preferred right to issuance of a
Certificate of Land Transfer under Presidential Decree No. 27 and
his farmholdings;
2. Ordering the defendant Teodoro Acap to deliver possession of
said farm to plaintiff, and;
3. Ordering the defendant to pay P5,000.00 as attorney's fees, the
sum of P1,000.00 as expenses of litigation and the amount of
P10,000.00 as actual damages.5
In arriving at the above-mentioned judgment, the trial court stated that the evidence
had established that the subject land was "sold" by the heirs of Cosme Pido to private
respondent. This is clear from the following disquisitions contained in the trial court's
six (6) page decision:
There is no doubt that defendant is a registered tenant of Cosme
Pido. However, when the latter died their tenancy relations changed
since ownership of said land was passed on to his heirs who, by
executing a Deed of Sale, which defendant admitted in his affidavit,
likewise passed on their ownership of Lot 1130 to herein plaintiff
(private respondent). As owner hereof, plaintiff has the right to
demand payment of rental and the tenant is obligated to pay rentals
due from the time demand is made. . . .6
xxx xxx xxx
Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff
does not of itself extinguish the relationship. There was only a
change of the personality of the lessor in the person of herein
plaintiff Edy de los Reyes who being the purchaser or transferee,
assumes the rights and obligations of the former landowner to the
tenant Teodoro Acap, herein defendant.7
Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower
court when it ruled that private respondent acquired ownership of Lot No. 1130 and
that he, as tenant, should pay rentals to private respondent and that failing to pay the
same from 1983 to 1987, his right to a certificate of land transfer under P.D. 27 was
deemed forfeited.
The Court of Appeals brushed aside petitioner's argument that the Declaration of
Heirship and Waiver of Rights (Exhibit "D"), the document relied upon by private
respondent to prove his ownership to the lot, was excluded by the lower court in its
order dated 27 August 1990. The order indeed noted that the document was not
identified by Cosme Pido's heirs and was not registered with the Registry of Deeds of
Negros Occidental. According to respondent court, however, since the Declaration of
Heirship and Waiver of Rights appears to have been duly notarized, no further proof
of its due execution was necessary. Like the trial court, respondent court was also
convinced that the said document stands as prima facie proof of appellee's (private
respondent's) ownership of the land in dispute.
With respect to its non-registration, respondent court noted that petitioner had actual
knowledge of the subject saleof the land in dispute to private respondent because as
early as 1983, he (petitioner) already knew of private respondent's claim over the said
land but which he thereafter denied, and that in 1982, he (petitioner) actually paid rent
to private respondent. Otherwise stated, respondent court considered this fact of
rental payment in 1982 as estoppel on petitioner's part to thereafter refute private
respondent's claim of ownership over the said land. Under these circumstances,
respondent court ruled that indeed there was deliberate refusal by petitioner to pay
rent for a continued period of five years that merited forfeiture of his otherwise
preferred right to the issuance of a certificate of land transfer.
In the present petition, petitioner impugns the decision of the Court of Appeals as not
in accord with the law and evidence when it rules that private respondent acquired
ownership of Lot No. 1130 through the aforementioned Declaration of Heirship and
Waiver of Rights.
Hence, the issues to be resolved presently are the following:
 1. WHETHER OR NOT THE SUBJECT DECLARATION OF
HEIRSHIP AND WAIVER OF RIGHTS IS A RECOGNIZED MODE
OF ACQUIRING OWNERSHIP BY PRIVATE RESPONDENT
OVER THE LOT IN QUESTION.
2. WHETHER OR NOT THE SAID DOCUMENT CAN BE
CONSIDERED A DEED OF SALE IN FAVOR OF PRIVATE
RESPONDENT OF THE LOT IN QUESTION.
Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990,
explicitly excluded the document marked as Exhibit "D" (Declaration of Heirship, etc.)
as private respondent's evidence because it was not registered with the Registry of
Deeds and was not identified by anyone of the heirs of Cosme Pido. The Court of
Appeals, however, held the same to be admissible, it being a notarized document,
hence, a prima facie proof of private respondents' ownership of the lot to which it
refers.
Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one
of the recognized modes of acquiring ownership under Article 712 of the Civil Code.
Neither can the same be considered a deed of sale so as to transfer ownership of the
land to private respondent because no consideration is stated in the contract
(assuming it is a contract or deed of sale).
Private respondent defends the decision of respondent Court of Appeals as in accord
with the evidence and the law. He posits that while it may indeed be true that the trial
court excluded his Exhibit "D" which is the Declaration of Heirship and Waiver of
Rights as part of his evidence, the trial court declared him nonetheless owner of the
subject lot based on other evidence adduced during the trial, namely, the notice of
adverse claim (Exhibit "E") duly registered by him with the Registry of Deeds, which
contains the questioned Declaration of Heirship and Waiver of Rights as an integral
part thereof.
We find the petition impressed with merit.
In the first place, an asserted right or claim to ownership or a real right over a thing
arising from a juridical act, however justified, is not per se sufficient to give rise to
ownership over the res. That right or title must be completed by fulfilling certain
conditions imposed by law. Hence, ownership and real rights are acquired only
pursuant to a legal mode or process. While title is the juridical justification, mode is
the actual process of acquisition or transfer of ownership over a thing in question. 8
Under Article 712 of the Civil Code, the modes of acquiring ownership are generally
classified into two (2) classes, namely, the original mode (i.e., through occupation,
acquisitive prescription, law or intellectual creation) and the derivative mode (i.e.,
through succession mortis causa or tradition as a result of certain contracts, such as
sale, barter, donation, assignment or mutuum).
In the case at bench, the trial court was obviously confused as to the nature and
effect of the Declaration of Heirship and Waiver of Rights, equating the same with a
contract (deed) of sale. They are not the same.
In a Contract of Sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other party to pay a price
certain in money or its equivalent.9
Upon the other hand, a declaration of heirship and waiver of rights operates as a
public instrument when filed with the Registry of Deeds whereby the intestate heirs
adjudicate and divide the estate left by the decedent among themselves as they see
fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the
Rules of Court.10
Hence, there is a marked difference between a sale of hereditary rights and
a waiver of hereditary rights. The first presumes the existence of a contract or deed of
sale between the parties.11 The second is, technically speaking, a mode of extinction
of ownership where there is an abdication or intentional relinquishment of a known
right with knowledge of its existence and intention to relinquish it, in favor of other
persons who are co-heirs in the succession.12 Private respondent, being then a
stranger to the succession of Cosme Pido, cannot conclusively claim ownership over
the subject lot on the sole basis of the waiver document which neither recites the
elements of either a sale,13 or a donation,14 or any other derivative mode of acquiring
ownership.
Quite surprisingly, both the trial court and public respondent Court of Appeals
concluded that a "sale" transpired between Cosme Pido's heirs and private
respondent and that petitioner acquired actual knowledge of said sale when he was
summoned by the Ministry of Agrarian Reform to discuss private respondent's claim
over the lot in question. This conclusion has no basis both in fact and in law.
On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of Rights"
was excluded by the trial court in its order dated 27 August 1990 because the
document was neither registered with the Registry of Deeds nor identified by the heirs
of Cosme Pido. There is no showing that private respondent had the same document
attached to or made part of the record. What the trial court admitted was Annex "E", a
notice of adverse claim filed with the Registry of Deeds which contained the
Declaration of Heirship with Waiver of rights and was annotated at the back of the
Original Certificate of Title to the land in question.
A notice of adverse claim, by its nature, does not however prove private respondent's
ownership over the tenanted lot. "A notice of adverse claim is nothing but a notice of a
claim adverse to the registered owner, the validity of which is yet to be established in
court at some future date, and is no better than a notice of lis pendens which is a
notice of a case already pending in court."15
It is to be noted that while the existence of said adverse claim was duly proven, there
is no evidence whatsoever that a deed of sale was executed between Cosme Pido's
heirs and private respondent transferring the rights of Pido's heirs to the land in favor
of private respondent. Private respondent's right or interest therefore in the tenanted
lot remains an adverse claim which cannot by itself be sufficient to cancel the OCT to
the land and title the same in private respondent's name.
Consequently, while the transaction between Pido's heirs and private
respondent may be binding on both parties, the right of petitioner as a
registered tenant to the land cannot be perfunctorily forfeited on a mere
allegation of private respondent's ownership without the corresponding proof
thereof.
Petitioner had been a registered tenant in the subject land since 1960 and religiously
paid lease rentals thereon. In his mind, he continued to be the registered tenant of
Cosme Pido and his family (after Pido's death), even if in 1982, private respondent
allegedly informed petitioner that he had become the new owner of the land.
Under the circumstances, petitioner may have, in good faith, assumed such
statement of private respondent to be true and may have in fact delivered 10 cavans
of palay as annual rental for 1982 to private respondent. But in 1983, it is clear that
petitioner had misgivings over private respondent's claim of ownership over the said
land because in the October 1983 MAR conference, his wife Laurenciana
categorically denied all of private respondent's allegations. In fact, petitioner even
secured a certificate from the MAR dated 9 May 1988 to the effect that he continued
to be the registered tenant of Cosme Pido and not of private respondent. The reason
is that private respondent never registered the Declaration of Heirship with Waiver of
Rights with the Registry of Deeds or with the MAR. Instead, he (private respondent)
sought to do indirectly what could not be done directly, i.e., file a notice of adverse
claim on the said lot to establish ownership thereover.
It stands to reason, therefore, to hold that there was no unjustified or deliberate
refusal by petitioner to pay the lease rentals or amortizations to the
landowner/agricultural lessor which, in this case, private respondent failed to establish
in his favor by clear and convincing evidence.16
Consequently, the sanction of forfeiture of his preferred right to be issued a Certificate
of Land Transfer under P.D. 27 and to the possession of his farmholdings should not
be applied against petitioners, since private respondent has not established a cause
of action for recovery of possession against petitioner.
WHEREFORE, premises considered, the Court hereby GRANTS the petition and the
decision of the Court of Appeals dated 1 May 1994 which affirmed the decision of the
RTC of Himamaylan, Negros Occidental dated 20 August 1991 is hereby SET ASIDE.
The private respondent's complaint for recovery of possession and damages against
petitioner Acap is hereby DISMISSED for failure to properly state a cause of action,
without prejudice to private respondent taking the proper legal steps to establish the
legal mode by which he claims to have acquired ownership of the land in question.
SO ORDERED.
6. Quijada vs. CA (299 SCRA 695)
G.R. No. 126444 December 4, 1998
ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA QUIJADA, DEMETRIO
QUIJADA, ELIUTERIA QUIJADA, EULALIO QUIJADA, and WARLITO
QUIJADA, petitioners,
vs.
COURT OF APPEALS, REGALADO MONDEJAR, RODULFO GOLORAN,
ALBERTO ASIS, SEGUNDINO RAS, ERNESTO GOLORAN, CELSO ABISO,
FERNANDO BAUTISTA, ANTONIO MACASERO, and NESTOR
MAGUINSAY, respondents.
MARTINEZ, J.:
Petitioners, as heirs of the late Trinidad Quijada, filed a complaint against private
respondents for quieting of title, recovery of possession and ownership of parcels of
land with claim for attorney's fees and damages. The suit was premised on the
following facts found by the court of Appeals which is materially the same as that
found by the trial court:
Plaintiffs-appellees (petitioners) are the children of the late Trinidad
Corvera Vda, de Quijada. Trinidad was one of the heirs of the late
Pedro Corvera and inherited from the latter the two-hectare parcel
of land subject of the case, situated in the barrio of San Agustin,
Talacogon, Agusan del Sur. On April 5, 1956, Trinidad Quijada
together with her sisters Leonila Corvera Vda.de Sequeña and Paz
Corvera Cabiltes and brother Epapiadito Corvera executed a
conditional deed of donation (Exh. C) of the two-hectare parcel of
land subject of the case in favor of the Municipality of Talacogon,
the condition being that the parcel of land shall be used solely and
exclusively as part of the campus of the proposed provincial high
school in Talacogon. Apparently, Trinidad remained in possession
of the parcel of land despite the donation. On July 29, 1962,
Trinidad sold one (1) hectare of the subject parcel of land to
defendant-appellant Regalado Mondejar (Exh. 1). Subsequently,
Trinidad verbally sold the remaining one (1) hectare to defendant-
appellant (respondent) Regalado Mondejar without the benefit of a
written deed of sale and evidenced solely by receipts of payment.
In 1980, the heirs of Trinidad, who at that time was already dead,
filed a complaint for forcible entry (Exh. E) against defendant-
appellant (respondent) Regalado Mondejar, which complaint was,
however, dismissed for failure to prosecute (Exh. F). In 1987, the
proposed provincial high school having failed to materialize, the
Sangguniang Bayan of the municipality of Talacogon enacted a
resolution reverting the two (2) hectares of land donated back to the
donors (Exh. D). In the meantime, defendant-appellant
 (respondent) Regalado Mondejar sold portions of the land to possession of the land in
defendants-appellants (respondents) Fernando Bautista (Exh. 5), question to Plaintiffs;
Rodolfo Goloran (Exh. 6), Efren Guden (Exh. 7) and Ernesto
Goloran (Exh. 8). 3) ordering the cancellation of
the Deed of Sale executed by
On July 5, 1988, plaintiffs-appellees (petitioners) filed this action the late Trinidad Quijada in
against defendants-appellants (respondents). In the complaint, favor of Defendant Regalado
plaintiffs-appellees (petitioners) alleged that their deceased mother Mondejar as well as the Deeds
never sold, conveyed, transferred or disposed of the property in of Sale/Relinquishments
question to any person or entity much less to Regalado Mondejar executed by Mondejar in favor
save the donation made to the Municipality of Talacogon in 1956; of the other Defendants;
that at the time of the alleged sale to Regalado Mondejar by
Trinidad Quijada, the land still belongs to the Municipality of 4) ordering Defendants to
Talacogon, hence, the supposed sale is null and void. remove their improvements
constructed on the questioned
Defendants-appellants (respondents), on the other hand, in their lot;
answer claimed that the land in dispute was sold to Regalado
Mondejar, the one (1) hectare on July 29, 1962, and the remaining 5) ordering the Defendants to
one (1) hectare on installment basis until fully paid. As affirmative pay Plaintiffs, jointly and
and/or special defense, defendants-appellants (respondents) severally, the amount of
alleged that plaintiffs action is barred by laches or has prescribed. P10,000.00 representing
attorney's fees;
The court a quo rendered judgment in favor of plaintiffs-appellees
(petitioners): firstly because "Trinidad Quijada had no legal title or 6) ordering Defendants to pays
right to sell the land to defendant Mondejar in 1962, 1966, 1967 the amount of P8,000.00 as
and 1968, the same not being hers to dispose of because expenses of litigation; and
ownership belongs to the Municipality of Talacogon (Decision, p.
4; Rollo, p. 39) and, secondly, that the deed of sale executed by
Trinidad Quijada in favor of Mondejar did not carry with it the 7) ordering Defendants to pay
conformity and acquiescence of her children, more so that she was the sum of P30,000.00
already 63 years old at the time, and a widow (Decision, p. 6; Rollo, representing moral damages.
p. 41)."1
SO ORDERED.2
The dispositive portion of the trial court's decision reads:
On appeal, the Court of Appeals reversed and set aside the judgment a quo3 ruling
WHEREFORE, viewed from the above perceptions, the scale of that the sale made by Trinidad Quijada to respondent Mondejar was valid as the
justice having tilted in favor of the plaintiffs, judgment is, as it is former retained an inchoate interest on the lots by virtue of the automatic reversion
hereby rendered: clause in the deed of donation.4 Thereafter, petitioners filed a motion for
reconsideration. When the CA denied their motion,5 petitioners instituted a petition for
review to this Court arguing principally that the sale of the subject property made by
1) ordering the Defendants to Trinidad Quijada to respondent Mondejar is void, considering that at that time,
return and vacate the two (2) ownership was already transferred to the Municipality of Talacogon. On the contrary,
hectares of land to Plaintiffs as private respondents contend that the sale was valid, that they are buyers in good
described in Tax Declaration faith, and that petitioners' case is barred by laches. 6
No. 1209 in the name of
Trinidad Quijada;
We affirm the decision of the respondent court.
2) ordering any person acting
in Defendants' behalf to vacate The donation made on April 5, 1956 by Trinidad Quijada and her brother and
and restore the peaceful sisters7 was subject to the condition that the donated property shall be "used solely
and exclusively as a part of the campus of the proposed Provincial High School in
Talacogon."8 The donation further provides that should "the proposed Provincial High
School be discontinued or if the same shall be opened but for some reason or
another, the same may in the future be closed" the donated property shall
automatically revert to the donor.9 Such condition, not being contrary to law, morals,
good customs, public order or public policy was validly imposed in the donation. 10
When the Municipality's acceptance of the donation was made known to the donor,
the former became the new owner of the donated property — donation being a mode
of acquiring and transmitting ownership 11 — notwithstanding the condition imposed
by the donee. The donation is perfected once the acceptance by the donee is made
known to the donor.12 According, ownership is immediately transferred to the latter
and that ownership will only revert to the donor if the resolutory condition is not
fulfilled.
In this case, that resolutory condition is the construction of the school. It has been
ruled that when a person donates land to another on the condition that the latter
would build upon the land a school, the condition imposed is not a condition
precedent or a suspensive condition but a resolutory one. 13 Thus, at the time of the
sales made in 1962 towards 1968, the alleged seller (Trinidad) could not have sold
the lots since she had earlier transferred ownership thereof by virtue of the deed of
donation. So long as the resolutory condition subsists and is capable of fulfillment, the
donation remains effective and the donee continues to be the owner subject only to
the rights of the donor or his successors-in-interest under the deed of donation. Since
no period was imposed by the donor on when must the donee comply with the
condition, the latter remains the owner so long as he has tried to comply with the
condition within a reasonable period. Such period, however, became irrelevant herein
when the donee-Municipality manifested through a resolution that it cannot comply
with the condition of building a school and the same was made known to the donor.
Only then — when the non-fulfillment of the resolutory condition was brought to the
donor's knowledge — that ownership of the donated property reverted to the donor as
provided in the automatic reversion clause of the deed of donation.
The donor may have an inchoate interest in the donated property during the time that
ownership of the land has not reverted to her. Such inchoate interest may be the
subject of contracts including a contract of sale. In this case, however, what the donor
sold was the land itself which she no longer owns. It would have been different if the
donor-seller sold her interests over the property under the deed of donation which is
subject to the possibility of reversion of ownership arising from the non-fulfillment of
the resolutory condition.
As to laches, petitioners' action is not yet barred thereby. Laches presupposes failure
or neglect for an unreasonable and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done earlier; 14 "it is negligence
or omission to assert a right within a reasonable time, thus, giving rise to a
presumption that the party entitled to assert it either has abandoned or declined to
assert it." 15 Its essential elements of:
a) Conduct on the part of the
defendant, or of one under
whom he claims, giving rise to
the situation complained of;
b) Delay in asserting
complainant's right after he had
knowledge of the defendant's
conduct and after he has an
opportunity to sue;
c) Lack of knowledge or notice
on the part of the defendant
that the complainant would
assert the right on which he
bases his suit; and,
d) Injury or prejudice to the
defendant in the event relief is
accorded to the complainant. 16
are absent in this case. Petioners' cause of action to quiet title commenced
only when the property reverted to the donor and/or his successors-in-
interest in 1987. Certainly, when the suit was initiated the following year, it
cannot be said that petioners had slept on their rights for a long time. The
1960's sales made by Trinidad Quijada cannot be the reckoning point as to
when petitioners' cause of action arose. They had no interest over the
property at that time except under the deed of donation to which private
respondents were not privy. Moreover, petitioners had previously filed an
ejectment suit against private respondents only that it did not prosper on a
technicality.
Be that at it may, there is one thing which militates against the claim of petitioners.
Sale, being a consensual contract, is perfected by mere consent, which is manifested
the moment there is a meeting of the minds17 as to the offer and acceptance thereof
on three (3) elements: subject matter, price and terms of payment of the
price. 18 Ownership by the seller on the thing sold at the time of the perfection of the
contract of sale is not an element for its perfection. What the law requires is that the
seller has the right to transfer ownership at the time the thing sold is
delivered. 19 Perfection per se does not transfer ownership which occurs upon the
actual or constructive delivery of the thing sold. 20 A perfected contract of sale cannot
be challenged on the ground of non-ownership on the part of the seller at the time of
its perfection; hence, the sale is still valid.
The consummation, however, of the perfected contract is another matter. It occurs
upon the constructive or actual delivery of the subject matter to the buyer when the
seller or her successors-in-interest subsequently acquires ownership thereof. Such
circumstance happened in this case when petitioners — who are Trinidad Quijada's
heirs and successors-in-interest — became the owners of the subject property upon
the reversion of the ownership of the land to them. Consequently, ownership is
transferred to respondent Mondejar and those who claim their right from him. Article
1434 of the New Civil Code supports the ruling that the seller's "title passes by
operation of law to the buyer." 21 This rule applies not only when the subject matter of defendants-appellants as the rightful and lawful owners and
the contract of sale is goods,22 but also to other kinds of property, including real possessors of the subject land. There is no pronouncement as to
property. 23 costs."

