1
G.R. No. 73913 January 31, 1989
JERRY T. MOLES, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and MARIANO M.
DIOLOSA, respondents.
REGALADO, J.:
This petition for review on certiorari assails the decision of the then
Intermediate Appellate Court 1 dismissing the complaint filed by
herein petitioner against the herein private respondent in the former
Court of First Instance of Negros Occidental in Civil Case No. 13821
thereof. 2
The factual backdrop of this controversy, as culled from the
records, 3 shows that on May 17, 1978, petitioner Jerry T. Moles
commenced a suit against private respondent Mariano M. Diolosa in
the aforesaid trial court, Branch IV in Bacolod City, for rescission of
contract with damages. Private respondent moved to dismiss on the
ground of improper venue, invoking therefor Sales Invoice No. 075A
executed between petitioner and private respondent on April 23,
1977 which provides that all judicial actions arising from this contract
shall be instituted in the City of Iloilo. 4This was opposed by petitioner
who averred that there is no formal document evidencing the sale
which is substantially verbal in character. In an order dated June 23,
1978, the trial court denied the motion to dismiss, holding that the
question of venue could not be resolved at said stage of the case. The
subsequent motion for reconsideration was likewise denied.
Consequently, private respondent, invoking the aforesaid venue
stipulation, preceeded to this Court on a petition for prohibition with
preliminary injunction in G.R. No. 49078, questioning the validity of
the order denying his aforesaid two motions and seeking to enjoin the
trial court from further proceeding with the case. This petition was
dismissed for lack of merit in a resolution of the Court, dated February
7, 1979, and which became final on March 15, 1979. Thereafter,
private respondent filed his answer and proceeded to trial.
The aforecited records establish that sometime in 1977, petitioner
needed a linotype printing machine for his printing business, The LM
Press at Bacolod City, and applied for an industrial loan with the
Development Bank of the Philippines. (hereinafter, DBP) for the
purchase thereof. An agent of Smith, Bell and Co. who is a friend of
petitioner introduced the latter to private respondent, owner of the
Diolosa Publishing House in Iloilo City, who had two available
machines. Thereafter, petitioner went to Iloilo City to inspect the two
machines offered for sale and was informed that the same were
secondhand but functional.
On his second visit to the Diolosa Publishing House, petitioner
together with Rogelio Yusay, a letter press machine operator, decided
to buy the linotype machine, Model 14. The transaction was basically
verbal in nature but to facilitate the loan application with the DBP, a
pro forma invoice, dated April 23, 1977 and reflecting the amount of
P50,000.00 as the consideration of the sale, was signed by petitioner
with an addendum that payment had not yet been made but that he
promised to pay the full amount upon the release of his loan from the
aforementioned bank on or before the end of the month. 5 Although
the agreed selling price was only P40,000.00, the amount on the
invoice was increased by P10,000.00, said increase being intended for
the purchase of new matrices for said machine.
Sometime between April and May, 1977, the machine was delivered
to petitioner's publishing house at Tangub, Bacolod City where it was
installed by one Crispino Escurido, an employee of respondent
Diolosa. Another employee of the Diolosa Publishing House, Tomas
Plondaya, stayed at petitioners house for almost a month to train the
latter's cousin in operating the machine. 6
Under date of August 29, 1977, private respondent issued a
certification wherein he warranted that the machine sold was in A-1
condition, together with other express warranties. 7
Prior to the release of the loan, a representative from the DBP,
Bacolod, supposedly inspected the machine but he merely looked at
it to see that it was there .8 The inspector's recommendation was
favorable and, thereafter, petitioner's loan of P50,000.00 was granted
and released. However, before payment was made to private
respondent, petitioner required the former, in a letter dated
September 30, 1977, to accomplish the following, with the
explanations indicated by him:
1.) Crossed check for P15,407.10 representing.
a) P 10,000.00-Overprice in the machine:
b) P203.00-Freight and handling of the machine;
c) P203.00-Share in the electric repair; and
d) P5,000.00- Insurance that Crispin will come
back and repair the linotype machine at seller's
account as provided in the contract; after Crispin
has put everything in order when he goes home
on Sunday he will return the check of P15,000.00.
2) Official receipt in the amount of P 50,000.00 as
full payment of the linotype machine.
These were immediately complied with by private respondent and on
the same day, September 30,1977, he received the DBP check for
P50,000.00. 9
It is to be noted that the aforesaid official receipt No. 0451, dated
September 30, 1977 and prepared and signed by private respondent,
expressly states that he received from the petitioner the DBP check
for P50,000.00 issued in our favor in full payment of one (1) Unit
Model 14 Linotype Machine as per Pro forma Invoice dated April 23,
1977. 10
On November 29, 1977, petitioner wrote private respondent that the
machine was not functioning properly as it needed a new distributor
bar. In the same letter, petitioner unburdened himself of his
grievances and sentiments in this wise.
We bought this machine in good faith because we
trusted you very much being our elder brother in
printing and publishing business. We did not hire
anybody to look over the machine, much more
ask for a rebate in your price of P40,000.00 and
believed what your trusted two men, Tomas and
Crispin, said although they were hiding the real
and actual condition of the machine for your
business protection.
Until last week, we found out the worst ever to
happen to us. We have been cheated because the
expert of the Linotype machine from Manila says,
that the most he will buy your machine is at
P5,000.00 only. ... 11
Private respondent made no reply to said letter, so petitioner
engaged the services of other technicians. Later, after several
telephone calls regarding the defects in the machine, private
respondent sent two technicians to make the necessary repairs but
they failed to put the machine in running condition. In fact, since then
petitioner was never able to use the machine.12
On February 18, 1978, not having received from private respondent
the action requested in his preceding letter as herein before stated,
petitioner again wrote private respondent, this time with the warning
that he would be forced to seek legal remedies to protect his
interest. 13
Obviously in response to the foregoing letter, private respondent
decided to purchase a new distributor bar and, on March 16, 1978,
private respondent delivered this spare part to petitioner through

one Pedro Candido. However, when thereafter petitioner asked
private respondent to pay for the price of the distributor bar, the
latter asked petitioner to share the cost with him. Petitioner thus
finally decided to indorse the matter to his lawyer.
An expert witness for the petitioner, one Gil Legaspina, declared that
he inspected the linotype machine involved in this case at the
instance of petitioner. In his inspection thereof, he found the
following defects: (1) the vertical automatic stop lever in the casting
division was worn out; (2) the justification lever had a slight breach
(balana in the dialect); (3) the distributor bar was worn out; (4) the
partition at the entrance channel had a tear; (5) there was no "pie
stacker" tube entrance; and (6) the slouch arm lever in the driving
division was worn out.
It turned out that the said linotype machine was the same machine
that witness Legaspina had previously inspected for Sy Brothers, a
firm which also wanted to buy a linotype machine for their printing
establishment. Having found defects in said machine, the witness
informed Sy Brother about his findings, hence the purchase was
aborted. In his opinion, major repairs were needed to put the
machine back in good running condition.14
After trial, the court a quo rendered a decision the dispositive portion
of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS,
judgment is hereby rendered as follows:
(1) Decreeing the rescission of the contract of sale
involving one linotype machine No. 14 between
the defendant as seller and the plaintiff as buyer;
(2) Ordering the plaintiff to return to the
defendant at the latter's place of business in Iloilo
City the linotype machine aforementioned
together with all accessories that originally were
delivered to the plaintiff;
(3) Ordering the defendant to return to the
plaintiff the sum of Forty Thousand Pesos
(P40,000.00) representing the price of the
linotype machine, plus interest at the legal rate
counted from May 17, 1978 when this action was
instituted, until fully paid;
(4) Ordering the defendant to indemnify the
plaintiff the sum of Four Thousand Five Hundred
Pesos (P4,500.00) representing unearned income
or actual damages;
(5) Ordering the defendant to pay the plaintiff the
sum of One Thousand Pesos (Pl,000.00) for
attorney's fees.
Costs against the defendant.15
From this decision, private respondent appealed to the Intermediate
Appellate Court which reversed the judgment of the lower court and
dismissed petitioner's complaint, hence the present petition.
We find merit in petitioner's cause.
On the matter of venue, private respondent relies on the
aforementioned Sales Invoice No. 076A which allegedly requires that
the proper venue should be Iloilo City and not Bacolod City. We agree
with petitioner that said document is not the contract evidencing the
sale of the linotype machine, it being merely a preliminary
memorandum of a proposal to buy one linotype machine, using for
such purpose a printed form used for printing job orders in private
respondent's printing business. As hereinbefore explained, this issue
on venue was brought to Us by private respondent in a special civil
action for prohibition with preliminary injunction in G.R. No. 49078.
After considering the allegations contained, the issues raised and the
2
arguments adduced in said petition, as well as the comments thereto,
the Court dismissed the petition for lack of merit. Respondent court
erred in reopening the same issue on appeal, with a contrary ruling.
Furthermore, it was error for the respondent court, after adopting the
factual findings of the lower court, to reverse the latter's holding that
the sales invoice is merely a pro forma memorandum. The records do
not show that this finding is grounded entirely on speculation,
surmises or conjectures as to warrant a reversal thereof. 16 In fact, as
hereinbefore stated, private respondent expressly admitted in his
official receipt No. 0451, dated September 30, 1977, that the said
sales invoice was merely a pro forma invoice. Consequently, the
printed provisions therein, especially since the printed form used was
for purposes of other types of transactions, could not have been
intended by the parties to govern their transaction on the printing
machine. It is obvious that a venue stipulation, in order to bind the
parties, must have been intelligently and deliberately intended by
them to exclude their case from the reglementary rules on venue. Yet,
even such intended variance may not necessarily be given judicial
approval, as, for instance, where there are no restrictive or qualifying
words in the agreement indicating that venue cannot be laid in any
place other than that agreed upon by the parties, 17 and in contracts
of adhesion. 18
Now, when an article is sold as a secondhand item, a question arises
as to whether there is an implied warranty of its quality or fitness. It
is generally held that in the sale of a designated and specific article
sold as secondhand, there is no implied warranty as to its quality or
fitness for the purpose intended, at least where it is subject to
inspection at the time of the sale. On the other hand, there is also
authority to the effect that in a sale of a secondhand articles there
may be, under some circumstances, an implied warranty of fitness for
the ordinary purpose of the article sold or for the particular purpose
of the buyer. 19
In a line of decisions rendered by the United States Supreme Court, it
had theretofore been held that there is no implied warranty as to the
condition, adaptation, fitness, or suitability for the purpose for which
made, or the quality, of an article sold as and for a secondhand
article. 20
Thus, in finding for private respondent, the respondent court cited
the ruling in Sison vs. Ago, et al. 21 to the effect that unless goods are
sold as to raise an implied warranty, as a general rule there is no
implied warranty in the sale of secondhand articles.22
Said general rule, however, is not without exceptions. Article 1562 of
our Civil Code, which was taken from the Uniform Sales Act, provides:
Art. 1562. In a sale of goods, there is an implied
warranty or condition as to the quality or fitness
of the goods, as follows:
(1) Where the buyer, expressly or by implication,
makes known to the seller the particular purpose
for which the goods are acquired, and it appears
that the buyer relies on the seller's skill or
judgment (whether he be the grower or
manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit for
such purpose;
xxx
In Drumar Mining Co. vs. Morris Ravine Mining Co., 23 the District
Court of Appeals, 3rd District, California, in applying a similar
provision of law, ruled:
'There is nothing in the Uniform Sales Act
declaring there is no implied warranty in the sale
of secondhand goods. Section 1735 of the Civil
Code declares there is no implied warranty or
condition as to the quality or fitness for any
particular purpose, of goods supplied under a
contract to sell or a sale, except (this general
 3

statement is followed by an enumeration of
several exceptions). It would seem that the
legislature intended this section to apply to all
sales of goods, whether new or secondhand. In
subdivision 1 of this section, this language is used:
where the buyer ... makes known to the seller the
particular purpose for which the goods are
required, and it appears that the buyer relies on
the seller's skill or judgment ... there is an implied
warranty that the goods shall be reasonably fit for
such purpose.'
Furthermore, and of a more determinative role in this case, a perusal
of past American decisions 24 likewise reveals a uniform pattern of
rulings to the effect that an express warranty can be made by and also
be binding on the seller even in the sale of a secondhand article.
In the aforecited case of Markman vs. Hallbeck, while holding that
there was an express warranty in the sale of a secondhand engine,
the court said that it was not error to refuse an instruction that upon
the sale of secondhand goods no warranty was implied, since
secondhand goods might be sold under such circumstances as to raise
an implied warranty.
the particular purpose for which it was intended must be upheld,
there being ample evidence to sustain the same.
At a belated stage of this appeal, private respondent came up for the
first time with the contention that the action for rescission is barred
by prescription. While it is true that Article 1571 of the Civil Code
provides for a prescriptive period of six months for a redhibitory
action a cursory reading of the ten preceding articles to which it refers
will reveal that said rule may be applied only in case of implied
warranties. The present case involves one with and express warranty.
Consequently, the general rule on rescission of contract, which is four
years 27 shall apply. Considering that the original case for rescission
was filed only one year after the delivery of the subject machine, the
same is well within the prescriptive period. This is aside from the
doctrinal rule that the defense of prescription is waived and cannot
be considered on appeal if not raised in the trial court, 28 and this case
does not have the features for an exception to said rule.
WHEREFORE, the judgment of dismissal of the respondent court is
hereby REVERSED and SET ASIDE, and the decision of the court a
quo is hereby REINSTATED.
SO ORDERED.