There is also no merit in petitioners' contention that since the lots were owned by the 4 CA Decision, pp. 6-7; Rollo, pp. 45-16.
municipality at the time of the sale, they were outside the commerce of men under
Article 1409 (4) of the NCC;24 thus, the contract involving the same is inexistent and 5 CA Resolution promulgated August 26, 1996; Rollo, p. 55.
void from the beginning. However, nowhere in Article 1409 (4) is it provided that the
properties of a municipality, whether it be those for public use or its patrimonial
property 25 are outside the commerce of men. Besides, the lots in this case were 6 Comment of Private Respondents, pp. 7-8: Rollo, pp. 67-68.
conditionally owned by the municipality. To rule that the donated properties are
outside the commerce of men would render nugatory the unchallenged 7 Her sisters were Leonila Corvera Vda. de Sequeña and Paz
reasonableness and justness of the condition which the donor has the right to impose Corvera Cabiltes and the brother was Epapiadito Corvera.
as owner thereof. Moreover, the objects referred to as outsides the commerce of man
are those which cannot be appropriated, such as the open seas and the heavenly 8 RTC Decision, p. 1; Rollo, p. 16.
bodies.

9 CA Decision. pp. 5-6; Rollo, pp. 44-45.

With respect to the trial court's award of attorney's fees, litigation expenses and moral
damages, there is neither factual nor legal basis thereof. Attorney's fees and
expenses of litigation cannot, following the general rule in Article 2208 of the New 10 City of Angeles v. CA, 261 SCRA 90.
Civil Code, be recovered in this case, there being no stipulation to that effect and the
case does not fall under any of the 11 Art. 712, New Civil Code provides: "Ownership is acquired by
exceptions. 26 It cannot be said that private respondents had compelled petitioners to occupation and by intellectual creation.
litigate with third persons. Neither can it be ruled that the former acted in "gross and
evident bad faith" in refusing to satisfy the latter's claims considering that private
"Ownership and other real rights over property are acquired and
respondents were under an honest belief that they have a legal right over the property
transmitted by law, by donation, by testate and instate succession,
by virtue of the deed of sale. Moral damages cannot likewise be justified as none of
and in consequence of certain contracts, by tradition.
the circumstances enumerated under Articles 2219. 27 and 2220 28 of the New Civil
Code concur in this case
"They may also be acquired by means of prescription." (Emphasis
supplied).
WHEREFORE, by virtue of the foregoing, the assailed decision of the Court of
Appeals is AFFIRMED.
12 Art. 734, New Civil Code (NCC) reads: "The donation is
perfected from the moment the donor knows of the acceptance by
SO ORDERED.
the donee."

Melo, Puno and Mendoza, JJ., concur.

13 Central Philippine University v. CA, 246 SCRA 511.

Footnotes
1 Decision of Court of Appeals in CA-G.R. CV No. 44016
promulgated on May 31, 1996. pp. 2-5; Rollo, pp. 41-44.
2 Regional Trial Court (Bayugan, Agusan del Sur) Decision dated
July 16, 1993 penned by Judge Zenaida Placer, p. 6; Annex "A" of
Petition; Rollo, p. 21.
3 The decretal portion of the CA's decision states: "WHEREFORE,
premises considered, the decision appealed from is hereby
REVERSE and SET ASIDE, and judgment rendered declaring the
14 Reyes v. CA, 264 SCRA 35; Republic v. Sandiganbayan, 255
SCRA 438; PAL Employees Savings & Loan Association, Inc. v.
NLRC, 260 SCRA 758.
15 Catholic Bishop of Balanga v. CA, 264 SCRA 181; Chavez v.
Bonto-Perez, 242 SCRA 73; Rivera v. CA, 244 SCRA 218;
Cormero v. CA, 317 Phil. 348.
16 Santiago v. CA, 278 SCRA 98 (1997); Catholic Bishop of
Balanga v. CA, 264 SCRA 181; Claveria v. Quinco, 207 SCRA 66
(1992); Perez v. Ong Cho, 116 SCRA 732 (1982); Yusingco v. Ong
Hing Lian, 42 SCRA 589 (1971); LE Lotho, Inc. v. Ice and cold (4) Those whose object is outside the commerce of men;
Storage Industries, Inc., 3 SCRA 744; Go Chi Gun, et. al. v. Co
Cho, et. al., 96 Phil. 622. xxx xxx xxx

17 Art.1475, New Civil Code (NCC). "The contact of sale is 25 Art. 423, NCC: "The properties of provinces, cities and
perfected at the moment there is a meeting of the minds upon the municipalities, is divided into properties for public use and
thing which is the object of the contract and upon the price. . . ." patrimonial properties."

18 Leabres v. CA, 146 SCRA 158 (1986); See also Navarro v.
Sugar Producer's Corporation, 1.SCRA 1180.
19 Art. 1459, NCC — "The thing must be licit and the vendor must
have a right to transfer the ownership thereof at the time it is
delivered."
20 Art.712, NCC. ". . . . Ownership and other real rights over
property are acquired and transmitted . . . in consequence of
certain contracts, by tradition."
21 Art. 1431, NCC provides: "When a person who is not the owner
of a thing sells or alienates and delivers it, and later the seller or
grantor acquires title thereto, such title passes by operation of law
to the buyer or grantee".
22 Art. 1505 of the NCC provides: "Subject to the provisions of this
Title, where goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or with the
consent of the owner, the buyer acquires no better title to the goods
than the seller had, unless the owner of the goods is by his conduct
precluded from denying the seller's authority to sell.
xxx xxx xxx (Emphasis supplied)
Other exceptions to the foregoing includes: (a) when the contrary is
provided in recording laws, (b) sales made under statutory power of
sale or pursuant to a valid order from a court of competent
jurisdiction, and (c) sales made in a merchant's store in accordance
with the Code of commerce and special laws.
Art. 424 provides: "Property for public use, in the provinces, cities
and municipalities, consist of the provincial roads, city streets,
municipal streets, the squares, fountains, public waters,
promenades, and public works for public service paid for by said
provinces, cities, or municipalities.
"All other property possessed by any of them is patrimonial and
shall be governed by this Code, without prejudice to the provisions
of special laws."
26 In the absence of stipulation, attorney's fees and expenses of
litigation, other than judicial costs, cannot be recovered except:
xxx xxx xxx
(2) when the defendant's act or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his
interest.
xxx xxx xxx
(5) where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's plainly valid, just and demandable
claim.
xxx xxx xxx
27 Moral damages may be recovered in the following and
analogous cases:

23 See Articles 1434, NCC, supra.; Estoque v. Pajimula, 133 Phil. (1) a criminal offense resulting in
55; 24 SCRA 59 (1968); Bucton v. Gabar, 55 SCRA 499. physical injuries;

24 Art. 1409 (4), NCC: "The following contracts are inexistent and (2) quasi-delicts causing physical
void from the beginning: injuries;

xxx xxx xxx (3) seduction, abduction, rape or other

lascivious acts;
 (4) adultery or concubinage;
(5) illegal or arbitrary detention or
arrests;
(6) illegal search;
(7) libel, slander or any other form or
defamation;
This petition for review on certiorari questions the affirmance by the Court of Appeals
of the decision 1 of the Regional Trial Court of San Pablo City, Branch 30, dismissing
the complaint that prayed for the nullification of a contract of sale of a 10-hectare
property in Tanay, Rizal in consideration of the amount of P40,000.00 and a 2.5 carat
emerald-cut diamond (Civil Case No. SP-2455). The lower court's decision disposed
of the case as follows:
WHEREFORE, premises considered, the Court hereby renders
judgment dismissing the complaint for lack of merit and ordering
plaintiff to pay:

(8) malicious prosecution; 1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as
and for moral damages and the sum of P100,000.00 as and for
(9) acts mentioned in Article 309; exemplary damages;

(10) acts and actions referred to in 2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and
Articles 21, 26, 27, 28, 29, 30, 32, 34 for moral damages and the sum of P150,000.00 as and for
and 35. exemplary damages;

The parents of the female seduced, abducted, raped or
abused referred to in no. 3 of this Article, may also recover
moral damages.
The spouse, ascendants, descendants and brothers and sisters
may bring the action mentioned in no. 9 of this Article, in the order
named.
29 Art. 2220. Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule
applies to breaches of contracts where the defendant acted
fraudulently or in bad faith.
7. Fule vs. CA (286 SCRA 698)
3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00
each as and for attorney's fees and litigation expenses; and
4. The costs of suit.
SO ORDERED.
As found by the Court of Appeals and the lower court, the antecedent facts of this
case are as follows:
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time,
acquired a 10-hectare property in Tanay, Rizal (hereinafter "Tanay property"),
covered by Transfer Certificate of Title No. 320725 which used to be under the name
of Fr. Antonio Jacobe. The latter had mortgaged it earlier to the Rural Bank of
Alaminos (the Bank), Laguna, Inc. to secure a loan in the amount of P10,000.00, but
the mortgage was later foreclosed and the property offered for public auction upon his
default.