To repeat, in the case before Us, a certification to the effect that the
linotype machine bought by petitioner was in A-1 condition was
issued by private respondent in favor of the former. This cannot but
be considered as an express warranty. However, it is private
respondent's submission, that the same is not binding on him, not
being a part of the contract of sale between them. This contention is
bereft of substance.

It must be remembered that the certification was a condition sine qua

non for the release of petitioner's loan which was to be used as
payment for the purchase price of the machine. Private respondent
failed to refute this material fact. Neither does he explain why he
made that express warranty on the condition of the machine if he had
not intended to be bound by it. In fact, the respondent court, in
declaring that petitioner should have availed of the remedy of
requiring repairs as provided for in said certification, thereby
considered the same as part and parcel of the verbal contract
between the parties.

On the basis of the foregoing circumstances, the inescapable

conclusion is that private respondent is indeed bound by the express
warranty he executed in favor of herein petitioner.

We disagree with respondent court that private respondents express

warranty as to the A-1 condition of the machine was merely dealer's
talk. Private respondent was not a dealer of printing or linotype
machines to whom could be ascribed the supposed resort to the usual
exaggerations of trade in said items. His certification as to the
condition of the machine was not made to induce petitioner to
purchase it but to confirm in writing for purposes of the financing
aspect of the transaction his representations thereon. Ordinarily,
what does not appear on the face of the written instrument should
be regarded as dealer's or trader's talk; 25 conversely, what is
specifically represented as true in said document, as in the instant
case, cannot be considered as mere dealer's talk.

On the question as to whether the hidden defects in the machine is

sufficient to warrant a rescission of the contract between the parties,
we have to consider the rule on redhibitory defects contemplated in
Article 1561 of the Civil Code. A redhibitory defect must be an
imperfection or defect of such nature as to engender a certain degree
of importance. An imperfection or defect of little consequence does
not come within the category of being redhibitory.26

As already narrated, an expert witness for the petitioner categorically

established that the machine required major repairs before it could
be used. This, plus the fact that petitioner never made appropriate
use of the machine from the time of purchase until an action was
filed, attest to the major defects in said machine, by reason of which
the rescission of the contract of sale is sought. The factual finding,
therefore, of the trial court that the machine is not reasonably fit for

G.R. No. 52267 January 24, 1996
ENGINEERING & MACHINERY CORPORATION, petitioner,
vs.
COURT OF APPEALS and PONCIANO L. ALMEDA, respondent.
DECISION
PANGANIBAN, J.:
Is a contract for the fabrication and installation of a central air-
conditioning system in a building, one of "sale" or "for a piece of
work"? What is the prescriptive period for filing actions for breach of
the terms of such contract?
These are the legal questions brought before this Court in this Petition
for review on certiorari under Rule 45 of the Rules of Court, to set
aside the Decision1 of the Court of Appeals2 in CA-G.R. No. 58276-R
promulgated on November 28, 1978 (affirming in toto the
decision3 dated April 15, 1974 of the then Court of First Instance of
Rizal, Branch II4 , in Civil Case No. 14712, which ordered petitioner to
pay private respondent the amount needed to rectify the faults and
deficiencies of the air-conditioning system installed by petitioner in
private respondent's building, plus damages, attorney's fees and
costs).
By a resolution of the First Division of this Court dated November 13,
1995, this case was transferred to the Third. After deliberating on the
various submissions of the parties, including the petition, record on
appeal, private respondent's comment and briefs for the petitioner
and the private respondent, the Court assigned the writing of this
Decision to the undersigned, who took his oath as a member of the
Court on October 10, 1995.
The Facts
Pursuant to the contract dated September 10, 1962 between
petitioner and private respondent, the former undertook to fabricate,
furnish and install the air-conditioning system in the latter's building
along Buendia Avenue, Makati in consideration of P210,000.00.
Petitioner was to furnish the materials, labor, tools and all services
required in order to so fabricate and install said system. The system
was completed in 1963 and accepted by private respondent, who paid
in full the contract price.
On September 2, 1965, private respondent sold the building to the
National Investment and Development Corporation (NIDC). The latter
took possession of the building but on account of NIDC's
noncompliance with the terms and conditions of the deed of sale,
private respondent was able to secure judicial rescission thereof. The
ownership of the building having been decreed back to private
respondent, he re-acquired possession sometime in 1971. It was then
that he learned from some NIDC, employees of the defects of the air-
conditioning system of the building.
Acting on this information, private respondent commissioned
Engineer David R. Sapico to render a technical evaluation of the
system in relation to the contract with petitioner. In his report, Sapico
enumerated the defects of the system and concluded that it was "not
capable of maintaining the desired room temperature of 76ºF - 2ºF
(Exhibit C)"5 .
On the basis of this report, private respondent filed on May 8, 1971
an action for damages against petitioner with the then Court of First
Instance of Rizal (Civil Case No. 14712). The complaint alleged that the
air-conditioning system installed by petitioner did not comply with
the agreed plans and specifications. Hence, private respondent
prayed for the amount of P210,000.00 representing the rectification
cost, P100,000.00 as damages and P15,000.00 as attorney's fees.
Petitioner moved to dismiss the complaint, alleging that the
prescriptive period of six months had set in pursuant to Articles 1566
and 1567, in relation to Article 1571 of the Civil Code, regarding the
4
responsibility of a vendor for any hidden faults or defects in the thing
sold.
Private respondent countered that the contract dated September 10,
1962 was not a contract for sale but a contract for a piece of work
under Article 1713 of the Civil Code. Thus, in accordance with Article
1144 (1) of the same Code, the complaint was timely brought within
the ten-year prescriptive period.
In its reply, petitioner argued that Article 1571 of the Civil Code
providing for a six-month prescriptive period is applicable to a
contract for a piece of work by virtue of Article 1714, which provides
that such a contract shall be governed by the pertinent provisions on
warranty of title and against hidden defects and the payment of price
in a contract of sale6 .
The trial court denied the motion to dismiss. In its answer to the
complaint, petitioner reiterated its claim of prescription as an
affirmative defense. It alleged that whatever defects might have been
discovered in the air-conditioning system could have been caused by
a variety of factors, including ordinary wear and tear and lack of
proper and regular maintenance. It pointed out that during the one-
year period that private respondent withheld final payment, the
system was subjected to "very rigid inspection and testing and
corrections or modifications effected" by petitioner. It interposed a
compulsory counterclaim suggesting that the complaint was filed "to
offset the adverse effects" of the judgment in Civil Case No. 71494,
Court of First Instance of Manila, involving the same parties, wherein
private respondent was adjudged to pay petitioner the balance of the
unpaid contract price for the air-conditioning system installed in
another building of private respondent, amounting to P138,482.25.
Thereafter, private respondent filed an ex-parte motion for
preliminary attachment on the strength of petitioner's own
statement to the effect that it had sold its business and was no longer
doing business in Manila. The trial court granted the motion and,
upon private respondent's posting of a bond of F'50,000.00, ordered
the issuance of a writ of attachment.
In due course, the trial court rendered a decision finding that
petitioner failed to install certain parts and accessories called for by
the contract, and deviated from the plans of the system, thus
reducing its operational effectiveness to the extent that 35 window-
type units had to be installed in the building to achieve a fairly
desirable room temperature. On the question of prescription, the trial
court ruled that the complaint was filed within the ten-year court
prescriptive period although the contract was one for a piece of work,
because it involved the "installation of an air-conditioning system
which the defendant itself manufactured, fabricated, designed and
installed."
Petitioner appealed to the Court of Appeals, which affirmed the
decision of the trial court. Hence, it instituted the instant petition.
The Submissions of the Parties
In the instant Petition, petitioner raised three issues. First, it
contended that private respondent's acceptance of the work and his
payment of the contract price extinguished any liability with respect
to the defects in the air-conditioning system. Second, it claimed that
the Court of Appeals erred when it held that the defects in the
installation were not apparent at the time of delivery and acceptance
of the work considering that private respondent was not an expert
who could recognize such defects. Third, it insisted that,
assuming arguendo that there were indeed hidden defects, private
respondent's complaint was barred by prescription under Article
1571 of the Civil Code, which provides for a six-month prescriptive
period.
Private respondent, on the other hand, averred that the issues raised
by petitioner, like the question of whether there was an acceptance
of the work by the owner and whether the hidden defects in the
installation could have been discovered by simple inspection, involve
questions of fact which have been passed upon by the appellate
court.

The Court's Ruling
The Supreme Court reviews only errors of law in petitions for review
on certiorari under Rule 45. It is not the function of this Court to re-
examine the findings of fact of the appellate court unless said findings
are not supported by the evidence on record or the judgment is based
on a misapprehension of facts7 of Appeals erred when it held that the
defects in the installation were not apparent at the time of delivery
and acceptance of the work considering that private respondent was
not an expert who could recognize such defects. Third. it insisted that,
assuming arguendothat there were indeed hidden defects, private
respondent's complaint was barred by prescription under Article
1571 of the Civil Code, which provides for a six-month prescriptive
period.
Private respondent, on the other hand, averred that the issues raised
by petitioner, like the question of whether here was an acceptance of
the work by the owner and whether the hidden defects in the
installation could have been discovered by simple inspection, involve
questions of fact which have been passed upon by the appellate
court.
The Court has consistently held that the factual findings of
the trial court, as well as the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts
found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation,
surmises or conjectures; when the inference made is
manifestly absurd, mistaken or impossible; when there is
grave abuse of discretion in the appreciation of facts; when
the judgment is premised on a misapprehension of facts;
when the findings went beyond the issues of the case and
the same are contrary to the admissions of both appellant
and appellee. After a careful study of the case at bench, we
find none of the above grounds present to justify the re-
evaluation of the findings of fact made by the courts
below.8
We see no valid reason to discard the factual conclusions of
the appellate court. . . . (I)t is not the function of this Court
to assess and evaluate all over again the evidence,
testimonial and documentary, adduced by the parties,
particularly where, such as here, the findings of both the
trial court and the appellate court on the matter
coincide.9 (Emphasis supplied)
Hence, the first two issues will not be resolved as they raise questions
of fact.
Thus, the only question left to be resolved is that of prescription. In
their submissions, the parties argued lengthily on the nature of the
contract entered into by them, viz., whether it was one of sale or for
a piece of work.
Article 1713 of the Civil Code defines a contract for a piece of work
thus:
By the contract for a piece of work the contractor binds
himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or also
furnish the material.
A contract for a piece of work, labor and materials may be
distinguished from a contract of sale by the inquiry as to whether the
thing transferred is one not in existence and which would never have
existed but for the order, of the person desiring it10 . In such case, the
contract is one for a piece of work, not a sale. On the other hand, if
the thing subject of the contract would have existed and been the
subject of a sale to some other person even if the order had not been
given, then the contract is one of sale11 .
Thus, Mr. Justice Vitug12 explains that -
5
A contract for the delivery at a certain price of an article
which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether
the same is on hand at the time or not is a contract of sale,
but if the goods are to be manufactured specially for the
customer and upon his special order, and not for the
general market, it is a contract for a piece of work (Art.
1467, Civil Code). The mere fact alone that certain articles
are made upon previous orders of customers will not argue
against the imposition of the sales tax if such articles are
ordinarily manufactured by the taxpayer for sale to the
public (Celestino Co. vs. Collector, 99 Phil. 841).
To Tolentino, the distinction between the two contracts depends on
the intention of the parties. Thus, if the parties intended that at some
future date an object has to be delivered, without considering the
work or labor of the party bound to deliver, the contract is one of sale.
But if one of the parties accepts the undertaking on the basis of some
plan, taking into account the work he will employ personally or
through another, there is a contract for a piece of work13 .
Clearly, the contract in question is one for a piece of work. It is not
petitioner's line of business to manufacture air-conditioning systems
to be sold "off-the-shelf." Its business and particular field of expertise
is the fabrication and installation of such systems as ordered by
customers and in accordance with the particular plans and
specifications provided by the customers. Naturally, the price or
compensation for the system manufactured and installed will depend
greatly on the particular plans and specifications agreed upon with
the customers.
The obligations of a contractor for a piece of work are set forth in
Articles 1714 and 1715 of the Civil Code, which provide:
Art. 1714. If the contractor agrees to produce the work from
material furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the
thing. This contract shall be governed by the following
articles as well as by the pertinent provisions on warranty
of title and against hidden defects and the payment of price
in a contract of sale.
Art. 1715. The contractor shall execute the work in such a
manner that it has the qualities agreed upon and has no
defects which destroy or lessen its value or fitness for its
ordinary or stipulated use. Should the work be not of such
quality, the employer may require that the contractor
remove the defect or execute another work. If the
contractor fails or refuses to comply with this obligation,
the employer may have the defect removed or another
work executed, at the contractor's cost.
The provisions on warranty against hidden defects, referred to in Art.
1714 above-quoted, are found in Articles 1561 and 1566, which read
as follows:
Art. 1561. The vendor shall be responsible for warranty
against the hidden defects which the thing sold may have,
should they render it unfit for the use for which it is
intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he
would not have acquired it or would have given a lower
price for it; but said vendor shall not be answerable for
patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by
reason of his trade or profession, should have known them.
xxx xxx xxx
Art. 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he
was not aware thereof.