G.R. No. 112212 March 2, 1998 In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso
and Oliva Mendoza to look for a buyer who might be interested in the Tanay property.
GREGORIO FULE, petitioner, The two found one in the person of herein private respondent Dr. Ninevetch Cruz. It
vs. so happened that at the time, petitioner had shown interest in buying a pair of
COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO, respondents. emerald-cut diamond earrings owned by Dr. Cruz which he had seen in January of
the same year when his mother examined and appraised them as genuine. Dr. Cruz,
however, declined petitioner's offer to buy the jewelry for P100,000.00. Petitioner then
made another bid to buy them for US$6,000.00 at the exchange rate of $1.00 to
P25.00. At this point, petitioner inspected said jewelry at the lobby of the Prudential
ROMERO, J.: Bank branch in San Pablo City and then made a sketch thereof. Having sketched the
jewelry for twenty to thirty minutes, petitioner gave them back to Dr. Cruz who again
refused to sell them since the exchange rate of the peso at the time appreciated to
P19.00 to a dollar.
Subsequently, however, negotiations for the barter of the jewelry and the Tanay
property ensued. Dr. Cruz requested herein private respondent Atty. Juan Belarmino
to check the property who, in turn, found out that no sale or barter was feasible
because the one-year period for redemption of the said property had not yet expired
at the time.
In an effort to cut through any legal impediment, petitioner executed on October 19,
1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the amount of
P15,987.78, and on even date, Fr. Jacobe sold the property to petitioner for
P75,000.00. The haste with which the two deeds were executed is shown by the fact
that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had
already agreed to the proposed barter, petitioner went to Prudential Bank once again
to take a look at the jewelry.
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latter's
residence to prepare the documents of sale.2 Dr. Cruz herself was not around but
Atty. Belarmino was aware that she and petitioner had previously agreed to exchange
a pair of emerald-cut diamond earrings for the Tanay property. Atty. Belarmino
accordingly caused the preparation of a deed of absolute sale while petitioner and Dr.
Cruz attended to the safekeeping of the jewelry.
The following day, petitioner, together with Dichoso and Mendoza, arrived at the
residence of Atty. Belarmino to finally execute a deed of absolute sale. Petitioner
signed the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary
expenses in the transfer of title over the Tanay property. Petitioner also issued a
certification to the effect that the actual consideration of the sale was P200,000.00
and not P80,000.00 as indicated in the deed of absolute sale. The disparity between
the actual contract price and the one indicated on the deed of absolute sale was
purportedly aimed at minimizing the amount of the capital gains tax that petitioner
would have to shoulder. Since the jewelry was appraised only at P160,000.00, the
parties agreed that the balance of P40,000.00 would just be paid later in cash.
As pre-arranged, petitioner left Atty. Belarmino's residence with Dichoso and
Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz also
arrived shortly thereafter, but the cashier who kept the other key to the deposit box
had already left the bank. Dr. Cruz and Dichoso, therefore, looked for said cashier
and found him having a haircut. As soon as his haircut was finished, the cashier
returned to the bank and arrived there at 5:48 p.m., ahead of Dr. Cruz and Dichoso
who arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety deposit box,
the former retrieving a transparent plastic or cellophane bag with the jewelry inside
and handing over the same to petitioner. The latter took the jewelry from the bag,
went near the electric light at the bank's lobby, held the jewelry against the light and
examined it for ten to fifteen minutes. After a while, Dr. Cruz asked, "Okay na ba
iyan?" Petitioner expressed his satisfaction by nodding his head.
For services rendered, petitioner paid the agents, Dichoso and Mendoza, the amount
of US$300.00 and some pieces of jewelry. He did not, however, give them half of the
pair of earrings in question which he had earlier promised.
Later, at about 8:00 o'clock in the evening of the same day, petitioner arrived at the
residence of Atty. Belarmino complaining that the jewelry given to him was fake. He
then used a tester to prove the alleged fakery. Meanwhile, at 8:30 p.m., Dichoso and
Mendoza went to the residence of Dr. Cruz to borrow her car so that, with Atty.
Belarmino, they could register the Tanay property. After Dr. Cruz had agreed to lend
her car, Dichoso called up Atty. Belarmino. The latter, however, instructed Dichoso to
proceed immediately to his residence because petitioner was there. Believing that
petitioner had finally agreed to give them half of the pair of earrings, Dichoso went
posthaste to the residence of Atty. Belarmino only to find petitioner already
demonstrating with a tester that the earrings were fake. Petitioner then accused
Dichoso and Mendoza of deceiving him which they, however, denied. They countered
that petitioner could not have been fooled because he had vast experience regarding
jewelry. Petitioner nonetheless took back the US$300.00 and jewelry he had given
them.
Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a
jeweler, to have the earrings tested. Dimayuga, after taking one look at the earrings,
immediately declared them counterfeit. At around 9:30 p.m., petitioner went to one
Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San Pablo City,
complaining about the fake jewelry. Upon being advised by the latter, petitioner
reported the matter to the police station where Dichoso and Mendoza likewise
executed sworn statements.
On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of
San Pablo City against private respondents praying, among other things, that the
contract of sale over the Tanay property be declared null and void on the ground of
fraud and deceit.
On October 30, 1984, the lower court issued a temporary restraining order directing
the Register of Deeds of Rizal to refrain from acting on the pertinent documents
involved in the transaction. On November 20, 1984, however, the same court lifted its
previous order and denied the prayer for a writ of preliminary injunction.
After trial, the lower court rendered its decision on March 7, 1989. Confronting the
issue of whether or not the genuine pair of earrings used as consideration for the sale
was delivered by Dr. Cruz to petitioner, the lower court said:
The Court finds that the answer is definitely in the affirmative.
Indeed, Dra. Cruz delivered (the) subject jewelries (sic) into the
hands of plaintiff who even raised the same nearer to the lights of
the lobby of the bank near the door. When asked by Dra. Cruz if
everything was in order, plaintiff even nodded his satisfaction
(Hearing of Feb. 24, 1988). At that instance, plaintiff did not protest,
complain or beg for additional time to examine further the jewelries
(sic). Being a professional banker and engaged in the jewelry
business plaintiff is conversant and competent to detect a fake
 diamond from the real thing. Plaintiff was accorded the reasonable
time and opportunity to ascertain and inspect the jewelries (sic) in
accordance with Article 1584 of the Civil Code. Plaintiff took
delivery of the subject jewelries (sic) before 6:00 p.m. of October
24, 1984. When he went at 8:00 p.m. that same day to the
residence of Atty. Belarmino already with a tester complaining
about some fake jewelries (sic), there was already undue delay
because of the lapse of a considerable length of time since he got
hold of subject jewelries (sic). The lapse of two (2) hours more or
less before plaintiff complained is considered by the Court as
unreasonable delay.3
The lower court further ruled that all the elements of a valid contract under Article
1458 of the Civil Code were present, namely: (a) consent or meeting of the minds; (b)
determinate subject matter, and (c) price certain in money or its equivalent. The same
elements, according to the lower court, were present despite the fact that the
agreement between petitioner and Dr. Cruz was principally a barter contract. The
lower court explained thus:
. . . . Plaintiff's ownership over the Tanay property passed unto Dra.
Cruz upon the constructive delivery thereof by virtue of the Deed of
Absolute Sale (Exh. D). On the other hand, the ownership of Dra.
Cruz over the subject jewelries (sic) transferred to the plaintiff upon
her actual personal delivery to him at the lobby of the Prudential
Bank. It is expressly provided by law that the thing sold shall be
understood as delivered, when it is placed in the control and
possession of the vendee (Art. 1497, Civil Code; Kuenzle & Straff
vs. Watson & Co. 13 Phil. 26). The ownership and/or title over the
jewelries (sic) was transmitted immediately before 6:00 p.m. of
October 24, 1984. Plaintiff signified his approval by nodding his
head. Delivery or tradition, is one of the modes of acquiring
ownership (Art. 712, Civil Code).
Similarly, when Exhibit D was executed, it was equivalent to the
delivery of the Tanay property in favor of Dra. Cruz. The execution
of the public instrument (Exh. D) operates as a formal or symbolic
delivery of the Tanay property and authorizes the buyer, Dra. Cruz
to use the document as proof of ownership (Florendo v. Foz, 20
Phil. 399). More so, since Exhibit D does not contain any proviso or
stipulation to the effect that title to the property is reserved with 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. vs. Maritime Building Co. Inc. 86 SCRA 305; Froilan v. Pan
Oriental Shipping Co. et al. 12 SCRA 276). 4
Aside from concluding that the contract of barter or sale had in fact been
consummated when petitioner and Dr. Cruz parted ways at the bank, the trial court
likewise dwelt on the unexplained delay with which petitioner complained about the
alleged fakery. Thus:
. . . . Verily, plaintiff is already estopped to come back after the
lapse of considerable length of time to claim that what he got was
fake. He is a Business Management graduate of La Salle
University, Class 1978-79, a professional banker as well as a
jeweler in his own right. Two hours is more than enough time to
make a switch of a Russian diamond with the real diamond. It must
be remembered that in July 1984 plaintiff made a sketch of the
subject jewelries (sic) at the Prudential Bank. Plaintiff had a tester
at 8:00 p.m. at the residence of Atty. Belarmino. Why then did he
not bring it out when he was examining the subject jewelries (sic) at
about 6:00 p.m. in the bank's lobby? Obviously, he had no need for
it after being satisfied of the genuineness of the subject jewelries
(sic). When Dra. Cruz and plaintiff left the bank both of them had
fully performed their respective prestations. Once a contract is
shown to have been consummated or fully performed by the parties
thereto, its existence and binding effect can no longer be disputed.
It is irrelevant and immaterial to dispute the due execution of a
contract if both of them have in fact performed their obligations
thereunder and their respective signatures and those of their
witnesses appear upon the face of the document (Weldon
Construction v. CA G.R. No. L-35721, Oct. 12, 1987).5
Finally, in awarding damages to the defendants, the lower court remarked:
The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-
Belarmino purports to show that the Tanay property is worth
P25,000.00. However, also on that same day it was executed, the
property's worth was magnified at P75,000.00 (Exh. 3-Belarmino).
How could in less than a day (Oct. 19, 1984) the value would (sic)
triple under normal circumstances? Plaintiff, with the assistance of
his agents, was able to exchange the Tanay property which his
bank valued only at P25,000.00 in exchange for a genuine pair of
emerald cut diamond worth P200,000.00 belonging to Dra. Cruz.
He also retrieved the US$300.00 and jewelries (sic) from his
agents. But he was not satisfied in being able to get subject
jewelries for a song. He had to file a malicious and unfounded case
against Dra. Cruz and Atty. Belarmino who are well known,
respected and held in high esteem in San Pablo City where
everybody practically knows everybody. Plaintiff came to Court with
unclean hands dragging the defendants and soiling their clean and
good name in the process. Both of them are near the twilight of
their lives after maintaining and nurturing their good reputation in
the community only to be stunned with a court case. Since the filing
of this case on October 26, 1984 up to the present they were living
under a pall of doubt. Surely, this affected not only their earning
capacity in their practice of their respective professions, but also
they suffered besmirched reputations. Dra. Cruz runs her own
hospital and defendant Belarmino is a well respected legal
 practitioner. The length of time this case dragged on during which
period their reputation were (sic) tarnished and their names
maligned by the pendency of the case, the Court is of the belief that
some of the damages they prayed for in their answers to the
complaint are reasonably proportionate to the sufferings they
underwent (Art. 2219, New Civil Code). Moreover, because of the
falsity, malice and baseless nature of the complaint defendants
were compelled to litigate. Hence, the award of attorney's fees is
warranted under the circumstances (Art. 2208, New Civil Code).6
From the trial court's adverse decision, petitioner elevated the matter to the Court of
Appeals. On October 20, 1992, the Court of Appeals, however, rendered a
decision 7 affirming in toto the lower court's decision. His motion for reconsideration
having been denied on October 19, 1993, petitioner now files the instant petition
alleging that:
I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFF'S
COMPLAINT AND IN HOLDING THAT THE PLAINTIFF
ACTUALLY RECEIVED A GENUINE PAIR OF EMERALD CUT
DIAMOND EARRING(S) FROM DEFENDANT CRUZ . . . ;
II. THE TRIAL COURT ERRED IN AWARDING MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN FAVOR OF
DEFENDANTS AND AGAINST THE PLAINTIFF IN THIS CASE;
and
III. THE TRIAL, COURT ERRED IN NOT DECLARING THE DEED
OF SALE OF THE TANAY PROPERTY (EXH. "D") AS NULL AND
VOID OR IN NOT ANNULLING THE SAME, AND IN FAILING TO
GRANT REASONABLE DAMAGES IN FAVOR OF THE
PLAINTIFF.8
As to the first allegation, the Court observes that petitioner is essentially raising a
factual issue as it invites us to examine and weigh anew the facts regarding the
genuineness of the earrings bartered in exchange for the Tanay property. This, of
course, we cannot do without unduly transcending the limits of our review power in
petitions of this nature which are confined merely to pure questions of law. We
accord, as a general rule, conclusiveness to a lower court's findings of fact unless it is
shown, inter alia, that: (1) the conclusion is a finding grounded on speculations,
surmises or conjectures; (2) the inference is manifestly mistaken, absurd and
impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; and
(6) when the Court of Appeals, in making its findings, went beyond the issues of the
case and the same is contrary to the admission of both parties. 9 We find nothing,
however, that warrants the application of any of these exceptions.
Consequently, this Court upholds the appellate court's findings of fact especially
because these concur with those of the trial court which, upon a thorough scrutiny of
the records, are firmly grounded on evidence presented at the trial. 10 To reiterate,
this Court's jurisdiction is only limited to reviewing errors of law in the absence
of any showing that the findings complained of are totally devoid of support in
the record or that they are glaringly erroneous as to constitute serious abuse of
discretion. 11
Nonetheless, this Court has to closely delve into petitioner's allegation that the
lower court's decision of March 7, 1989 is a "ready-made" one because it was
handed down a day after the last date of the trial of the case. 12 Petitioner, in
this regard, finds it incredible that Judge J. Ausberto Jaramillo was able to
write a 12-page single-spaced decision, type it and release it on March 7, 1989,
less than a day after the last hearing on March 6, 1989. He stressed that Judge
Jaramillo replaced Judge Salvador de Guzman and heard only his rebuttal
testimony.
This allegation is obviously no more than a desperate effort on the part of
petitioner to disparage the lower court's findings of fact in order to convince
this Court to review the same. It is noteworthy that Atty. Belarmino clarified that
Judge Jaramillo had issued the first order in the case as early as March 9, 1987
or two years before the rendition of the decision. In fact, Atty. Belarmino