This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden
faults or defects in the thing sold.
The remedy against violations of the warranty against hidden defects
is either to withdraw from the contract (redhibitory action) or to
demand a proportionate reduction of the price (accion quanti
manoris), with damages in either case14 .
In Villostas vs. Court of Appeals15 , we held that, "while it is true that
Article 1571 of the Civil Code provides for a prescriptive period of six
months for a redhibitory action, a cursory reading of the ten
preceding articles to which it refers will reveal that said rule may be
applied only in case of implied warranties"; and where there is an
express warranty in the contract, as in the case at bench, the
prescriptive period is the one specified in the express warranty, and
in the absence of such period, "the general rule on rescission of
contract, which is four years (Article 1389, Civil Code) shall apply" 16 .
Consistent with the above discussion, it would appear that this suit is
barred by prescription because the complaint was filed more than
four years after the execution of the contract and the completion of
the air-conditioning system.
However, a close scrutiny of the complaint filed in the trial court
reveals that the original action is not really for enforcement of the
warranties against hidden defects, but one for breach of the contract
itself. It alleged17 that the petitioner, "in the installation of the air
conditioning system did not comply with the specifications provided"
in the written agreement between the parties, "and an evaluation of
the air-conditioning system as installed by the defendant showed the
following defects and violations of the specifications of the
agreement, to wit:
GROUND FLOOR:
"A. RIGHT WING:
Equipped with Worthington Compressor, Model 2VC4
directly driven by an Hp Elin electric motor 1750 rmp, 3
phase, 60 cycles, 220 volts, complete with starter
evaporative condenser, circulating water pump, air
handling unit air ducts.
Defects Noted:
1. Deteriorated evaporative condenser panels, coils are full
of scales and heavy corrosion is very evident.
2. Defective gauges of compressors;
3. No belt guard on motor;
4. Main switch has no cover;
5. Desired room temperature not attained;
Aside from the above defects, the following were noted not
installed although provided in the specifications.
1. Face by-pass damper of G.I. sheets No. 16. This damper
regulates the flow of cooled air depending on room
condition.
2. No fresh air intake provision were provided which is very
necessary for efficient comfort cooling..
3. No motor to regulate the face and by-pass damper.
4. Liquid level indicator for refrigerant not provided.
6
5. Suitable heat exchanger is not installed. This is an
important component to increase refrigeration efficiency.
6. Modulating thermostat not provided.
7. Water treatment device for evaporative condenser was
not provided.
8. Liquid receiver not provided by sight glass.
B. LEFT WING:
Worthington Compressor Model 2VC4 is installed complete
with 15 Hp electric motor, 3 phase, 220 volts 60 cycles with
starter.
Defects Noted:
Same as right wing. except No. 4, All other defects on right
wing are common to the left wing.
SECOND FLOOR: (Common up to EIGHT FLOORS)
Compressors installed are MELCO with 7.5 Hp V-belt driven
by 1800 RPM, -220 volts, 60 cycles, 3 phase, Thrige electric
motor with starters.
As stated in the specifications under, Section No. IV, the
MELCO compressors do not satisfy the conditions stated
therein due to the following:
1. MELCO Compressors are not provided with automatic
capacity unloader.
2. Not provided with oil pressure safety control.
3. Particular compressors do not have provision for renewal
sleeves.
Out of the total 15 MELCO compressors installed to serve
the 2nd floor up to 8th floors, only six (6) units are in
operation and the rest were already replaced. Of the
remaining six (6) units, several of them have been replaced
with bigger crankshafts.
NINTH FLOOR:
Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220
volts, 60 cycles, 1750 rpm, Higgs motors with starters.
Defects Noted are similar to ground floor.
GENERAL REMARKS:
Under Section III, Design conditions of specification for air
conditioning work, and taking into account "A" & "B" same,
the present systems are not capable of maintaining the
desired temperature of 76 = 2ºF (sic).
The present tenant have installed 35 window type air
conditioning units distributed among the different floor
levels. Temperature measurements conducted on March
29. 1971, revealed that 78ºF room (sic) is only maintained
due to the additional window type units.
The trial court, after evaluating the evidence presented, held that,
indeed, petitioner failed to install items and parts required in the
contract and substituted some other items which were not in
accordance with the specifications18 , thus:
From all of the foregoing, the Court is persuaded to believe
the plaintiff that not only had the defendant failed to install
 7

items and parts provided for in the specifications of the air-

conditioning system be installed, like face and by-pass
dampers and modulating thermostat and many others, but
also that there are items, parts and accessories which were
used and installed on the air-conditioning system which
were not in full accord with contract specifications. These
omissions to install the equipments, parts and accessories
called for in the specifications of the contract, as well as the
deviations made in putting into the air-conditioning system
equipments, parts and accessories not in full accord with
the contract specification naturally resulted to adversely
affect the operational effectiveness of the air-conditioning
system which necessitated the installation of thirty-five
window type of air-conditioning units distributed among
the different floor levels in order to be able to obtain a fairly
desirable room temperature for the tenants and actual
occupants of the building. The Court opines and so holds
that the failure of the defendant to follow the contract
specifications and said omissions and deviations having
resulted in the operational ineffectiveness of the system
installed makes the defendant liable to the plaintiff in the
amount necessary to rectify to put the air conditioning
system in its proper operational condition to make it serve
the purpose for which the plaintiff entered into the contract
with the defendant.

The respondent Court affirmed the trial court's decision thereby

making the latter's findings also its own.

Having concluded that the original complaint is one for damages

arising from breach of a written contract - and not a suit to enforce
warranties against hidden defects - we here - with declare that the
governing law is Article 1715 (supra). However, inasmuch as this
provision does not contain a specific prescriptive period, the general
law on prescription, which is Article 1144 of the Civil Code, will apply.
Said provision states, inter alia, that actions "upon a written contract"
prescribe in ten (10) years. Since the governing contract was executed
on September 10, 1962 and the complaint was filed on May 8, 1971,
it is clear that the action has not prescribed.

What about petitioner's contention that "acceptance of the work by

the employer relieves the contractor of liability for any defect in the
work"? This was answered by respondent Court19 as follows:

As the breach of contract which gave rise to the instant case

consisted in appellant's omission to install the equipments
(sic), parts and accessories not in accordance with the plan
and specifications provided for in the contract and the
deviations made in putting into the air conditioning system
parts and accessories not in accordance with the contract
specifications, it is evident that the defect in the installation
was not apparent at the time of the delivery and acceptance
of the work, considering further that plaintiff is not an
expert to recognize the same. From the very nature of
things, it is impossible to determine by the simple
inspection of air conditioning system installed in an 8-floor
building whether it has been furnished and installed as per
agreed specifications.

Verily, the mere fact that the private respondent accepted the work
does not, ipso facto, relieve the petitioner from liability for deviations
from and violations of the written contract, as the law gives him ten
(10) years within which to file an action based on breach thereof.

WHEREFORE, the petition is hereby DENIED and the assailed Decision

is AFFIRMED. No costs.

SO ORDERED.

G.R. No. 146839 March 23, 2011
ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T.
CATUNGAL and ERLINDA CATUNGAL-WESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the
following issuances of the Court of Appeals in CA-G.R. CV No. 40627
consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000
Decision,1 which affirmed the Decision2 dated May 30, 1992 of the
Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil
Case No. 2365-L, and (b) the January 30, 2001 Resolution,3 denying
herein petitioners’ motion for reconsideration of the August 8, 2000
Decision.
The relevant factual and procedural antecedents of this case are as
follows:
This controversy arose from a Complaint for Damages and Injunction
with Preliminary Injunction/Restraining Order4filed on December 10,
1990 by herein respondent Angel S. Rodriguez (Rodriguez), with the
RTC, Branch 27, Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-
L against the spouses Agapita and Jose Catungal (the spouses
Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita)
owned a parcel of land (Lot 10963) with an area of 65,246 square
meters, covered by Original Certificate of Title (OCT) No. 1055 in her
name situated in the Barrio of Talamban, Cebu City. The said property
was allegedly the exclusive paraphernal property of Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose,
entered into a Contract to Sell6 with respondent Rodriguez.
Subsequently, the Contract to Sell was purportedly "upgraded" into a
Conditional Deed of Sale7 dated July 26, 1990 between the same
parties. Both the Contract to Sell and the Conditional Deed of Sale
were annotated on the title.
The provisions of the Conditional Deed of Sale pertinent to the
present dispute are quoted below:
1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE
MILLION PESOS (₱25,000,000.00) payable as follows:
a. FIVE HUNDRED THOUSAND PESOS (₱500,000.00)
downpayment upon the signing of this agreement, receipt
of which sum is hereby acknowledged in full from the
VENDEE.
b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED
THOUSAND PESOS (₱24,500,000.00) shall be payable in five
separate checks, made to the order of JOSE Ch. CATUNGAL,
the first check shall be for FOUR MILLION FIVE HUNDRED
THOUSAND PESOS (₱4,500,000.00) and the remaining
balance to be paid in four checks in the amounts of FIVE
MILLION PESOS (₱5,000,000.00) each after the VENDEE
have (sic) successfully negotiated, secured and provided a
Road Right of Way consisting of 12 meters in width cutting
across Lot 10884 up to the national road, either by widening
the existing Road Right of Way or by securing a new Road
Right of Way of 12 meters in width. If however said Road
Right of Way could not be negotiated, the VENDEE shall give
notice to the VENDOR for them to reassess and solve the
problem by taking other options and should the situation
ultimately prove futile, he shall take steps to rescind or
cancel the herein Conditional Deed of Sale.
c. That the access road or Road Right of Way leading to Lot
10963 shall be the responsibility of the VENDEE to secure
8
and any or all cost relative to the acquisition thereof shall
be borne solely by the VENDEE. He shall, however, be
accorded with enough time necessary for the success of his
endeavor, granting him a free hand in negotiating for the
passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of
herein CONDITIONAL DEED OF SALE to VENDEE, his heirs, successors
and assigns, the real property described in the Original Certificate of
Title No. 105 x x x.
xxxx
5. That the VENDEE has the option to rescind the sale. In the event
the VENDEE exercises his option to rescind the herein Conditional
Deed of Sale, the VENDEE shall notify the VENDOR by way of a written
notice relinquishing his rights over the property. The VENDEE shall
then be reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (₱500,000.00) representing the downpayment,
interest free, payable but contingent upon the event that the
VENDOR shall have been able to sell the property to another party.8
In accordance with the Conditional Deed of Sale, Rodriguez
purportedly secured the necessary surveys and plans and through his
efforts, the property was reclassified from agricultural land into
residential land which he claimed substantially increased the
property’s value. He likewise alleged that he actively negotiated for
the road right of way as stipulated in the contract.9
Rodriguez further claimed that on August 31, 1990 the spouses
Catungal requested an advance of ₱5,000,000.00 on the purchase
price for personal reasons. Rodriquez allegedly refused on the ground
that the amount was substantial and was not due under the terms of
their agreement. Shortly after his refusal to pay the advance, he
purportedly learned that the Catungals were offering the property for
sale to third parties.10
Thereafter, Rodriguez received letters dated October 22,
1990,11 October 24, 199012 and October 29, 1990,13 all signed by Jose
Catungal who was a lawyer, essentially demanding that the former
make up his mind about buying the land or exercising his "option" to
buy because the spouses Catungal allegedly received other offers and
they needed money to pay for personal obligations and for investing
in other properties/business ventures. Should Rodriguez fail to
exercise his option to buy the land, the Catungals warned that they
would consider the contract cancelled and that they were free to look
for other buyers.
In a letter dated November 4, 1990,14 Rodriguez registered his
objections to what he termed the Catungals’ unwarranted demands
in view of the terms of the Conditional Deed of Sale which allowed
him sufficient time to negotiate a road right of way and granted him,
the vendee, the exclusive right to rescind the contract. Still, on
November 15, 1990, Rodriguez purportedly received a letter dated
November 9, 199015 from Atty. Catungal, stating that the contract had
been cancelled and terminated.
Contending that the Catungals’ unilateral rescission of the Conditional
Deed of Sale was unjustified, arbitrary and unwarranted, Rodriquez
prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be
issued enjoining defendants [the spouses Catungal], their
employees, agents, representatives or other persons acting
in their behalf from offering the property subject of this
case for sale to third persons; from entertaining offers or
proposals by third persons to purchase the said property;
and, in general, from performing acts in furtherance or
implementation of defendants’ rescission of their
Conditional Deed of Sale with plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued
upon such reasonable bond as may be fixed by the court
enjoining defendants and other persons acting in their