terminated presentation of evidence on October 13, 1987, while Dr. Cruz
finished hers on February 4, 1989, or more than a month prior to the rendition
of the judgment. The March 6, 1989 hearing was conducted solely for the
presentation of petitioner's rebuttal testimony. 13 In other words, Judge
Jaramillo had ample time to study the case and write the decision because the
rebuttal evidence would only serve to confirm or verify the facts already
presented by the parties.
The Court finds nothing anomalous in the said situation. No proof has been
adduced that Judge Jaramillo was motivated by a malicious or sinister intent in
disposing of the case with dispatch. Neither is there proof that someone else
wrote the decision for him. The immediate rendition of the decision was no
more than Judge Jaramillo's compliance with his duty as a judge to "dispose of
the court's business promptly and decide cases within the required
periods." 14 The two-year period within which Judge Jaramillo handled the case
provided him with all the time to study it and even write down its facts as soon
as these were presented to court. In fact, this Court does not see anything
wrong in the practice of writing a decision days before the scheduled
promulgation of judgment and leaving the dispositive portion for typing at a
time close to the date of promulgation, provided that no malice or any wrongful
conduct attends its adoption. 15The practice serves the dual purposes of
safeguarding the confidentiality of draft decisions and rendering decisions with
promptness. Neither can Judge Jaramillo be made administratively answerable
for the immediate rendition of the decision. The acts of a judge which pertain to
his judicial functions are not subject to disciplinary power unless they are
committed with fraud, dishonesty, corruption or bad faith. 16Hence, in the
absence of sufficient proof to the contrary, Judge Jaramillo is presumed to
have performed his job in accordance with law and should instead be
commended for his close attention to duty.
Having disposed of petitioner's first contention, we now come to the core issue
of this petition which is whether the Court of Appeals erred in upholding the
validity of the contract of barter or sale under the circumstances of this case.
The Civil Code provides that contracts are perfected by mere consent. From
this moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. 17 A contract of sale
is perfected at the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price. 18 Being consensual, a
contract of sale has the force of law between the contracting parties and they
are expected to abide in good faith by their respective contractual
commitments. Article 1358 of the Civil Code which requires the embodiment of
certain contracts in a public instrument, is only for convenience, 19 and
registration of the instrument only adversely affects third parties. 20 Formal
requirements are, therefore, for the benefit of third parties. Non-compliance
therewith does not adversely affect the validity of the contract nor the
contractual rights and obligations of the parties thereunder.
It is evident from the facts of the case that there was a meeting of the minds
between petitioner and Dr. Cruz. As such, they are bound by the contract
unless there are reasons or circumstances that warrant its nullification. Hence,
the problem that should be addressed in this case is whether or not under the
facts duly established herein, the contract can be voided in accordance with
law so as to compel the parties to restore to each other the things that have
been the subject of the contract with their fruits, and the price with interest.21
Contracts that are voidable or annullable, even though there may have been no
damage to the contracting parties are: (1) those where one of the parties is
incapable of giving consent to a contract; and (2) those where the consent is
vitiated by mistake, violence, intimidation, undue influence or
fraud. 22 Accordingly, petitioner now stresses before this Court that he entered
into the contract in the belief that the pair of emerald-cut diamond earrings was
genuine. On the pretext that those pieces of jewelry turned out to be
counterfeit, however, petitioner subsequently sought the nullification of said
contract on the ground that it was, in fact, "tainted with fraud" 23 such that his
consent was vitiated.
There is fraud when, through the insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without
them, he would not have agreed to. 24 The records, however, are bare of any
evidence manifesting that private respondents employed such insidious words
or machinations to entice petitioner into entering the contract of barter. Neither
is there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay
property or that she cajoled him to take the earrings in exchange for said
property. On the contrary, Dr. Cruz did not initially accede to petitioner's
proposal to buy the said jewelry. Rather, it appears that it was petitioner,
through his agents, who led Dr. Cruz to believe that the Tanay property was
worth exchanging for her jewelry as he represented that its value was
P400,000.00 or more than double that of the jewelry which was valued only at
P160,000.00. If indeed petitioner's property was truly worth that much, it was
certainly contrary to the nature of a businessman-banker like him to have
parted with his real estate for half its price. In short, it was in fact petitioner who
resorted to machinations to convince Dr. Cruz to exchange her jewelry for the
Tanay property.
Moreover, petitioner did not clearly allege mistake as a ground for nullification
of the contract of sale. Even assuming that he did, petitioner cannot
successfully invoke the same. To invalidate a contract, mistake must "refer to
the substance of the thing that is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into the
contract." 25 An example of mistake as to the object of the contract is the
substitution of a specific thing contemplated by the parties with another. 26 In
his allegations in the complaint, petitioner insinuated that an inferior one or one
that had only Russian diamonds was substituted for the jewelry he wanted to
exchange with his 10-hectare land. He, however, failed to prove the fact that
prior to the delivery of the jewelry to him, private respondents endeavored to
make such substitution.
Likewise, the facts as proven do not support the allegation that petitioner
himself could be excused for the "mistake." On account of his work as a
banker-jeweler, it can be rightfully assumed that he was an expert on matters
regarding gems. He had the intellectual capacity and the business acumen as a
banker to take precautionary measures to avert such a mistake, considering the
value of both the jewelry and his land. The fact that he had seen the jewelry
before October 24, 1984 should not have precluded him from having its
genuineness tested in the presence of Dr. Cruz. Had he done so, he could have
avoided the present situation that he himself brought about. Indeed, the finger
of suspicion of switching the genuine jewelry for a fake inevitably points to
him. Such a mistake caused by manifest negligence cannot invalidate a
juridical act. 27 As the Civil Code provides, "(t)here is no mistake if the party
alleging it knew the doubt, contingency or risk affecting the object of the
contract."28
Furthermore, petitioner was afforded the reasonable opportunity required in
Article 1584 of the Civil Code within which to examine the jewelry as he in fact
accepted them when asked by Dr. Cruz if he was satisfied with the same. 29 By
taking the jewelry outside the bank, petitioner executed an act which was more
consistent with his exercise of ownership over it. This gains credence when it
is borne in mind that he himself had earlier delivered the Tanay property to Dr.
Cruz by affixing his signature to the contract of sale. That after two hours he
later claimed that the jewelry was not the one he intended in exchange for his
Tanay property, could not sever the juridical tie that now bound him and Dr.
Cruz. The nature and value of the thing he had taken preclude its return after
that supervening period within which anything could have happened, not
excluding the alteration of the jewelry or its being switched with an inferior
kind.
Both the trial and appellate courts, therefore, correctly ruled that there were no
legal bases for the nullification of the contract of sale. Ownership over the
parcel of land and the pair of emerald-cut diamond earrings had been
transferred to Dr. Cruz and petitioner, respectively, upon the actual and
constructive delivery thereof. 30 Said contract of sale being absolute in nature,
title passed to the vendee upon delivery of the thing sold since there was no
stipulation in the contract that title to the property sold has been reserved in
the seller until full payment of the price or that the vendor has the right to
unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period. 31 Such stipulations are not manifest in the contract of sale.
While it is true that the amount of P40,000.00 forming part of the consideration
was still payable to petitioner, its nonpayment by Dr. Cruz is not a sufficient
cause to invalidate the contract or bar the transfer of ownership and
possession of the things exchanged considering the fact that their contract is
silent as to when it becomes due and demandable. 32
Neither may such failure to pay the balance of the purchase price result in the
payment of interest thereon. Article 1589 of the Civil Code prescribes the
payment of interest by the vendee "for the period between the delivery of the
thing and the payment of the price" in the following cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or
income;
(3) Should he be in default, from the time of judicial or
extrajudicial demand for the payment of the price.
Not one of these cases obtains here. This case should, of course, be
distinguished from De la Cruz v. Legaspi, 33 where the court held that
failure to pay the consideration after the notarization of the contract as
previously promised resulted in the vendee's liability for payment of
interest. In the case at bar, there is no stipulation for the payment of
interest in the contract of sale nor proof that the Tanay property
produced fruits or income. Neither did petitioner demand payment of
the price as in fact he filed an action to nullify the contract of sale.
All told, petitioner appears to have elevated this case to this Court for the
principal reason of mitigating the amount of damages awarded to both private
respondents which petitioner considers as "exorbitant." He contends that
private respondents do not deserve at all the award of damages. In fact, he
pleads for the total deletion of the award as regards private respondent
Belarmino whom he considers a mere "nominal party" because "no specific
claim for damages against him" was alleged in the complaint. When he filed the
case, all that petitioner wanted was that Atty. Belarmino should return to him
the owner's duplicate copy of TCT No. 320725, the deed of sale executed by Fr.
Antonio Jacobe, the deed of redemption and the check alloted for expenses.
Petitioner alleges further that Atty. Belarmino should not have delivered all
those documents to Dr. Cruz because as the "lawyer for both the seller and the
buyer in the sale contract, he should have protected the rights of both parties."
Moreover, petitioner asserts that there was no firm basis for damages except
for Atty. Belarmino's uncorroborated testimony.34
Moral and exemplary damages may be awarded without proof of pecuniary
loss. In awarding such damages, the court shall take into account the
circumstances obtaining in the case said assess damages according to its
discretion.35 To warrant the award of damages, it must be shown that the
person to whom these are awarded has sustained injury. He must likewise
establish sufficient data upon which the court can properly base its estimate of
the amount of damages.36 Statements of facts should establish such data rather
than mere conclusions or opinions of witnesses. 37 Thus:
. . . . For moral damages to be awarded, it is essential that the
claimant must have satisfactorily proved during the trial the
existence of the factual basis of the damages and its causal
connection with the adverse party's acts. If the court has no
proof or evidence upon which the claim for moral damages
could be based, such indemnity could not be outrightly
awarded. The same holds true with respect to the award of
exemplary damages where it must be shown that the party
acted in a wanton, oppressive or malevolent manner. 38
In this regard, the lower court appeared to have awarded damages on a ground
analogous to malicious prosecution under Article 2219 (8) of the Civil
Code 39 as shown by (1) petitioner's "wanton bad faith" in bloating the value of
the Tanay property which he exchanged for "a genuine pair of emerald-cut
diamond worth P200,00.00;" and (2) his filing of a "malicious and unfounded
case" against private respondents who were "well known, respected and held
in high esteem in San Pablo City where everybody practically knows
everybody" and whose good names in the "twilight of their lives" were soiled
by petitioner's coming to court with "unclean hands," thereby affecting their
earning capacity in the exercise of their respective professions and
besmirching their reputation.
For its part, the Court of Appeals affirmed the award of damages to private
respondents for these reasons:
The malice with which Fule filed this case is apparent. Having
taken possession of the genuine jewelry of Dra. Cruz, Fule
now wishes to return a fake jewelry to Dra. Cruz and, more
than that, get back the real property, which his bank owns.
Fule has obtained a genuine jewelry which he could sell
anytime, anywhere and to anybody, without the same being
traced to the original owner for practically nothing. This is
plain and simple, unjust enrichment.40
While, as a rule, moral damages cannot be recovered from a person who has
filed a complaint against another in good faith because it is not sound policy to
place a penalty on the right to litigate, 41 the same, however, cannot apply in the
case at bar. The factual findings of the courts a quo to the effect that petitioner
filed this case because he was the victim of fraud; that he could not have been
such a victim because he should have examined the jewelry in question before
accepting delivery thereof, considering his exposure to the banking and jewelry
businesses; and that he filed the action for the nullification of the contract of
sale with unclean hands, all deserve full faith and credit to support the
conclusion that petitioner was motivated more by ill will than a sincere attempt
to protect his rights in commencing suit against respondents.
As pointed out earlier, a closer scrutiny of the chain of events immediately prior
to and on October 24, 1984 itself would amply demonstrate that petitioner was
not simply negligent in failing to exercise due diligence to assure himself that
what he was taking in exchange for his property were genuine diamonds. He
had rather placed himself in a situation from which it preponderantly appears
that his seeming ignorance was actually just a ruse. Indeed, he had
unnecessarily dragged respondents to face the travails of litigation in
speculating at the possible favorable outcome of his complaint when he should
have realized that his supposed predicament was his own making. We,
therefore, see here no semblance of an honest and sincere belief on his part
that he was swindled by respondents which would entitle him to redress in
court. It must be noted that before petitioner was able to convince Dr. Cruz to
exchange her jewelry for the Tanay property, petitioner took pains to
thoroughly examine said jewelry, even going to the extent of sketching their
appearance. Why at the precise moment when he was about to take physical
possession thereof he failed to exert extra efforts to check their genuineness
despite the large consideration involved has never been explained at all by
petitioner. His acts thus failed to accord with what an ordinary prudent man
would have done in the same situation. Being an experienced banker and a
businessman himself who deliberately skirted a legal impediment in the sale of
the Tanay property and to minimize the capital gains tax for its exchange, it was
actually gross recklessness for him to have merely conducted a cursory
examination of the jewelry when every opportunity for doing so was not denied
him. Apparently, he carried on his person a tester which he later used to prove
the alleged fakery but which he did not use at the time when it was most
needed. Furthermore, it took him two more hours of unexplained delay before
he complained that the jewelry he received were counterfeit. Hence, we stated
earlier that anything could have happened during all the time that petitioner
was in complete possession and control of the jewelry, including the possibility
of substituting them with fake ones, against which respondents would have a
great deal of difficulty defending themselves. The truth is that petitioner even
failed to successfully prove during trial that the jewelry he received from Dr.
Cruz were not genuine. Add to that the fact that he had been shrewd enough to
bloat the Tanay property's price only a few days after he purchased it at a much
lower value. Thus, it is our considered view that if this slew of circumstances
were connected, like pieces of fabric sewn into a quilt, they would sufficiently
demonstrate that his acts were not merely negligent but rather studied and
deliberate.
We do not have here, therefore, a situation where petitioner's complaint was
simply found later to be based on an erroneous ground which, under settled
jurisprudence, would not have been a reason for awarding moral and
exemplary damages. 42 Instead, the cause of action of the instant case appears
to have been contrived by petitioner himself. In other words, he was placed in a
situation where he could not honestly evaluate whether his cause of action has
a semblance of merit, such that it would require the expertise of the courts to
put it to a test. His insistent pursuit of such case then coupled with
circumstances showing that he himself was guilty in bringing about the
supposed wrongdoing on which he anchored his cause of action would render
him answerable for all damages the defendant may suffer because of it. This is
precisely what took place in the petition at bar and we find no cogent reason to
disturb the findings of the courts below that respondents in this case suffered
considerable damages due to petitioner's unwarranted action.
WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is
hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay petitioner the
balance of the purchase price of P40,000.00 within ten (10) days from the
finality of this decision. Costs against petitioner.
SO ORDERED.
8. Polytechnic Phils. vs. CA (368 SCRA 691)
G.R. No. 143513 November 14, 2001
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and FIRESTONE CERAMICS, INC., respondents.
x---------------------------------------------------------x
G.R. No. 143590 November 14, 2001
NATIONAL DEVELOPMENT CORPORATION, petitioner,
vs.
FIRESTONE CERAMICS, INC., respondents.
BELLOSILLO, J.:
A litigation is not simply a contest of litigants before the bar of public opinion; more
than that, it is a pursuit of justice through legal and equitable means. To prevent the
search for justice from evolving into a competition for public approval, society invests
the judiciary with complete independence thereby insulating it from demands
expressed through any medium, the press not excluded. Thus, if the court would
merely reflect, and worse, succumb to the great pressures of the day, the end result,
it is feared, would be a travesty of justice.
In the early sixties, petitioner National Development Corporation (NDC), a
government owned and controlled corporation created under CA 182 as amended by
CA 311 and PD No. 668, had in its disposal a ten (10)-hectare property located along
Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC
compound and covered by Transfer Certificates of Title Nos. 92885, 110301 and
145470.
Sometime in May 1965 private respondent Firestone Ceramics Inc. (FIRESTONE)
manifested its desire to lease a portion of the property for its ceramic manufacturing
business. On 24 August 1965 NDC and FIRESTONE entered into a contract of lease
denominated as Contract No. C-30-65 covering a portion of the property measured at
2.90118 hectares for use as a manufacturing plant for a term of ten (10) years,
renewable for another ten (10) years under the same terms and conditions. 1 In
consequence of the agreement, FIRESTONE constructed on the leased premises
several warehouses and other improvements needed for the fabrication of ceramic
products.
Three and a half (3-1/2) years later, or on 8 January 1969, FIRESTONE entered into
a second contract of lease with NDC over the latter's four (4)-unit pre-fabricated
reparation steel warehouse stored in Daliao, Davao. FIRESTONE agreed to ship the
warehouse to Manila for eventual assembly within the NDC compound. The second
contract, denominated as Contract No. C-26-68, was for similar use as a ceramic
manufacturing plant and was agreed expressly to be "co-extensive with the lease of
LESSEE with LESSOR on the 2.60 hectare-lot."2
On 31 July 1974 the parties signed a similar contract concerning a six (6)-unit pre-
fabricated steel warehouse which, as agreed upon by the parties, would expire on 2
December 1978.3 Prior to the expiration of the aforementioned contract, FIRESTONE
wrote NDC requesting for an extension of their lease agreement. Consequently on 29
November 1978 the Board of Directors of NDC adopted Resolution No. 11-78-117
extending the term of the lease, subject to several conditions among which was that
in the event NDC "with the approval of higher authorities, decide to dispose and sell
these properties including the lot, priority should be given to the
LESSEE"4 (underscoring supplied). On 22 December 1978, in pursuance of the
resolution, the parties entered into a new agreement for a ten-year lease of the
property, renewable for another ten (10) years, expressly granting FIRESTONE the
first option to purchase the leased premises in the event that it decided "to dispose
and sell these properties including the lot . . . . " 5
The contracts of lease conspicuously contain an identically worded provision requiring
FIRESTONE to construct buildings and other improvements within the leased
premises worth several hundred thousands of pesos.6
The parties' lessor-lessee relationship went smoothly until early 1988 when
FIRESTONE, cognizant of the impending expiration of their lease agreement with
NDC, informed the latter through several letters and telephone calls that it was
renewing its lease over the property. While its letter of 17 March 1988 was answered
by Antonio A. Henson, General Manager of NDC, who promised immediate action on
the matter, the rest of its communications remained unacknowledged. 7 FIRESTONE's
predicament worsened when rumors of NDC's supposed plans to dispose of the
subject property in favor of petitioner Polytechnic University of the Philippines (PUP)
came to its knowledge. Forthwith, FIRESTONE served notice on NDC conveying its
desire to purchase the property in the exercise of its contractual right of first refusal.
Apprehensive that its interest in the property would be disregarded, FIRESTONE
instituted an action for specific performance to compel NDC to sell the leased
property in its favor. FIRESTONE averred that it was pre-empting the impending sale
of the NDC compound to petitioner PUP in violation of its leasehold rights over the
2.60-hectare8property and the warehouses thereon which would expire in 1999.
FIRESTONE likewise prayed for the issuance of a writ of preliminary injunction to
enjoin NDC from disposing of the property pending the settlement of the controversy. 9
In support of its complaint, FIRESTONE adduced in evidence a letter of Antonio A.
Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera, Director and Special
Assistant to Executive Secretary Catalino Macaraeg, reviewing a proposed
memorandum order submitted to then President Corazon C. Aquino transferring the
whole NDC compound, including the leased property, in favor of petitioner PUP.
Attached to the letter was a draft of the proposed memorandum order as well as a
summary of existing leases on the subject property. The survey listed FIRESTONE as
lessee of a portion of the property, placed at 29,00010 square meters, whose contract
with NDC was set to expire on 31 December 198911 renewable for another ten (10)
years at the option of the lessee. The report expressly recognized FIRESTONE's right
of first refusal to purchase the leased property "should the lessor decide to sell the
same."12
Meanwhile, on 21 February 1989 PUP moved to intervene and asserted its interest in
the subject property, arguing that a "purchaser pendente lite of property which is
subject of a litigation is entitled to intervene in the proceedings." 13 PUP referred
to Memorandum Order No. 214 issued by then President Aquino ordering the transfer
of the whole NDC compound to the National Government, which in turn would convey
the aforementioned property in favor of PUP at acquisition cost. The issuance was
supposedly made in recognition of PUP's status as the "Poor Man's University" as
well as its serious need to extend its campus in order to accommodate the growing
student population. The order of conveyance of the 10.31-hectare property would
automatically result in the cancellation of NDC's total obligation in favor of the
National Government in the amount of P57,193,201.64.
Convinced that PUP was a necessary party to the controversy that ought to be joined
as party defendant in order to avoid multiplicity of suits, the trial court granted PUP's
motion to intervene. FIRESTONE moved for reconsideration but was denied. On
certiorari, the Court of Appeals affirmed the order of the trial court. FIRESTONE came
to us on review but in a Resolution dated 11 July 1990 we upheld PUP's inclusion as
party-defendant in the present controversy.
Following the denial of its petition, FIRESTONE amended its complaint to include
PUP and Executive Secretary Catalino Macaraeg, Jr., as party-defendants, and
sought the annulment of Memorandum Order No. 214. FIRESTONE alleged that
although Memorandum Order No. 214 was issued "subject to such liens/leases
existing [on the subject property]," PUP disregarded and violated its existing lease by
increasing the rental rate at P200,000.00 a month while demanding that it vacated the
premises immediately.14 FIRESTONE prayed that in the event Memorandum Order
No. 214 was not declared unconstitutional, the property should be sold in its favor at
the price for which it was sold to PUP - P554.74 per square meter or for a total
purchase price of P14,423,240.00.15
Petitioner PUP, in its answer to the amended complaint, argued in essence that the
lease contract covering the property had expired long before the institution of the
complaint, and that further, the right of first refusal invoked by FIRESTONE applied
solely to the six-unit pre-fabricated warehouse and not the lot upon which it stood.
After trial on the merits, judgment was rendered declaring the contracts of lease
executed between FIRESTONE and NDC covering the 2.60-hectare property and the
warehouses constructed thereon valid and existing until 2 June 1999. PUP was
ordered and directed to sell to FIRESTONE the "2.6 hectare leased premises or as
may be determined by actual verification and survey of the actual size of the leased
properties where plaintiff's fire brick factory is located" at P1,500.00 per square meter
considering that, as admitted by FIRESTONE, such was the prevailing market price
thereof.
The trial court ruled that the contracts of lease executed between FIRESTONE and
NDC were interrelated and inseparable because "each of them forms part of the
integral system of plaintiff's brick manufacturing plant x x x if one of the leased
premises will be taken apart or otherwise detached from the two others, the purpose
of the lease as well as plaintiff's business operations would be rendered useless and
inoperative."16 It thus decreed that FIRESTONE could exercise its option to purchase
the property until 2 June 1999 inasmuch as the 22 December 1978
contract embodied a covenant to renew the lease for another ten (10) years at the
option of the lessee as well as an agreement giving the lessee the right of first refusal.
The trial court also sustained the constitutionality of Memorandum Order No.
214 which was not per se hostile to FIRESTONE's property rights, but deplored as
prejudicial thereto the "very manner with which defendants NDC and PUP interpreted
and applied the same, ignoring in the process that plaintiff has existing contracts of
lease protectable by express provisions in the Memorandum No. 214 itself." 17 It
further explained that the questioned memorandum was issued "subject to such
liens/leases existing thereon"18 and petitioner PUP was under express instructions "to
enter, occupy and take possession of the transferred property subject to such leases
or liens and encumbrances that may be existing thereon"19 (italics supplied).
Petitioners PUP, NDC and the Executive Secretary separately filed their Notice of
Appeal, but a few days thereafter, or on 3 September 1996, perhaps realizing the
groundlessness and the futility of it all, the Executive Secretary withdrew his appeal. 20
Subsequently, the Court of Appeals affirmed the decision of the trial court ordering
the sale of the property in favor of FIRESTONE but deleted the award of attorney's
fees in the amount of Three Hundred Thousand Pesos (P300,000.00). Accordingly,
FIRESTONE was given a grace period of six (6) months from finality of the court's
judgment within which to purchase the property in questioned in the exercise of its
right of first refusal. The Court of Appeals observed that as there was a sale of the
subject property, NDC could not excuse itself from its obligation TO OFFER THE
PROPERTY FOR SALE FIRST TO FIRESTONE BEFORE IT COULD TO OTHER
PARTIES. The Court of Appeals held: "NDC cannot look to Memorandum Order No.
214 to excuse or shield it from its contractual obligations to FIRESTONE. There is
nothing therein that allows NDC to disavow or repudiate the solemn engagement that
it freely and voluntarily undertook, or agreed to undertake." 21
PUP moved for reconsideration asserting that in ordering the sale of the property in
favor of FIRESTONE the courts a quo unfairly created a contract to sell between the
parties. It argued that the "court cannot substitute or decree its mind or consent for
that of the parties in determining whether or not a contract (has been) perfected
between PUP and NDC."22 PUP further contended that since "a real property located
in Sta. Mesa can readily command a sum of P10,000.00 per square (meter)," the
lower court gravely erred in ordering the sale of the property at only P1,500.00 per
square meter. PUP also advanced the theory that the enactment of Memorandum
Order No. 214 amounted to a withdrawal of the option to purchase the property
granted to FIRESTONE. NDC, for its part, vigorously contended that the contracts of
lease executed between the parties had expired without being renewed by
FIRESTONE; consequently, FIRESTONE was no longer entitled to any preferential
right in the sale or disposition of the leased property.
We do not see it the way PUP and NDC did. It is elementary that a party to a contract
cannot unilaterally withdraw a right of first refusal that stands upon valuable
consideration. That principle was clearly upheld by the Court of Appeals when it
denied on 6 June 2000 the twin motions for reconsideration filed by PUP and NDC on
the ground that the appellants failed to advance new arguments substantial enough to
warrant a reversal of the Decision sought to be reconsidered.23 On 28 June 2000
PUP filed an urgent motion for an additional period of fifteen (15) days from 29 June
2000 or until 14 July 2000 within which to file a Petition for Review on Certiorari of
the Decision of the Court of Appeals.
On the last day of the extended period PUP filed its Petition for Review on
Certiorari assailing the Decision of the Court of Appeals of 6 December 1999 as well
as the Resolution of 6 June 2000 denying reconsideration thereof. PUP raised two
issues: (a) whether the courts a quo erred when they "conjectured" that the transfer of
the leased property from NDC to PUP amounted to a sale; and, (b) whether
FIRESTONE can rightfully invoke its right of first refusal. Petitioner posited that if we
were to place our imprimatur on the decisions of the courts a quo, "public welfare or
specifically the constitutional priority accorded to education" would greatly be
prejudiced.24
Paradoxically, our paramount interest in education does not license us, or any party
for that matter, to destroy the sanctity of binding obligations. Education may be
prioritized for legislative or budgetary purposes, but we doubt if such importance can
be used to confiscate private property such as FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for extension of fifteen (15) days within
which to appeal inasmuch as the aforesaid pleading lacked an affidavit of service of
copies thereof on the Court of Appeals and the adverse party, as well as written
explanation for not filing and serving the pleading personally.25
Accordingly, on 26 July 2000 we issued a Resolution dismissing PUP's Petition for
Review for having been filed out of time. PUP moved for reconsideration imploring a
resolution or decision on the merits of its petition. Strangely, about the same time,
several articles came out in the newspapers assailing the denial of the petition. The
daily papers reported that we unreasonably dismissed PUP's petition on technical