behalf from performing any of the acts mentioned in the
next preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff,
jointly and solidarily:
Actual damages in the amount of ₱400,000.00 for their unlawful
rescission of the Agreement and their performance of acts in violation
or disregard of the said Agreement;
Moral damages in the amount of ₱200,000.00;
Exemplary damages in the amount of ₱200,000.00; Expenses of
litigation and attorney’s fees in the amount of ₱100,000.00; and
Costs of suit.16
On December 12, 1990, the trial court issued a temporary restraining
order and set the application for a writ of preliminary injunction for
hearing on December 21, 1990 with a directive to the spouses
Catungal to show cause within five days from notice why preliminary
injunction should not be granted. The trial court likewise ordered that
summons be served on them.17
Thereafter, the spouses Catungal filed their opposition18 to the
issuance of a writ of preliminary injunction and later filed a motion to
dismiss19 on the ground of improper venue. According to the
Catungals, the subject property was located in Cebu City and thus, the
complaint should have been filed in Cebu City, not Lapu-lapu City.
Rodriguez opposed the motion to dismiss on the ground that his
action was a personal action as its subject was breach of a contract,
the Conditional Deed of Sale, and not title to, or possession of real
property.20
In an Order dated January 17, 1991,21 the trial court denied the
motion to dismiss and ruled that the complaint involved a personal
action, being merely for damages with a prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered the
issuance of a writ of preliminary injunction upon posting by Rodriguez
of a bond in the amount of ₱100,000.00 to answer for damages that
the defendants may sustain by reason of the injunction.
On February 1, 1991, the spouses Catungal filed their Answer with
Counterclaim22 alleging that they had the right to rescind the contract
in view of (1) Rodriguez’s failure to negotiate the road right of way
despite the lapse of several months since the signing of the contract,
and (2) his refusal to pay the additional amount of ₱5,000,000.00
asked by the Catungals, which to them indicated his lack of funds to
purchase the property. The Catungals likewise contended that
Rodriguez did not have an exclusive right to rescind the contract and
that the contract, being reciprocal, meant both parties had the right
to rescind.23 The spouses Catungal further claimed that it was
Rodriguez who was in breach of their agreement and guilty of bad
faith which justified their rescission of the contract.24 By way of
counterclaim, the spouses Catungal prayed for actual and
consequential damages in the form of unearned interests from the
balance (of the purchase price in the amount) of ₱24,500,000.00,
moral and exemplary damages in the amount of ₱2,000,000.00,
attorney’s fees in the amount of ₱200,000.00 and costs of suits and
litigation expenses in the amount of ₱10,000.00.25 The spouses
Catungal prayed for the dismissal of the complaint and the grant of
their counterclaim.
The Catungals amended their Answer twice,26 retaining their basic
allegations but amplifying their charges of contractual breach and bad
faith on the part of Rodriguez and adding the argument that in view
of Article 1191 of the Civil Code, the power to rescind reciprocal
obligations is granted by the law itself to both parties and does not
need an express stipulation to grant the same to the injured party. In
9
the Second Amended Answer with Counterclaim, the spouses
Catungal added a prayer for the trial court to order the Register of
Deeds to cancel the annotations of the two contracts at the back of
their OCT.27
On October 24, 1991, Rodriguez filed an Amended
Complaint,28 adding allegations to the effect that the Catungals were
guilty of several misrepresentations which purportedly induced
Rodriguez to buy the property at the price of ₱25,000,000.00. Among
others, it was alleged that the spouses Catungal misrepresented that
their Lot 10963 includes a flat portion of land which later turned out
to be a separate lot (Lot 10986) owned by Teodora Tudtud who sold
the same to one Antonio Pablo. The Catungals also allegedly
misrepresented that the road right of way will only traverse two lots
owned by Anatolia Tudtud and her daughter Sally who were their
relatives and who had already agreed to sell a portion of the said lots
for the road right of way at a price of ₱550.00 per square meter.
However, because of the Catungals’ acts of offering the property to
other buyers who offered to buy the road lots for ₱2,500.00 per
square meter, the adjacent lot owners were no longer willing to sell
the road lots to Rodriguez at ₱550.00 per square meter but were
asking for a price of ₱3,500.00 per square meter. In other words,
instead of assisting Rodriguez in his efforts to negotiate the road right
of way, the spouses Catungal allegedly intentionally and maliciously
defeated Rodriguez’s negotiations for a road right of way in order to
justify rescission of the said contract and enable them to offer the
property to other buyers.
Despite requesting the trial court for an extension of time to file an
amended Answer,29 the Catungals did not file an amended Answer
and instead filed an Urgent Motion to Dismiss30 again invoking the
ground of improper venue. In the meantime, for failure to file an
amended Answer within the period allowed, the trial court set the
case for pre-trial on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied
in open court the Catungals’ Urgent Motion to Dismiss for violation of
the rules and for being repetitious and having been previously
denied.31 However, Atty. Catungal refused to enter into pre-trial
which prompted the trial court to declare the defendants in default
and to set the presentation of the plaintiff’s evidence on February 14,
1992.32
On December 23, 1991, the Catungals filed a motion for
reconsideration33 of the December 20, 1991 Order denying their
Urgent Motion to Dismiss but the trial court denied reconsideration
in an Order dated February 3, 1992.34Undeterred, the Catungals
subsequently filed a Motion to Lift and to Set Aside Order of
Default35 but it was likewise denied for being in violation of the rules
and for being not meritorious.36 On February 28, 1992, the Catungals
filed a Petition for Certiorari and Prohibition37 with the Court of
Appeals, questioning the denial of their motion to dismiss and the
order of default. This was docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before the
trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of
Rodriguez, finding that: (a) under the contract it was complainant
(Rodriguez) that had the option to rescind the sale; (b) Rodriguez’s
obligation to pay the balance of the purchase price arises only upon
successful negotiation of the road right of way; (c) he proved his
diligent efforts to negotiate the road right of way; (d) the spouses
Catungal were guilty of misrepresentation which defeated
Rodriguez’s efforts to acquire the road right of way; and (e) the
Catungals’ rescission of the contract had no basis and was in bad faith.
Thus, the trial court made the injunction permanent, ordered the
Catungals to reduce the purchase price by the amount of acquisition
of Lot 10963 which they misrepresented was part of the property sold
but was in fact owned by a third party and ordered them to pay
₱100,000.00 as damages, ₱30,000.00 as attorney’s fees and costs.
The Catungals appealed the decision to the Court of Appeals,
asserting the commission of the following errors by the trial court in
their appellants’ brief38 dated February 9, 1994:

I Second Additional Citation of Authority both on November 17,
THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON
THE GROUNDS OF IMPROPER VENUE AND LACK OF JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL
AND NOT A REAL ACTION.
III
GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID
AND THE CASE IS A PERSONAL ACTION, THE COURT A QUO ERRED IN
DECLARING THE DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL
WHEN AT THAT TIME THE DEFENDANTS HAD ALREADY FILED THEIR
ANSWER TO THE COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS
HAVING LOST THEIR LEGAL STANDING IN COURT WHEN AT MOST
THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND STILL
ENTITLED TO NOTICES OF ALL FURTHER PROCEEDINGS ESPECIALLY
AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER OF
DEFAULT.
V merit
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY
INJUNCTION RESTRAINING THE EXERCISE OF ACTS OF OWNERSHIP
AND OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE COURT’S
TERRITORIAL JURISDICTION AND INCLUDING PERSONS WHO WERE
NOT BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF THE
WRIT.
VI
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU
PROP[R]IO FROM CONTINUING WITH THE PROCEEDINGS IN THE CASE
AND IN RENDERING DECISION THEREIN IF ONLY FOR REASON OF
COURTESY AND FAIRNESS BEING MANDATED AS DISPENSER OF FAIR
AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR FAVOR
IT HAVING BEEN SERVED EARLIER WITH A COPY OF THE PETITION FOR
CERTIORARI QUESTIONING ITS VENUE AND JURISDICTION IN CA-G.R.
NO. SP 27565 IN FACT NOTICES FOR THE FILING OF COMMENT
THERETO HAD ALREADY BEEN SENT OUT BY THE HONORABLE COURT
OF APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS
FURNISHED WITH COPY OF SAID NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE
PLAINTIFF AND AGAINST THE DEFENDANTS ON THE BASIS OF
EVIDENCE WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF
TRUTH, TO BE STATED IN DETAIL IN THE DISCUSSION OF THIS
PARTICULAR ERROR, AND, THEREFORE, THE DECISION IS
REVERSIBLE.39
On August 31, 1995, after being granted several extensions,
Rodriguez filed his appellee’s brief,40 essentially arguing the
correctness of the trial court’s Decision regarding the foregoing issues
raised by the Catungals. Subsequently, the Catungals filed a Reply
Brief41 dated October 16, 1995.
From the filing of the appellants’ brief in 1994 up to the filing of the
Reply Brief, the spouses Catungal were represented by appellant Jose
Catungal himself. However, a new counsel for the Catungals, Atty.
Jesus N. Borromeo (Atty. Borromeo), entered his appearance before
the Court of Appeals on September 2, 1997.42 On the same date, Atty.
Borromeo filed a Motion for Leave of Court to File Citation of
Authorities43 and a Citation of Authorities.44 This would be followed
by Atty. Borromeo’s filing of an Additional Citation of Authority and
10
1997.45
During the pendency of the case with the Court of Appeals, Agapita
Catungal passed away and thus, her husband, Jose, filed on February
17, 1999 a motion for Agapita’s substitution by her surviving
children.46
On August 8, 2000, the Court of Appeals rendered a Decision in the
consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No.
27565,47 affirming the trial court’s Decision.
In a Motion for Reconsideration dated August 21, 2000,48 counsel for
the Catungals, Atty. Borromeo, argued for the first time that
paragraphs 1(b) and 549 of the Conditional Deed of Sale, whether
taken separately or jointly, violated the principle of mutuality of
contracts under Article 1308 of the Civil Code and thus, said contract
was void ab initio. He adverted to the cases mentioned in his various
citations of authorities to support his argument of nullity of the
contract and his position that this issue may be raised for the first time
on appeal.
Meanwhile, a Second Motion for Substitution50 was filed by Atty.
Borromeo in view of the death of Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed
the substitution of the deceased Agapita and Jose Catungal by their
surviving heirs and denied the motion for reconsideration for lack of
Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001
the present petition for review,51 which essentially argued that the
Court of Appeals erred in not finding that paragraphs 1(b) and/or 5 of
the Conditional Deed of Sale, violated the principle of mutuality of
contracts under Article 1308 of the Civil Code. Thus, said contract was
supposedly void ab initio and the Catungals’ rescission thereof was
superfluous.
In his Comment,52 Rodriguez highlighted that (a) petitioners were
raising new matters that cannot be passed upon on appeal; (b) the
validity of the Conditional Deed of Sale was already admitted and
petitioners cannot be allowed to change theories on appeal; (c) the
questioned paragraphs of the Conditional Deed of Sale were valid;
and (d) petitioners were the ones who committed fraud and breach
of contract and were not entitled to relief for not having come to
court with clean hands.
The Court gave due course to the Petition53 and the parties filed their
respective Memoranda.
The issues to be resolved in the case at bar can be summed into two
questions:
I. Are petitioners allowed to raise their theory of nullity of
the Conditional Deed of Sale for the first time on appeal?
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale
violate the principle of mutuality of contracts under Article
1308 of the Civil Code?
On petitioners’ change of theory
Petitioners claimed that the Court of Appeals should have reversed
the trial courts’ Decision on the ground of the alleged nullity of
paragraphs 1(b) and 5 of the Conditional Deed of Sale
notwithstanding that the same was not raised as an error in their
appellants’ brief. Citing Catholic Bishop of Balanga v. Court of
Appeals,54 petitioners argued in the Petition that this case falls under
the following exceptions:
(3) Matters not assigned as errors on appeal but
consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the
interest of justice or to avoid dispensing piecemeal justice;