grounds, affirming in the process the decision of the trial court to sell the disputed
property to the prejudice of the government in the amount
of P1,000,000,000.00.26 Counsel for petitioner PUP, alleged that the trial court and
the Court of Appeals "have decided a question of substance in a way definitely not in
accord with law or jurisprudence."27
At the outset, let it be noted that the amount of P1,000,000,000.00 as reported in the
papers was way too exaggerated, if not fantastic. We stress that NDC itself sold the
whole 10.31-hectare property to PUP at only P57,193,201.64 which represents NDC's
obligation to the national government that was, in exchange, written off. The price
offered per square meter of the property was pegged at P554.74. FIRESTONE's
leased premises would therefore be worth only P14,423,240.00. From any angle, this
amount is certainly far below the ballyhooed price of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion for Reconsideration to give it a chance
to ventilate its right, if any it still had in the leased premises, thereby paving the way
for a reinstatement of its Petition for Review.28 In its appeal, PUP took to task the
courts a quo for supposedly "substituting or decreeing its mind or consent for that of
the parties (referring to NDC and PUP) in determining whether or not a contract of
sale was perfected." PUP also argued that inasmuch as "it is the parties alone whose
minds must meet in reference to the subject matter and cause," it concluded that it
was error for the lower courts to have decreed the existence of a sale of the NDC
compound thus allowing FIRESTONE to exercise its right of first refusal.
On the other hand, NDC separately filed its own Petition for Review and advanced
arguments which, in fine, centered on whether or not the transaction between
petitioners NDC and PUP amounted to a sale considering that "ownership of the
property remained with the government."29 Petitioner NDC introduced the novel
proposition that if the parties involved are both government entities the transaction
cannot be legally called a sale.
In due course both petitions were consolidated.30
We believe that the courts a quo did not hypothesize, much less conjure, the sale of
the disputed property by NDC in favor of petitioner PUP. Aside from the fact that the
intention of NDC and PUP to enter into a contract of sale was clearly expressed in
the Memorandum Order No. 214,31 a close perusal of the circumstances of this case
strengthens the theory that the conveyance of the property from NDC to PUP was
one of absolute sale, for a valuable consideration, and not a mere paper transfer as
argued by petitioners.
A contract of sale, as defined in the Civil Code, is a contract where one of the parties
obligates himself to transfer the ownership of and to deliver a determinate thing to the
other or others who shall pay therefore a sum certain in money or its equivalent. 32 It is
therefore a general requisite for the existence of a valid and enforceable contract of
sale that it be mutually obligatory, i.e., there should be a concurrence of the promise
of the vendor to sell a determinate thing and the promise of the vendee to receive and
pay for the property so delivered and transferred. The Civil Code provision is, in
effect, a "catch-all" provision which effectively brings within its grasp a whole gamut of
transfers whereby ownership of a thing is ceded for a consideration.
Contrary to what petitioners PUP and NDC propose, there is not just one party
involved in the questioned transaction. Petitioners NDC and PUP have their
respective charters and therefore each possesses a separate and distinct individual
personality.33 The inherent weakness of NDC's proposition that there was no sale as
it was only the government which was involved in the transaction thus reveals itself.
Tersely put, it is not necessary to write an extended dissertation on government
owned and controlled corporations and their legal personalities. Beyond cavil, a
government owned and controlled corporation has a personality of its own, distinct
and separate from that of the government.34 The intervention in the transaction of the
Office of the President through the Executive Secretary did not change the
independent existence of these entities. The involvement of the Office of the
President was limited to brokering the consequent relationship between NDC and
PUP. But the withdrawal of the appeal by the Executive Secretary is considered
significant as he knew, after a review of the records, that the transaction was subject
to existing liens and encumbrances, particularly the priority to purchase the leased
premises in favor of FIRESTONE.
True that there may be instances when a particular deed does not disclose the real
intentions of the parties, but their action may nevertheless indicate that a binding
obligation has been undertaken. Since the conduct of the parties to a contract may be
sufficient to establish the existence of an agreement and the terms thereof, it
becomes necessary for the courts to examine the contemporaneous behavior of the
parties in establishing the existence of their contract.
The preponderance of evidence shows that NDC sold to PUP the whole NDC
compound, including the leased premises, without the knowledge much less consent
of private respondent FIRESTONE which had a valid and existing right of first refusal.
All three (3) essential elements of a valid sale, without which there can be no sale,
were attendant in the "disposition" and "transfer" of the property from NDC to PUP -
consent of the parties, determinate subject matter,and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of Memorandum Order No.
214 which explicitly states the acquiescence of the parties to the sale of the property -
WHEREAS, PUP has expressed its willingness to acquire said NDC
properties and NDC has expressed its willingness to sell the properties to
PUP (underscoring supplied).35
Furthermore, the cancellation of NDC's liabilities in favor of the National Government
in the amount of P57,193,201.64 constituted the "consideration" for the sale. As
correctly observed by the Court of Appeals-
The defendants-appellants' interpretation that there was a mere transfer, and
not a sale, apart from being specious sophistry and a mere play of words, is
too strained and hairsplitting. For it is axiomatic that every sale imposes
upon the vendor the obligation to transfer ownership as an essential element
of the contract. Transfer of title or an agreement to transfer title for a price
paid, or promised to be paid, is the very essence of sale (Kerr & Co. v.
 Lingad, 38 SCRA 524; Schmid & Oberly, Inc., v. RJL Martinez Fishing Corp.,
166 SCRA 493). At whatever legal angle we view it, therefore, the
inescapable fact remains that all the requisites of a valid sale were attendant
in the transaction between co-defendants-appellants NDC and PUP
concerning the realities subject of the present suit. 36
What is more, the conduct of petitioner PUP immediately after the transaction is in
itself an admission that there was a sale of the NDC compound in its favor. Thus,
after the issuance of Memorandum Order No. 214 petitioner PUP asserted its
ownership over the property by posting notices within the compound advising
residents and occupants to vacate the premises.37 In its Motion for
Intervention petitioner PUP also admitted that its interest as a "purchaser pendente
lite" would be better protected if it was joined as party-defendant in the controversy
thereby confessing that it indeed purchased the property.
In light of the foregoing disquisition, we now proceed to determine whether
FIRESTONE should be allowed to exercise its right of first refusal over the property.
Such right was expressly stated by NDC and FIRESTONE in par. XV of their third
contract denominated as A-10-78 executed on 22 December 1978 which, as found by
the courts a quo, was interrelated to and inseparable from their first contract
denominated as C-30-65 executed on 24 August 1965 and their second contract
denominated as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during the term of this
Agreement, or any extension thereof, the LESSOR shall first give to the LESSEE,
which shall have the right of first option to purchase the leased premises subject to
mutual agreement of both parties.38
In the instant case, the right of first refusal is an integral and indivisible part of the
contract of lease and is inseparable from the whole contract. The consideration for
the right is built into the reciprocal obligations of the parties. Thus, it is not correct for
petitioners to insist that there was no consideration paid by FIRESTONE to entitle it to
the exercise of the right, inasmuch as the stipulation is part and parcel of the contract
of lease making the consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first
refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any
price until after he has made an offer to sell to the latter at a certain price and the
lessee has failed to accept it.39 The lessee has a right that the lessor's first offer shall
be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for the
benefit of FIRESTONE which, in view of the total amount of its investments in the
property, wanted to be assured that it would be given the first opportunity to buy the
property at a price for which it would be offered. Consistent with their agreement, it
was then implicit for NDC to have first offered the leased premises of 2.60 hectares to
FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise
its right of first priority could NDC lawfully sell the property to petitioner PUP.
It now becomes apropos to ask whether the courts a quo were correct in fixing the
proper consideration of the sale at P1,500.00 per square meter. In contracts of sale,
the basis of the right of first refusal must be the current offer of the seller to sell or the
offer to purchase of the prospective buyer. Only after the lessee-grantee fails to
exercise its right under the same terms and within the period contemplated can the
owner validly offer to sell the property to a third person, again, under the same terms
as offered to the grantee.40 It appearing that the whole NDC compound was sold to
PUP for P554.74 per square meter, it would have been more proper for the courts
below to have ordered the sale of the property also at the same price. However, since
FIRESTONE never raised this as an issue, while on the other hand it admitted that
the value of the property stood at P1,500.00 per square meter, then we see no
compelling reason to modify the holdings of the courts a quo that the leased premises
be sold at that price.
Our attention is invited by petitioners to Ang Yu Asuncion v. CA41 in concluding that if
our holding in Ang Yu would be applied to the facts of this case then FIRESTONE's
"option, if still subsisting, is not enforceable," the option being merely a preparatory
contract which cannot be enforced.
The contention has no merit. At the heels of Ang Yu came Equatorial Realty
Development, Inc., v. Mayfair Theater, Inc.,42 where after much deliberation we
declared, and so we hold, that a right of first refusal is neither "amorphous nor merely
preparatory" and can be enforced and executed according to its terms. Thus,
in Equatorial we ordered the rescission of the sale which was made in violation of the
lessee's right of first refusal and further ordered the sale of the leased property in
favor of Mayfair Theater, as grantee of the right. Emphatically, we held that "(a right of
first priority) should be enforced according to the law on contracts instead of the
panoramic and indefinite rule on human relations." We then concluded that the
execution of the right of first refusal consists in directing the grantor to comply with his
obligation according to the terms at which he should have offered the property in
favor of the grantee and at that price when the offer should have been made.
One final word. Petitioner PUP should be cautioned against bidding for public
sympathy by bewailing the dismissal of its petition before the press. Such advocacy is
not likely to elicit the compassion of this Court or of any court for that matter. An
entreaty for a favorable disposition of a case not made directly through pleadings and
oral arguments before the courts do not persuade us, for as judges, we are ruled only
by our forsworn duty to give justice where justice is due.
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED.
Inasmuch as the first contract of lease fixed the area of the leased premises at
2.90118 hectares while the second contract placed it at 2.60 hectares, let a ground
survey of the leased premises be immediately conducted by a duly licensed,
registered surveyor at the expense of private respondent FIRESTONE CERAMICS,
INC., within two (2) months from finality of the judgment in this case. Thereafter,
private respondent FIRESTONE CERAMICS, INC., shall have six (6) months from
receipt of the approved survey within which to exercise its right to purchase the
leased property at P1,500.00 per square meter, and petitioner Polytechnic University
of the Philippines is ordered to reconvey the property to FIRESTONE CERAMICS,
INC., in the exercise of its right of first refusal upon payment of the purchase price
thereof.
SO ORDERED.
9. Gaite vs Fonacier (2 SCRA 831)
G.R. No. L-11827 July 31, 1961
FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO.,
INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and
FERNANDO TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because the claims
involved aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself
or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan
Group, situated in the municipality of Jose Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier
constituted and appointed plaintiff-appellee Fernando A. Gaite as his true and lawful
attorney-in-fact to enter into a contract with any individual or juridical person for the
exploration and development of the mining claims aforementioned on a royalty basis
of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19,
1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19)
conveying the development and exploitation of said mining claims into the Larap Iron
Mines, a single proprietorship owned solely by and belonging to him, on the same
royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the
development and exploitation of the mining claims in question, opening and paving
roads within and outside their boundaries, making other improvements and installing
facilities therein for use in the development of the mines, and in time extracted
therefrom what he claim and estimated to be approximately 24,000 metric tons of iron
ore.
For some reason or another, Isabelo Fonacier decided to revoke the authority granted
by him to Gaite to exploit and develop the mining claims in question, and Gaite
assented thereto subject to certain conditions. As a result, a document entitled
"Revocation of Power of Attorney and Contract" was executed on December 8, 1954
(Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of
P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and facilities in or
outside said claims, the right to use the business name "Larap Iron Mines" and its
goodwill, and all the records and documents relative to the mines. In the same
document, Gaite transferred to Fonacier all his rights and interests over the "24,000
tons of iron ore, more or less" that the former had already extracted from the mineral
claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid
upon the signing of the agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be
paid from and out of the first letter of credit covering the first shipment of iron
ores and of the first amount derived from the local sale of iron ore made by
the Larap Mines & Smelting Co. Inc., its assigns, administrators, or
successors in interests.
To secure the payment of the said balance of P65,000.00, Fonacier promised to
execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier
delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as
principal and the Larap Mines and Smelting Co. and its stockholders George
Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty
as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was
presented to him by Fonacier together with the "Revocation of Power of Attorney and
Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A"
unless another bond under written by a bonding company was put up by defendants
to secure the payment of the P65,000.00 balance of their price of the iron ore in the
stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954
(Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with the
Far Eastern Surety and Insurance Co. as additional surety, but it provided that the
liability of the surety company would attach only when there had been an actual sale
of iron ore by the Larap Mines & Smelting Co. for an amount of not less then
P65,000.00, and that, furthermore, the liability of said surety company would
automatically expire on December 8, 1955. Both bonds were attached to the
"Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts
thereof.
On the same day that Fonacier revoked the power of attorney he gave to Gaite and
the two executed and signed the "Revocation of Power of Attorney and Contract",
Exhibit "A", Fonacier entered into a "Contract of Mining Operation", ceding,
transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to
develop, exploit, and explore the mining claims in question, together with the
improvements therein and the use of the name "Larap Iron Mines" and its good will, in
consideration of certain royalties. Fonacier likewise transferred, in the same
document, the complete title to the approximately 24,000 tons of iron ore which he
acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by
the company and its stockholders of the surety bonds delivered by Fonacier to Gaite
(Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far
Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of
iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the
P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and his
sureties payment of said amount, on the theory that they had lost right to make use of
the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C"
to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite,
the latter filed the present complaint against them in the Court of First Instance of
Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price
of the ore, consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that the
obligation sued upon by Gaite was subject to a condition that the amount of
P65,000.00 would be payable out of the first letter of credit covering the first shipment
of iron ore and/or the first amount derived from the local sale of the iron ore by the
Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no
sale of the iron ore had been made, hence the condition had not yet been fulfilled;
and that consequently, the obligation was not yet due and demandable. Defendant
Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron ore
sold to him by Gaite was actually delivered, and counterclaimed for more than
P200,000.00 damages.
At the trial of the case, the parties agreed to limit the presentation of evidence to two
issues:
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00
become due and demandable when the defendants failed to renew the surety bond
underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which
expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant
Fonacier were actually in existence in the mining claims when these parties executed
the "Revocation of Power of Attorney and Contract", Exhibit "A."
On the first question, the lower court held that the obligation of the defendants to pay
plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron
ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore
by defendants, such sale to be effected within one year or before December 8, 1955;
that the giving of security was a condition precedent to Gait's giving of credit to
defendants; and that as the latter failed to put up a good and sufficient security in lieu
of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the
obligation became due and demandable under Article 1198 of the New Civil Code.
As to the second question, the lower court found that plaintiff Gaite did have
approximately 24,000 tons of iron ore at the mining claims in question at the time of
the execution of the contract Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to
pay him, jointly and severally, P65,000.00 with interest at 6% per annum from
December 9, 1955 until payment, plus costs. From this judgment, defendants jointly
appealed to this Court.
During the pendency of this appeal, several incidental motions were presented for
resolution: a motion to declare the appellants Larap Mines & Smelting Co., Inc. and
George Krakower in contempt, filed by appellant Fonacier, and two motions to
dismiss the appeal as having become academic and a motion for new trial and/or to
take judicial notice of certain documents, filed by appellee Gaite. The motion for
contempt is unmeritorious because the main allegation therein that the appellants
Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been substantiated; and
even if true, does not make these appellants guilty of contempt, because what is
under litigation in this appeal is appellee Gaite's right to the payment of the balance of
the price of the ore, and not the iron ore itself. As for the several motions presented
by appellee Gaite, it is unnecessary to resolve these motions in view of the results
that we have reached in this case, which we shall hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay
appellee Gaite the P65,000.00 (balance of the price of the iron ore in question)is one
with a period or term and not one with a suspensive condition, and that the term
expired on December 8, 1955; and
(2) that the lower court erred in not holding that there were only 10,954.5 tons in the
stockpiles of iron ore sold by appellee Gaite to appellant Fonacier.
The first issue involves an interpretation of the following provision in the contract
Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F.
Fonacier all his rights and interests over the 24,000 tons of iron ore, more or
less, above-referred to together with all his rights and interests to operate
the mine in consideration of the sum of SEVENTY-FIVE THOUSAND
PESOS (P75,000.00) which the latter binds to pay as follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of
this agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be
paid from and out of the first letter of credit covering the first shipment of iron
ore made by the Larap Mines & Smelting Co., Inc., its assigns,
administrators, or successors in interest.
We find the court below to be legally correct in holding that the shipment or local sale
of the iron ore is not a condition precedent (or suspensive) to the payment of the
balance of P65,000.00, but was only a suspensive period or term. What characterizes
a conditional obligation is the fact that its efficacy or obligatory force (as distinguished
from its demandability) is subordinated to the happening of a future and uncertain
event; so that if the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed. That the parties to the contract
Exhibit "A" did not intend any such state of things to prevail is supported by several
circumstances:
1) The words of the contract express no contingency in the buyer's obligation to pay:
"The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first
letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty
that the payment will have to be made sooner or later; what is undetermined is merely
the exact date at which it will be made. By the very terms of the contract, therefore,
the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.
2) A contract of sale is normally commutative and onerous: not only does each one of
the parties assume a correlative obligation (the seller to deliver and transfer
ownership of the thing sold and the buyer to pay the price),but each party anticipates
performance by the other from the very start. While in a sale the obligation of one
party can be lawfully subordinated to an uncertain event, so that the other
understands that he assumes the risk of receiving nothing for what he gives (as in the
case of a sale of hopes or expectations, emptio spei), it is not in the usual course of
business to do so; hence, the contingent character of the obligation must clearly
appear. Nothing is found in the record to evidence that Gaite desired or assumed to
run the risk of losing his right over the ore without getting paid for it, or that Fonacier
understood that Gaite assumed any such risk. This is proved by the fact that Gaite
insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a
bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders,
but also on one by a surety company; and the fact that appellants did put up such
bonds indicates that they admitted the definite existence of their obligation to pay the
balance of P65,000.00.
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or
shipment of the ore as a condition precedent, would be tantamount to leaving the
payment at the discretion of the debtor, for the sale or shipment could not be made
unless the appellants took steps to sell the ore. Appellants would thus be able to
postpone payment indefinitely. The desireability of avoiding such a construction of the
contract Exhibit "A" needs no stressing.
4) Assuming that there could be doubt whether by the wording of the contract the
parties indented a suspensive condition or a suspensive period (dies ad quem) for the
payment of the P65,000.00, the rules of interpretation would incline the scales in favor
of "the greater reciprocity of interests", since sale is essentially onerous. The Civil
Code of the Philippines, Article 1378, paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.
and there can be no question that greater reciprocity obtains if the buyer' obligation is
deemed to be actually existing, with only its maturity (due date) postponed or
deferred, that if such obligation were viewed as non-existent or not binding until the
ore was sold.
The only rational view that can be taken is that the sale of the ore to Fonacier was a
sale on credit, and not an aleatory contract where the transferor, Gaite, would
assume the risk of not being paid at all; and that the previous sale or shipment of the
ore was not a suspensive condition for the payment of the balance of the agreed
price, but was intended merely to fix the future date of the payment.
This issue settled, the next point of inquiry is whether appellants, Fonacier and his
sureties, still have the right to insist that Gaite should wait for the sale or shipment of
the ore before receiving payment; or, in other words, whether or not they are entitled
to take full advantage of the period granted them for making the payment.
We agree with the court below that the appellant have forfeited the right court below
that the appellants have forfeited the right to compel Gaite to wait for the sale of the
ore before receiving payment of the balance of P65,000.00, because of their failure to
renew the bond of the Far Eastern Surety Company or else replace it with an
equivalent guarantee. The expiration of the bonding company's undertaking on
December 8, 1955 substantially reduced the security of the vendor's rights as creditor
for the unpaid P65,000.00, a security that Gaite considered essential and upon which
he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit
"A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil
Code of the Philippines:
"ART. 1198. The debtor shall lose every right to make use of the period:
(1) . . .
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised.
(3) When by his own acts he has impaired said guaranties or securities after
their establishment, and when through fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its expiration
plainly impaired the securities given to the creditor (appellee Gaite), unless
immediately renewed or replaced.
There is no merit in appellants' argument that Gaite's acceptance of the surety
company's bond with full knowledge that on its face it would automatically expire
within one year was a waiver of its renewal after the expiration date. No such waiver
could have been intended, for Gaite stood to lose and had nothing to gain barely; and
if there was any, it could be rationally explained only if the appellants had agreed to
sell the ore and pay Gaite before the surety company's bond expired on December 8,
1955. But in the latter case the defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by virtue of the deed
Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted within his
rights in demanding payment and instituting this action one year from and after the
contract (Exhibit "A") was executed, either because the appellant debtors had
impaired the securities originally given and thereby forfeited any further time within
which to pay; or because the term of payment was originally of no more than one
year, and the balance of P65,000.00 became due and payable thereafter.
Coming now to the second issue in this appeal, which is whether there were really
24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier,
and whether, if there had been a short-delivery as claimed by appellants, they are
entitled to the payment of damages, we must, at the outset, stress two things: first,
that this is a case of a sale of a specific mass of fungible goods for a single price or a
lump sum, the quantity of "24,000 tons of iron ore, more or less," stated in the
contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight
of the mass; and second, that the evidence shows that neither of the parties had
actually measured of weighed the mass, so that they both tried to arrive at the total
quantity by making an estimate of the volume thereof in cubic meters and then
multiplying it by the estimated weight per ton of each cubic meter.
The sale between the parties is a sale of a specific mass or iron ore because no
provision was made in their contract for the measuring or weighing of the ore sold in
order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by
the parties based upon any such measurement.(see Art. 1480, second par., New Civil
Code). The subject matter of the sale is, therefore, a determinate object, the mass,
and not the actual number of units or tons contained therein, so that all that was
required of the seller Gaite was to deliver in good faith to his buyer all of the ore found
in the mass, notwithstanding that the quantity delivered is less than the amount
estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage
Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no
charge in this case that Gaite did not deliver to appellants all the ore found in the
stockpiles in the mining claims in questions; Gaite had, therefore, complied with his
promise to deliver, and appellants in turn are bound to pay the lump price.
But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy,
not a definite mass, but approximately 24,000 tons of ore, so that any substantial
difference in this quantity delivered would entitle the buyers to recover damages for
the short-delivery, was there really a short-delivery in this case?
We think not. As already stated, neither of the parties had actually measured or
weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. Both
parties predicate their respective claims only upon an estimated number of cubic
meters of ore multiplied by the average tonnage factor per cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the
stockpiles of ore that he sold to Fonacier, while appellants contend that by actual
measurement, their witness Cirpriano Manlañgit found the total volume of ore in the
stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic
meter, the parties are again in disagreement, with appellants claiming the correct
tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the
correct tonnage factor is about 3.7.
In the face of the conflict of evidence, we take as the most reliable estimate of the
tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of
the Mines and Metallurgical Division of the Bureau of Mines, a government
pensionado to the States and a mining engineering graduate of the Universities of
Nevada and California, with almost 22 years of experience in the Bureau of Mines.
This witness placed the tonnage factor of every cubic meter of iron ore at between 3
metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely
corresponds to the average tonnage factor of 3.3 adopted in his corrected report
(Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the
Bureau of Mines to the mining claims involved at the request of appellant Krakower,
precisely to make an official estimate of the amount of iron ore in Gaite's stockpiles
after the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles
made by appellant's witness Cipriano Manlañgit is correct, if we multiply it by the
average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons,
which is not very far from the estimate of 24,000 tons made by appellee Gaite,
considering that actual weighing of each unit of the mass was practically impossible,
so that a reasonable percentage of error should be allowed anyone making an
estimate of the exact quantity in tons found in the mass. It must not be forgotten that
the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more or less.
(ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle appellants to
the payment of damages, nor could Gaite have been guilty of any fraud in making any
misrepresentation to appellants as to the total quantity of ore in the stockpiles of the
mining claims in question, as charged by appellants, since Gaite's estimate appears
to be substantially correct.
WHEREFORE, finding no error in the decision appealed from, we hereby affirm the
same, with costs against appellants.