(4) Matters not specifically assigned as errors on appeal but
raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties
failed to raise or which the lower court ignored;
(5) Matters not assigned as errors on appeal but closely
related to an error assigned; and
(6) Matters not assigned as errors but upon which the
determination of a question properly assigned is
dependent.55
We are not persuaded.
This is not an instance where a party merely failed to assign an issue
as an error in the brief nor failed to argue a material point on appeal
that was raised in the trial court and supported by the record. Neither
is this a case where a party raised an error closely related to, nor
dependent on the resolution of, an error properly assigned in his
brief. This is a situation where a party completely changes his theory
of the case on appeal and abandons his previous assignment of errors
in his brief, which plainly should not be allowed as anathema to due
process.
Petitioners should be reminded that the object of pleadings is to draw
the lines of battle between the litigants and to indicate fairly the
nature of the claims or defenses of both parties.56 In Philippine
National Construction Corporation v. Court of Appeals,57 we held that
"[w]hen a party adopts a certain theory in the trial court, he will not
be permitted to change his theory on appeal, for to permit him to do
so would not only be unfair to the other party but it would also be
offensive to the basic rules of fair play, justice and due process."58
We have also previously ruled that "courts of justice have no
jurisdiction or power to decide a question not in issue. Thus, a
judgment that goes beyond the issues and purports to adjudicate
something on which the court did not hear the parties, is not only
irregular but also extrajudicial and invalid. The rule rests on the
fundamental tenets of fair play."59
During the proceedings before the trial court, the spouses Catungal
never claimed that the provisions in the Conditional Deed of Sale,
stipulating that the payment of the balance of the purchase price was
contingent upon the successful negotiation of a road right of way
(paragraph 1[b]) and granting Rodriguez the option to rescind
(paragraph 5), were void for allegedly making the fulfillment of the
contract dependent solely on the will of Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did not
aver in the Answer (and its amended versions) that the payment of
the purchase price was subject to the will of Rodriguez but rather they
claimed that paragraph 1(b) in relation to 1(c) only presupposed a
reasonable time be given to Rodriguez to negotiate the road right of
way. However, it was petitioners’ theory that more than sufficient
time had already been given Rodriguez to negotiate the road right of
way. Consequently, Rodriguez’s refusal/failure to pay the balance of
the purchase price, upon demand, was allegedly indicative of lack of
funds and a breach of the contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding
Rodriguez’s option to rescind, it was petitioners’ theory in the court a
quo that notwithstanding such provision, they retained the right to
rescind the contract for Rodriguez’s breach of the same under Article
1191 of the Civil Code.
Verily, the first time petitioners raised their theory of the nullity of the
Conditional Deed of Sale in view of the questioned provisions was
only in their Motion for Reconsideration of the Court of Appeals’
Decision, affirming the trial court’s judgment. The previous filing of
various citations of authorities by Atty. Borromeo and the Court of
Appeals’ resolutions noting such citations were of no moment. The
citations of authorities merely listed cases and their main rulings
without even any mention of their relevance to the present case or
any prayer for the Court of Appeals to consider them.1âwphi1 In sum,
the Court of Appeals did not err in disregarding the citations of
11
authorities or in denying petitioners’ motion for reconsideration of
the assailed August 8, 2000 Decision in view of the proscription
against changing legal theories on appeal.
Ruling on the questioned provisions of the Conditional Deed of Sale
Even assuming for the sake of argument that this Court may overlook
the procedural misstep of petitioners, we still cannot uphold their
belatedly proffered arguments.
At the outset, it should be noted that what the parties entered into is
a Conditional Deed of Sale, whereby the spouses Catungal agreed to
sell and Rodriguez agreed to buy Lot 10963 conditioned on the
payment of a certain price but the payment of the purchase price was
additionally made contingent on the successful negotiation of a road
right of way. It is elementary that "[i]n conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event
which constitutes the condition."60
Petitioners rely on Article 1308 of the Civil Code to support their
conclusion regarding the claimed nullity of the aforementioned
provisions. Article 1308 states that "[t]he contract must bind both
contracting parties; its validity or compliance cannot be left to the will
of one of them."
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the
sole will of the debtor, the conditional obligation shall be void. If it
depends upon chance or upon the will of a third person, the
obligation shall take effect in conformity with the provisions of this
Code.
In the past, this Court has distinguished between a condition imposed
on the perfection of a contract and a condition imposed merely on
the performance of an obligation. While failure to comply with the
first condition results in the failure of a contract, failure to comply
with the second merely gives the other party the option to either
refuse to proceed with the sale or to waive the condition.61 This
principle is evident in Article 1545 of the Civil Code on sales, which
provides in part:
Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may
refuse to proceed with the contract or he may waive performance of
the condition x x x.
Paragraph 1(b) of the Conditional Deed of Sale, stating that
respondent shall pay the balance of the purchase price when he has
successfully negotiated and secured a road right of way, is not a
condition on the perfection of the contract nor on the validity of the
entire contract or its compliance as contemplated in Article 1308. It is
a condition imposed only on respondent’s obligation to pay the
remainder of the purchase price. In our view and applying Article
1182, such a condition is not purely potestative as petitioners
contend. It is not dependent on the sole will of the debtor but also on
the will of third persons who own the adjacent land and from whom
the road right of way shall be negotiated. In a manner of speaking,
such a condition is likewise dependent on chance as there is no
guarantee that respondent and the third party-landowners would
come to an agreement regarding the road right of way. This type of
mixed condition is expressly allowed under Article 1182 of the Civil
Code.
Analogous to the present case is Romero v. Court of
Appeals,62 wherein the Court interpreted the legal effect of a
condition in a deed of sale that the balance of the purchase price
would be paid by the vendee when the vendor has successfully
ejected the informal settlers occupying the property. In Romero, we
found that such a condition did not affect the perfection of the
contract but only imposed a condition on the fulfillment of the
obligation to pay the balance of the purchase price, to wit:

From the moment the contract is perfected, 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. Under the agreement, private
respondent is obligated to evict the squatters on the property. The
ejectment of the squatters is a condition the operative act of which
sets into motion the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase price. Private
respondent's failure "to remove the squatters from the property"
within the stipulated period gives petitioner the right to either refuse
to proceed with the agreement or waive that condition in consonance
with Article 1545 of the Civil Code. This option clearly belongs to
petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking
required of private respondent does not constitute a "potestative
condition dependent solely on his will" that might, otherwise, be void
in accordance with Article 1182 of the Civil Code but a "mixed"
condition "dependent not on the will of the vendor alone but also of
third persons like the squatters and government agencies and
personnel concerned." We must hasten to add, however, that where
the so-called "potestative condition" is imposed not on the birth of
the obligation but on its fulfillment, only the condition is avoided,
leaving unaffected the obligation itself.63 (Emphases supplied.)
From the provisions of the Conditional Deed of Sale subject matter of
this case, it was the vendee (Rodriguez) that had the obligation to
successfully negotiate and secure the road right of way. However, in
the decision of the trial court, which was affirmed by the Court of
Appeals, it was found that respondent Rodriguez diligently exerted
efforts to secure the road right of way but the spouses Catungal, in
bad faith, contributed to the collapse of the negotiations for said road
right of way. To quote from the trial court’s decision:
It is therefore apparent that the vendee’s obligations (sic) to pay the
balance of the purchase price arises only when the road-right-of-way
to the property shall have been successfully negotiated, secured and
provided. In other words, the obligation to pay the balance is
conditioned upon the acquisition of the road-right-of-way, in
accordance with paragraph 2 of Article 1181 of the New Civil Code.
Accordingly, "an obligation dependent upon a suspensive condition
cannot be demanded until after the condition takes place because it
is only after the fulfillment of the condition that the obligation arises."
(Javier v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that
plaintiff [Rodriguez] indeed was diligent in his efforts to negotiate for
a road-right-of-way to the property. The written offers, proposals and
follow-up of his proposals show that plaintiff [Rodriguez] went all out
in his efforts to immediately acquire an access road to the property,
even going to the extent of offering ₱3,000.00 per square meter for
the road lots (Exh. Q) from the original ₱550.00 per sq. meter. This
Court also notes that defendant (sic) [the Catungals] made
misrepresentation in the negotiation they have entered into with
plaintiff [Rodriguez]. (Exhs. F and G) The misrepresentation of
defendant (sic) [the Catungals] as to the third lot (Lot 10986) to be
part and parcel of the subject property [(]Lot 10963) contributed in
defeating the plaintiff’s [Rodriguez’s] effort in acquiring the road-
right-of-way to the property. Defendants [the Catungals] cannot now
invoke the non-fulfillment of the condition in the contract as a ground
for rescission when defendants [the Catungals] themselves are guilty
of preventing the fulfillment of such condition.
From the foregoing, this Court is of the considered view that
rescission of the conditional deed of sale by the defendants is without
any legal or factual basis.64 x x x. (Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing factual
findings of the trial court.
Furthermore, it is evident from the language of paragraph 1(b) that
the condition precedent (for respondent’s obligation to pay the
balance of the purchase price to arise) in itself partly involves an
obligation to do, i.e., the undertaking of respondent to negotiate and
secure a road right of way at his own expense. 65 It does not escape
our notice as well, that far from disclaiming paragraph 1(b) as void, it
was the Catungals’ contention before the trial court that said
provision should be read in relation to paragraph 1(c) which stated:
12
c. That the access road or Road Right of Way leading to Lot 10963 shall
be the responsibility of the VENDEE to secure and any or all cost
relative to the acquisition thereof shall be borne solely by the
VENDEE. He shall, however, be accorded with enough time necessary
for the success of his endeavor, granting him a free hand in
negotiating for the passage.66 (Emphasis supplied.)
The Catungals’ interpretation of the foregoing stipulation was that
Rodriguez’s obligation to negotiate and secure a road right of way was
one with a period and that period, i.e., "enough time" to negotiate,
had already lapsed by the time they demanded the payment of
₱5,000,000.00 from respondent. Even assuming arguendo that the
Catungals were correct that the respondent’s obligation to negotiate
a road right of way was one with an uncertain period, their rescission
of the Conditional Deed of Sale would still be unwarranted. Based on
their own theory, the Catungals had a remedy under Article 1197 of
the Civil Code, which mandates:
Art. 1197. If the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was intended,
the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends
upon the will of the debtor.
In every case, the courts shall determine such period as may under
the circumstances have been probably contemplated by the parties.
Once fixed by the courts, the period cannot be changed by them.
What the Catungals should have done was to first file an action in
court to fix the period within which Rodriguez should accomplish the
successful negotiation of the road right of way pursuant to the above
quoted provision. Thus, the Catungals’ demand for Rodriguez to make
an additional payment of ₱5,000,000.00 was premature and
Rodriguez’s failure to accede to such demand did not justify the
rescission of the contract.
With respect to petitioners’ argument that paragraph 5 of the
Conditional Deed of Sale likewise rendered the said contract void, we
find no merit to this theory. Paragraph 5 provides:
5. That the VENDEE has the option to rescind the sale. In the event
the VENDEE exercises his option to rescind the herein Conditional
Deed of Sale, the VENDEE shall notify the VENDOR by way of a written
notice relinquishing his rights over the property. The VENDEE shall
then be reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (₱500,000.00) representing the downpayment,
interest free, payable but contingent upon the event that the
VENDOR shall have been able to sell the property to another party.67
Petitioners posited that the above stipulation was the "deadliest"
provision in the Conditional Deed of Sale for violating the principle of
mutuality of contracts since it purportedly rendered the contract
subject to the will of respondent.
We do not agree.
It is petitioners’ strategy to insist that the Court examine the first
sentence of paragraph 5 alone and resist a correlation of such
sentence with other provisions of the contract. Petitioners’ view,
however, ignores a basic rule in the interpretation of contracts – that
the contract should be taken as a whole.
Article 1374 of the Civil Code provides that "[t]he various stipulations
of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly." The
same Code further sets down the rule that "[i]f some stipulation of
any contract should admit of several meanings, it shall be understood
as bearing that import which is most adequate to render it
effectual."68
Similarly, under the Rules of Court it is prescribed that "[i]n the
construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will

give effect to all"69 and "for the proper construction of an instrument,
the circumstances under which it was made, including the situation
of the subject thereof and of the parties to it, may be shown, so that
the judge may be placed in the position of those whose language he
is to interpret."70
Bearing in mind the aforementioned interpretative rules, we find that
the first sentence of paragraph 5 must be taken in relation with the
rest of paragraph 5 and with the other provisions of the Conditional
Deed of Sale.
Reading paragraph 5 in its entirety will show that Rodriguez’s option
to rescind the contract is not absolute as it is subject to the
requirement that there should be written notice to the vendor and
the vendor shall only return Rodriguez’s downpayment of
₱500,000.00, without interest, when the vendor shall have been able
to sell the property to another party. That what is stipulated to be
returned is only the downpayment of ₱500,000.00 in the event that
Rodriguez exercises his option to rescind is significant. To recall,
paragraph 1(b) of the contract clearly states that the installments on
the balance of the purchase price shall only be paid upon successful
negotiation and procurement of a road right of way. It is clear from
such provision that the existence of a road right of way is a material
consideration for Rodriguez to purchase the property. Thus, prior to
him being able to procure the road right of way, by express stipulation
in the contract, he is not bound to make additional payments to the
Catungals. It was further stipulated in paragraph 1(b) that: "[i]f
however said road right of way cannot be negotiated, the VENDEE
shall give notice to the VENDOR for them to reassess and solve the
problem by taking other options and should the situation ultimately
prove futile, he [Rodriguez] shall take steps to rescind or [cancel] the
herein Conditional Deed of Sale." The intention of the parties for
providing subsequently in paragraph 5 that Rodriguez has the option
to rescind the sale is undeniably only limited to the contingency that
Rodriguez shall not be able to secure the road right of way. Indeed, if
the parties intended to give Rodriguez the absolute option to rescind
the sale at any time, the contract would have provided for the return
of all payments made by Rodriguez and not only the downpayment.
To our mind, the reason only the downpayment was stipulated to be
returned is that the vendee’s option to rescind can only be exercised
in the event that no road right of way is secured and, thus, the vendee
has not made any additional payments, other than his downpayment.
In sum, Rodriguez’s option to rescind the contract is not purely
potestative but rather also subject to the same mixed condition as his
obligation to pay the balance of the purchase price – i.e., the
negotiation of a road right of way. In the event the condition is
fulfilled (or the negotiation is successful), Rodriguez must pay the
balance of the purchase price. In the event the condition is not
fulfilled (or the negotiation fails), Rodriguez has the choice either (a)
to not proceed with the sale and demand return of his downpayment
or (b) considering that the condition was imposed for his benefit, to
waive the condition and still pay the purchase price despite the lack
of road access. This is the most just interpretation of the parties’
contract that gives effect to all its provisions.
In any event, even if we assume for the sake of argument that the
grant to Rodriguez of an option to rescind, in the manner provided for
in the contract, is tantamount to a potestative condition, not being a
condition affecting the perfection of the contract, only the said
condition would be considered void and the rest of the contract will
remain valid. In Romero, the Court observed that "where the so-
called ‘potestative condition’ is imposed not on the birth of the
obligation but on its fulfillment, only the condition is avoided, leaving
unaffected the obligation itself."71
It cannot be gainsaid that "contracts have the force of law between
the contracting parties and should be complied with in good
faith."72 We have also previously ruled that "[b]eing the primary law
between the parties, the contract governs the adjudication of their
rights and obligations. A court has no alternative but to enforce the
contractual stipulations in the manner they have been agreed upon
and written."73 We find no merit in petitioners’ contention that their
parents were merely "duped" into accepting the questioned
provisions in the Conditional Deed of Sale. We note that although the
contract was between Agapita Catungal and Rodriguez, Jose Catungal
13
nonetheless signed thereon to signify his marital consent to the same.
We concur with the trial court’s finding that the spouses Catungals’
claim of being misled into signing the contract was contrary to human
experience and conventional wisdom since it was Jose Catungal who
was a practicing lawyer while Rodriquez was a non-lawyer.74 It can be
reasonably presumed that Atty. Catungal and his wife reviewed the
provisions of the contract, understood and accepted its provisions
before they affixed their signatures thereon.
After thorough review of the records of this case, we have come to
the conclusion that petitioners failed to demonstrate that the Court
of Appeals committed any reversible error in deciding the present
controversy. However, having made the observation that it was
desirable for the Catungals to file a separate action to fix the period
for respondent Rodriguez’s obligation to negotiate a road right of
way, the Court finds it necessary to fix said period in these
proceedings. It is but equitable for us to make a determination of the
issue here to obviate further delay and in line with the judicial policy
of avoiding multiplicity of suits.
If still warranted, Rodriguez is given a period of thirty (30) days from
the finality of this decision to negotiate a road right of way. In the
event no road right of way is secured by Rodriquez at the end of said
period, the parties shall reassess and discuss other options as
stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for
this purpose, they are given a period of thirty (30) days to agree on a
course of action. Should the discussions of the parties prove futile
after the said thirty (30)-day period, immediately upon the expiration
of said period for discussion, Rodriguez may (a) exercise his option to
rescind the contract, subject to the return of his downpayment, in
accordance with the provisions of paragraphs 1(b) and 5 of the
Conditional Deed of Sale or (b) waive the road right of way and pay
the balance of the deducted purchase price as determined in the RTC
Decision dated May 30, 1992.
WHEREFORE, the Decision dated August 8, 2000 and the Resolution
dated January 30, 2001 of the Court of Appeals in CA-G.R. CV No.
40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with
the following modification:
If still warranted, respondent Angel S. Rodriguez is given a period of
thirty (30) days from the finality of this Decision to negotiate a road
right of way. In the event no road right of way is secured by
respondent at the end of said period, the parties shall reassess and
discuss other options as stipulated in paragraph 1(b) of the
Conditional Deed of Sale and, for this purpose, they are given a period
of thirty (30) days to agree on a course of action. Should the
discussions of the parties prove futile after the said thirty (30)-day
period, immediately upon the expiration of said period for discussion,
Rodriguez may (a) exercise his option to rescind the contract, subject
to the return of his downpayment, in accordance with the provisions
of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive
the road right of way and pay the balance of the deducted purchase
price as determined in the RTC Decision dated May 30, 1992.
No pronouncement as to costs.

G.R. No. 149420 October 8, 2003
SONNY LO, petitioner,
vs.
KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent.
DECISION
YNARES-SANTIAGO, J.:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation
engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo,
doing business under the name and style San’s Enterprises, is a
building contractor. On February 22, 1990, petitioner ordered
scaffolding equipments from respondent worth P540,425.80.1 He
paid a downpayment in the amount of P150,000.00. The balance was
made payable in ten monthly installments.
Respondent delivered the scaffoldings to petitioner.2 Petitioner was
able to pay the first two monthly installments.1a\^/phi1.netHis
business, however, encountered financial difficulties and he was
unable to settle his obligation to respondent despite oral and written
demands made against him.3
On October 11, 1990, petitioner and respondent executed a Deed of
Assignment,4 whereby petitioner assigned to respondent his
receivables in the amount of P335,462.14 from Jomero Realty
Corporation. Pertinent portions of the Deed provide:
WHEREAS, the ASSIGNOR is the contractor for the construction of a
residential house located at Greenmeadow Avenue, Quezon City
owned by Jomero Realty Corporation;
WHEREAS, in the construction of the aforementioned residential
house, the ASSIGNOR purchased on account scaffolding equipments
from the ASSIGNEE payable to the latter;
WHEREAS, up to the present the ASSIGNOR has an obligation to the
ASSIGNEE for the purchase of the aforementioned scaffoldings now
in the amount of Three Hundred Thirty Five Thousand Four Hundred
Sixty Two and 14/100 Pesos (P335,462.14);
NOW, THEREFORE, for and in consideration of the sum of Three
Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100
Pesos (P335,462.14), Philippine Currency which represents part of the
ASSIGNOR’s collectible from Jomero Realty Corp., said ASSIGNOR
hereby assigns, transfers and sets over unto the ASSIGNEE all
collectibles amounting to the said amount of P335, 462.14;
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors
and assigns, the full power and authority to demand, collect, receive,
compound, compromise and give acquittance for the same or any
part thereof, and in the name and stead of the said ASSIGNOR;
And the ASSIGNOR does hereby agree and stipulate to and with said
ASSIGNEE, its successors and assigns that said debt is justly owing and
due to the ASSIGNOR for Jomero Realty Corporation and that said
ASSIGNOR has not done and will not cause anything to be done to
diminish or discharge said debt, or delay or to prevent the ASSIGNEE,
its successors or assigns, from collecting the same;
And the ASSIGNOR further agrees and stipulates as aforesaid that the
said ASSIGNOR, his heirs, executors, administrators, or assigns, shall
and will at times hereafter, at the request of said ASSIGNEE, its
successors or assigns, at his cost and expense, execute and do all such
further acts and deeds as shall be reasonably necessary to effectually
enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR
has in accordance with the true intent and meaning of these presents.
xxx5 (Italics supplied)
However, when respondent tried to collect the said credit from
Jomero Realty Corporation, the latter refused to honor the Deed of
Assignment because it claimed that petitioner was also indebted to
it.6 On November 26, 1990, respondent sent a letter7 to petitioner
14
demanding payment of his obligation, but petitioner refused to pay
claiming that his obligation had been extinguished when they
executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for
recovery of a sum of money against the petitioner before the Regional
Trial Court of Makati, Branch 147, which was docketed as Civil Case
No. 91-074.8
During the trial, petitioner argued that his obligation was
extinguished with the execution of the Deed of Assignment of credit.
Respondent, for its part, presented the testimony of its employee,
Almeda Bañaga, who testified that Jomero Realty refused to honor
the assignment of credit because it claimed that petitioner had an
outstanding indebtedness to it.
On August 25, 1994, the trial court rendered a decision 9 dismissing
the complaint on the ground that the assignment of credit
extinguished the obligation. The decretal portion thereof provides:
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of the defendant and against the plaintiff,
dismissing the complaint and ordering the plaintiff to pay the
defendant attorney’s fees in the amount of P25,000.00.1a\^/phi1.net
Respondent appealed the decision to the Court of Appeals. On April
19, 2001, the appellate court rendered a decision,10 the dispositive
portion of which reads:
WHEREFORE, finding merit in this appeal, the court REVERSES the
appealed Decision and enters judgment ordering defendant-appellee
Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK SYSTEM
PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred
Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per
annum from January 10, 1991 (filing of the Complaint) until fully paid
and attorney’s fees equivalent to 10% of the amount due and costs of
the suit.
SO ORDERED.11
In finding that the Deed of Assignment did not extinguish the
obligation of the petitioner to the respondent, the Court of Appeals
held that (1) petitioner failed to comply with his warranty under the
Deed; (2) the object of the Deed did not exist at the time of the
transaction, rendering it void pursuant to Article 1409 of the Civil
Code; and (3) petitioner violated the terms of the Deed of Assignment
when he failed to execute and do all acts and deeds as shall be
necessary to effectually enable the respondent to recover the
collectibles.12
Petitioner filed a motion for reconsideration of the said decision,
which was denied by the Court of Appeals.13
In this petition for review, petitioner assigns the following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR
IN DECLARING THE DEED OF ASSIGNMENT (EXH. "4") AS NULL AND
VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
DEED OF ASSIGNMENT (EXH. "4") DID NOT EXTINGUISH PETITIONER’S
OBLIGATION ON THE WRONG NOTION THAT PETITIONER FAILED TO
COMPLY WITH HIS WARRANTY THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE
DECISION OF THE TRIAL COURT AND IN ORDERING PAYMENT OF
INTERESTS AND ATTORNEY’S FEES.14
 15

The petition is without merit. WHEREFORE, in view of the foregoing, the Decision of the Court of
Appeals dated April 19, 2001 in CA-G.R. CV No. 47713, ordering
An assignment of credit is an agreement by virtue of which the owner petitioner to pay respondent the sum of P335,462.14 with legal
of a credit, known as the assignor, by a legal cause, such as interest of 6% per annum from January 10, 1991 until fully paid is
sale, dacion en pago, exchange or donation, and without the consent AFFIRMED with MODIFICATION. Upon finality of this Decision, the
of the debtor, transfers his credit and accessory rights to another, rate of legal interest shall be 12% per annum, inasmuch as the
known as the assignee, who acquires the power to enforce it to the obligation shall thereafter become equivalent to a forbearance of
same extent as the assignor could enforce it against the debtor.15 credit.23 The award of attorney’s fees is DELETED for lack of
evidentiary basis.
Corollary thereto, in dacion en pago, as a special mode of payment,
the debtor offers another thing to the creditor who accepts it as SO ORDERED.
equivalent of payment of an outstanding debt.16 In order that there
be a valid dation in payment, the following are the requisites: (1)
There must be the performance of the prestation in lieu of payment
(animo solvendi) which may consist in the delivery of a corporeal thing
or a real right or a credit against the third person; (2) There must be
some difference between the prestation due and that which is given
in substitution (aliud pro alio); (3) There must be an agreement
between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a prestation different
from that due.17 The undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against
the debtor’s debt. As such, the vendor in good faith shall be
responsible, for the existence and legality of the credit at the time of
the sale but not for the solvency of the debtor, in specified
circumstances.18

Hence, it may well be that the assignment of credit, which is in the

nature of a sale of personal property,19 produced the effects of a
dation in payment which may extinguish the obligation. 20 However,
as in any other contract of sale, the vendor or assignor is bound by
certain warranties. More specifically, the first paragraph of Article
1628 of the Civil Code provides:

The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale, unless it should have been
sold as doubtful; but not for the solvency of the debtor, unless it has
been so expressly stipulated or unless the insolvency was prior to the
sale and of common knowledge.

From the above provision, petitioner, as vendor or assignor, is bound

to warrant the existence and legality of the credit at the time of the
sale or assignment. When Jomero claimed that it was no longer
indebted to petitioner since the latter also had an unpaid obligation
to it, it essentially meant that its obligation to petitioner has been
extinguished by compensation.21 In other words, respondent alleged
the non-existence of the credit and asserted its claim to petitioner’s
warranty under the assignment. Therefore, it behooved on petitioner
to make good its warranty and paid the obligation.

Furthermore, we find that petitioner breached his obligation under

the Deed of Assignment, to wit:

And the ASSIGNOR further agrees and stipulates as aforesaid that the
said ASSIGNOR, his heirs, executors, administrators, or assigns, shall
and will at times hereafter, at the request of said ASSIGNEE, its
successors or assigns, at his cost and expense, execute and do all such
further acts and deeds as shall be reasonably necessary to effectually
enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR
has in accordance with the true intent and meaning of these
presents.22 (underscoring ours)

Indeed, by warranting the existence of the credit, petitioner should

be deemed to have ensured the performance thereof in case the
same is later found to be inexistent. He should be held liable to pay
to respondent the amount of his indebtedness.

Hence, we affirm the decision of the Court of Appeals ordering

petitioner to pay respondent the sum of P335,462.14 with legal
interest thereon. However, we find that the award by the Court of
Appeals of attorney’s fees is without factual basis. No evidence or
testimony was presented to substantiate this claim. Attorney’s fees,
being in the nature of actual damages, must be duly substantiated by
competent proof.

G.R. No. 42108 December 29, 1989
OSCAR D. RAMOS and LUZ AGUDO, petitioners,
vs.
HON. COURT OF APPEALS, ADELAIDA RAMOS and LAZARO E.
MENESES, respodents.
Godofredo V. Magbiray for petitioners.
Joselito Lim for private respondents.
REGALADO, J.:
The instant petition for review on certiorari impugns the decision of
the Court of Appeals dated October 7, 1975, 1which affirmed in toto
the decision of the Court of First Instance of Tarlac in Civil Case No.
4168, entitled "Adelaida Ramos, et al. vs. Oscar D. Ramos, et al.,"
holding that the contracts between the parties are not ventas con
pacto de retro but are equitable mortgages.
Sometime in January 1959, private respondent Adelaida Ramos
borrowed from her brother, petitioner Oscar D. Ramos, the amounts
of P 5,000.00 and P 9,000.00 in connection with her business
transaction with one Flor Ramiro, Fred Naboa and Atty. Ruperto
Sarandi involving the recovery of a parcel of land in Tenejeros,
Malabon. The said amount was used to finance the trip to Hawaii of
Ramiro, Naboa and Atty. Sarandi. As security for said loan, private
respondent Adelaida Ramos executed in favor of petitioners two (2)
deeds of conditional sale dated May 27, 1959 and August 30, 1959, of
her rights, shares, interests and participation respectively over Lot
No. 4033 covered by Original Certificate of Title No. 5125 registered
in the name of their parents, Valente Ramos and Margarita Denoga,
now deceased; 2 and Lot No. 4221 covered by Transfer Certificate of
Title No. 10788 then registered in the names of Socorro Ramos,
Josefina Ramos and Adelaida Ramos, 3 said properties being of the
Cadastral Survey of Paniqui, Tarlac.
Upon the failure of said private respondent as vendor a retro to
exercise her right of repurchase within the redemption period,
aforenamed petitioner filed a petition for consolidation and approval
of the conditional sale of Lot No. 4033 in Special Proceedings No.
5174, entitled "Intestate Estate of the late Margarita Denoga," 4 and
a petition for approval of the pacto de retro sale of Lot No. 4221 in
the former Court of First Instance of Tarlac acting as a cadastral
court. 5 On January 22, 1960, the said probate court issued an order
with the following disposition:
WHEREFORE, the deed of CONDITIONAL SALE
executed on May 27, 1959, by Adelaida Ramos in
favor of spouses Oscar D. Ramos and Luz Agudo,
conveying to the latter by way of pacto de retro
sale whatever rights and interests the former may
have in Lot No. 4033 of the Cadastral Survey of
Paniqui, which deed of conditional sale is known
as Document No. 14, Page 26, Book VI, Series of
1959, of the notarial register of Notary Public Jose
P. Sibal, is hereby approved. 6
The cadastral Court also issued a similar order dated April 18, 1960,
the dispositive portion of which reads:
WHEREFORE, by way of granting the petition, the
Court orders the consolidation of ownership and
dominion in petitioners-spouses Oscar D. Ramos
and Luz Agudo over the rights, shares and
interests of Adelaida Ramos in Lot No. 4221 of the
Cadastral Survey of Paniqui, Tarlac, which the
latter sold to the former under a pacto de retro
sale executed in a public instrument known as
Document No. 22, Page 28, Book No. VI. Series of
1959, of the Notarial Registry of Notary Public
Jose P. Sibal but which she failed to repurchase
within the period specified in said Document. 7
16
Private respondents had been and remained in possession of these
properties until sometime in 1964 when petitioner took possession
thereof.
On February 28, 1968, private respondent filed Civil Case No. 4168
with the then Court of First Instance of Tarlac for declaration of nullity
of orders, reformation of instrument, recovery of possession with
preliminary injunction and damages. The complaint therein alleged
that the deeds of conditional sale, dated May 27, 1959 and August 30,
1959, are mere mortgages and were vitiated by misrepresentation,
fraud and undue influence and that the orders dated January 22, 1960
and April 18, 1960, respectively issued by the probate and cadastral
courts, were null and void for lack of jurisdiction. Petitioners, in their
answer to the complaint, specifically deny the allegations of fraud and
misrepresentation and interposed as defense the fact that the
questioned conditional sales of May 27, 1959 and August 30, 1959
were voluntarily executed by private respondent Adelaida Ramos and
truly expressed the intention of the parties; that the action, if any, has
long prescribed; that the questioned orders of January 22, 1960 and
April 18, 1960, approving the consolidation of ownership of the lands
in question in favor of petitioner were within the jurisdiction of the
lower court, in its capacity as a probate court insofar as Lot No. 4033
is concerned, and acting as a cadastral court with respect to Lot No.
4221; and that said lands subject of the conditional sales were in
custodia legis in connection with the settlement of the properties of
the late Margarita Denoga, the predecessor in interest of both
petitioners and private respondents.
On January 7, 1970, the court below issued a pre-trial order to the
effect that petitioners admit the genuineness and due execution of
the promissory notes marked as Exhibits "F" and "F-1 " and that the
principal triable issue is whether or not the documents purporting to
be deeds of conditional sale, marked as Exhibits "B", "B-1" and "G"
were in fact intended to be equitable mortgages. 8 In its order dated
February 17, 1971, the trial court also declared: "Both parties agreed
and manifested in open court the principal obligation in the
transaction reflected in Exhibits 'B' and 'B-l' and 'G' is one of loan. The
parties differ, however, on the nature of the security described
therein. 9
On May 17, 1971, the court a quo rendered a decision the decretal
part of which reads:
WHEREFORE, judgment is hereby rendered:
1) Denying defendants'
motion to dismiss of February
23, 1970;
2) Declaring Exhibits 'B', 'B-I'
and 'G' as loan transaction
secured by real estate
mortgages;
3) Annulling and setting aside
Exhibits 'D', 'D-l', 'I', 'I-l' and 'I-
2';
4) Ordering plaintiffs, jointly
and severally to pay (within
ninety [90] days from receipt
of a copy of this judgment)
defendants the sum of P
5,000.00 specified in Exhibit
'B', with interest thereon at
the legal rate from November
28, 1959 until full payment
together with the sum of P
9,308.00 specified in Exhibit
'G' with interest thereon at
the legal rate from December
1, 1959 until full payment,
and in default of such
payment, let the properties
mortgaged under Exhibits 'B',

'B-1' and 'G' be sold to realize
the mortgage debt and costs;
and
5) Dismissing defendants'
counter-claim.
With costs against defendants. 10
On June 14, 1971, petitioners appealed said decision to the Court of
Appeals which, on October 7, 1975; affirmed in all respects the
judgment of the trial court. Petitioners' motion for reconsideration of
said decision was denied on November 27, 1975. 11
On January 8, 1976, petitioners filed the petition at bar anchored on
the following assignments of errors:
1. The Hon. Court of Appeals
erred in not applying the
correct provisions of law
interpreting the conditional
sales dated May 27, 1959 and
August 30, 1959, Exhibits 'B'
and 'G' as equitable
mortgages.
2. That as a consequence of
its ruling that the conditional
sales, Exhibits 'B' and 'G', are
equitable mortgages, the
Hon. Court of Appeals erred
in ordering the reformation
of the same.
3. The Honorable Court of
Appeals erred in holding that
the order dated January 22,
1960, Exhibit C or 2, and the
order dated April 18, 1960,
Exhibit H or 6, issued by the
probate court in Sp. Proc. No.
5174 and by the cadastral
court in G.L.R.O. Rec. No. 395,
respectively, are null and void
for lack of jurisdiction.
4. The Hon. Court of Appeals
erred in not applying the
applicable provisions of law
on the prescription of action
and in not dismissing the
complaint filed in the lower
court. 12
We find the petition devoid of merit.
Article 1602 of the Civil Code provides:
The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
(1) When the price of a sale
with right to repurchase is
unusually inadequate;
(2) When the vendor remains
in possession as lessee or
otherwise;
(3) When upon or after the
expiration of the right to
repurchase another
instrument extending the
period of redemption or
17
granting a new period is
executed;
(4) When the purchaser
retains for himself a part of
the purchase price;
(5) When the vendor binds
himself to pay the taxes on
the thing sold;
(6) In any other case where it
may be fairly inferred that the
real intention of the parties is
that the transaction shall
secure the payment of a debt
or the performance of any
other obligation.
In any of the foregoing cases, any money, fruits or
other benefit to be received by the vendee as rent
or otherwise shall be considered as interest which
shall be subject to the usury laws.
The Court of Appeals, in holding that the two (2) deeds purporting to
be pacto de retro sale contracts are equitable mortgages, relied on
the following factual findings of the trial court, to wit:
Several undisputed circumstances persuade this
Court (that) the questioned deeds should be
construed as equitable mortgages as
contemplated in Article 1602 of the Civil Code,
namely: (1) plaintiff vendor remained in
possession until 1964 of the properties she
allegedly sold in 1959 to defendants; (2) the sums
representing the alleged purchase price were
actually advanced to plaintiff by way of loans, as
expressly admitted by the parties at the hearing
of February 17, 1971, reflected in an Order of the
same date: and (3) the properties allegedly
purchased by defendant Oscar Ramos and his
wife have never been declared for taxation
purposes in their names. Exhibits K, K-1, L and L-
1. 13
Even if we indulge the petitioners in their contention that they are
justified in not taking possession of the lots considering that what
were allegedly sold to them were only the rights, shares, interests and
participation of private respondent Adelaida Ramos in the said lots
which were under administration, 14 however, such fact will not
justify a reversal of the conclusion reached by respondent court that
the purported deeds of sale con pacto de retro are equitable
mortgages. Such a conclusion is buttressed by the other
circumstances catalogued by respondent court especially the
undisputed fact that the two deeds were executed by reason of the
loan extended by petitioner Oscar Ramos to private respondent
Adelaida Ramos and that the purchase price stated therein was the
amount of the loan itself.
The above-stated circumstances are more than sufficient to show
that the true intention of the parties is that the transaction shall
secure the payment of said debt and, therefore, shall be presumed to
be an equitable mortgage under Paragraph 6 of Article 1602
hereinbefore quoted. Settled is the rule that to create the
presumption enunciated by Article 1602, the existence of one
circumstance is enough.15 The said article expressly provides therefor
"in any of the following cases," hence the existence of any of the
circumstances enumerated therein, not a concurrence nor an
overwhelming number of such circumstances, suffices to give rise to
the presumption that the contract with the right of repurchase is an
equitable mortgage. As aptly stated by the Court of Appeals:
Thus, it may be fairly inferred that the real
intention of the parties is that the transactions in
question were entered into to secure the

payment of the loan and not to sell the property
(Article 1602, Civil Code). Under Article 1603 of
the Civil Code it is provided that 'in case of doubt,
a contract purporting to be a sale with right to
repurchase shall be construed as an equitable
mortgage' in this case, we have no doubt that the
transaction between the parties is that of a loan
secured by said properties by way of mortgage.
Hence, we find that Exhibits B and G do not reflect
the true and real intention of the parties and
should accordingly be reformed and construed as
equitable mortgages. 16
Equally puerile is the other contention of petitioners that respondent
court erred in not applying the exclusionary parol evidence rule in
ascertaining the true intendment of the contracting parties. The
present case falls squarely under one of the exceptions to said rule as
provided in then Section 7 of Rule 130, thus:
xxx xxx xxx
(a) Where a mistake or
imperfection of the writing or
its failure to express the true
intent and agreement of the
parties, or the validity of the
agreement is put in issue by
the pleadings;17
xxx xxx xxx
Moreover, it is a well entrenched principle in the interpretation of
contracts that if the terms thereof are clear and leave no doubt as to
the intention of the contracting parties the literal meaning of the
stipulation shall control but when the words appear to be contrary to
the evident intention of the parties, the latter shall prevail over the
former.18
The admission of parol testimony to prove that a deed, absolute in
form, was in fact given and accepted as a mortgage does not violate
the rule against the admission of oral evidence to vary or contradict
the terms of a written instrument.19 Sales with a right to repurchase,
as defined by the Civil Code, are not favored. We will not construe
instruments to be sales with a right to repurchase, with the stringent
and onerous effects which follow, unless the terms of the document
and the surrounding circumstances require it. Whenever, under the
terms of the writing, any other construction can fairly and reasonably
be made, such construction will be adopted and the contract will be
construed as a mere loan unless the court can see that, if enforced
according to its terms, it is not an unconscionable one. 20
On the faces thereof, the contracts purport to be sales with pacto de
retro; however, since the same were actually executed in
consideration of the aforesaid loans said contracts are indubitably
equitable mortgages. The rule is firmly settled that whenever it is
clearly shown that a deed of sale with pacto de retro, regular on its
face, is given as security for a loan, it must be regarded as an equitable
mortgage. 21
With respect to the orders dated January 22, 1960 and April 18, 1960,
issued by the Court below acting as a probate court and cadastral
court, respectively, the same could not preclude the institution of the
case now under review.
A reading of the order of the probate court will show that it is merely
an approval of the deed of conditional sale dated May 27, 1959
executed by petitioner Adelaida Ramos in favor of petitioners. There
is nothing in said order providing for the consolidation of ownership
over the lots allegedly sold to petitioners nor was the issue of the
validity of said contract discussed or resolved therein. "To give
approval" means in its essential and most obvious meaning, to
confirm, ratify, sanction or consent to some act or thing done by
another. 22 The approval of the probate court of the conditional sale
is not a conclusive determination of the intrinsic or extrinsic validity
of the contract but a mere recognition of the right of private
18
respondent Adelaida Ramos as an heir, to dispose of her rights and
interests over her inheritance even before partition. 23 As held
in Duran, et al., vs. Duran 24 the approval by the settlement court of
the assignment pendente lite, made by one heir in favor of the other
during the course of the settlement proceedings, is not deemed final
until the estate is closed and said order can still be vacated, hence the
assigning heir remains an interested person in the proceeding even
after said approval.
Moreover, the probate jurisdiction of the former court of first
instance or the present regional trial court relates only to matters
having to do with the settlement of the estate and probate of wills of
deceased persons, and the appointment and removal of
administrators, executors, guardians and trustees. Subject to settled
exceptions not present in this case, the law does not extend the
jurisdiction of a probate court to the determination of questions of
ownership that arise during the proceeding. The parties concerned
may choose to bring a separate action as a matter of convenience in
the preparation or presentation of evidence. 25 Obviously, the
approval by the probate court of the conditional sale was without
prejudice to the filing of the proper action for consolidation of
ownership and/or reformation of instrument in the proper court
within the statutory period of prescription.
The same jurisdictional flaw obtains in the order of consolidation
issued by the cadastral court. The court of first instance or the
regional trial court, acting as cadastral court, acts with limited
competence. It has no jurisdiction to take cognizance of an action for
consolidation of ownership, much less to issue an order to that effect,
such action must have been filed in the former court of first instance,
now in the regional trial court, in the exercise of its general
jurisdiction. That remedy, and the procedure therefor, is now
governed by Rule 64 of the Rules of Court as a special civil action
cognizable by the regional trial court in the exercise of original general
jurisdiction.
Antecedent thereto, Article 1607 of the Civil Code provided for
consolidation as follows:
In case of real property, the consolidation of
ownership in the vendee by virtue of the failure
of the vendor to comply with the provisions of
article 1616 shall not be recorded in the Registry
of Property without a judicial order, after the
vendor has been duly heard.
Hence in Crisologo, et al. vs. Centeno, et al., 26 we ruled that said
Article 1607 contemplates a contentious proceeding wherein the
vendor a retro must be named respondent in the caption and title of
the petition for consolidation of ownership and duly summoned and
heard. An order granting the vendee's petition for consolidation of
ownership, without the vendor a retro being named as respondent,
summoned and heard, is a patent nullity for want of jurisdiction of
the court over the person of the latter.
The questioned order of consolidation issued by the cadastral court,
being void for lack of jurisdiction, is in contemplation of law non-
existent and may be wholly disregarded. Such judgment may be
assailed any time, either directly or collaterally, by means of a
separate action or by resisting such judgment in any action or
proceeding whenever it is invoked. 27 It is not necessary to take any
step to vacate or avoid a void judgment; it may simply be ignored. 28
On the issue of prescription, in addition to what has been said, the
present case, having been filed on February 28, 1960, approximately
seven (7) years from the execution of the questioned deeds, was
seasonably instituted. The prescriptive period for actions based upon
a written contract and for reformation is ten (10) years under Article
1144 of the Civil Code. Such right to reformation is expressly
recognized in Article 1365 of the same code. 29
Article 1602 of the Civil Code is designed primarily to curtail the evils
brought about by contracts of sale with right of repurchase, such as
the circumvention of the laws against usury and pactum
commissorium.30 In the present case before us, to rule otherwise
 19

would contravene the legislative intent to accord the vendor a retro
maximum safeguards for the protection of his legal rights under the
true agreement of the parties. The judicial experience in cases of this
nature and the rationale for the remedial legislation are worth
reiterating, considering that such nefarious practices still persist:
WHEREFORE, the instant petition is hereby DENIED and the assailed
decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.

It must be admitted that there are some cases

where the parties really intend a sale with right to
repurchase. Although such cases are rare, still the
freedom of contract must be maintained and
respected. Therefore, the contract under
consideration is preserved, but with adequate
safeguards and restrictions.

One of the gravest problems that must be solved

is that raised by the contract of sale with right of
repurchase or pacto de retro. The evils arising
from this contract have festered like a sore on the
body politic. ...

xxx xxx xxx

It is a matter of common knowledge that in

practically all of the so-called contracts of sale
with right of repurchase, the real intention of the
parties is that the pretended purchase-price is
money loaned, and in order to secure the
payment of the loan a contract purporting to be a
sale with pacto de retro is drawn up. It is thus that
the provisions contained in articles 1859 and
1858 of the present Civil Code which respectively
prohibit the creditor from appropriating the
things given in pledge or mortgage and ordering
that said things be sold or alienated when the
principal obligation becomes due, are
circumvented.

Furthermore, it is well-known that the practice in

these so-called contracts of sale with pacto de
retro is to draw up another contract purporting to
be a lease of the property to the supposed
vendor, who pays in money or in crops a so-called
rent. It is, however, no secret to anyone that this
simulated rent is in truth and in fact interest on
the money loaned. In many instances, the interest
is usurious. Thus, the usury law is also
circumvented.

It is high time these transgressions of the law

were stopped. It is believed by the Commission
that the plan submitted for the solution of the
problem will meet with the approval of an
enlightened public opinion, and in general, of
everyone moved by a sense of justice.

During the deliberations of the Commission the

question arose as to whether the contract of
purchase with pacto de retro should be abolished
and forbidden. On first impression, this should be
done, but there is every reason to fear that in
such a case the usurious money-lenders would
demand of the borrowers that, although the real
agreement is one of loan secured with a
mortgage, the instrument to be signed should
purport to be an absolute sale of the property
involved. Should this happen, the problem would
become aggravated. Moreover, it must be
admitted that there are some cases where the
parties really intend a sale with right to
repurchase. Although such cases are rare, still the
freedom of contract must be maintained and
respected. Therefore, the contract under
consideration is preserved in the Project of Civil
Code, but with adequate safeguards and
restrictions. 31

G.R. No. L-34518 January 24, 1974
AURORA P. DE LEON, petitioner,
vs.
HONORABLE JUDGE FERNANDO CRUZ of the Court of First Instance
of Rizal, Caloocan City, Branch XII and EUSEBIO
BERNABE, respondents.
Tolentino, Garcia, Cruz and Reyes for petitioner.
Tañada, Sanchez, Tañada and Tañada and Raquiza, Esparrago and
Associates for respondent Eusebio Bernabe.
TEEHANKEE, J.:1äwphï1.ñët
The Court herein reiterates the rule that in the absence of overriding
considerations, the judgment debtor will not be granted preliminary
injunction to enjoin execution of a final judgment or
implementation of an already executed judgment simply because of
the filing by the judgment debtor of a new action for annulment of
the executed judgment on bare allegations of fraud, because the
presumption is that such judgment was legally and validly rendered.
This rule doubly holds true where the judgment debtor has already
failed in a previous action to annul the execution sale for alleged
irregularities and this Court has already sustained the validity of the
execution sale in a final judgment rendered over three years ago.
On December 28, 1970, this Court rendered its joint decision in
Cases L-308711 and L-316032 involving the same protagonists at bar,
wherein the decisive issue of conflict of jurisdiction between two
branches of the Caloocan City court of first instance was stated thus:
... which court, Branch XII presided by Judge Cruz or Branch XIV
presided by Judge Salvador has exclusive jurisdiction to set aside for
alleged irregularities the execution sale held on February 14, 1967
by virtue of the writ for the execution of the final judgment in the
first case (No. C-189) issued by Judge Cruz' court and to order a new
auction sale — which was the relief sought by the judgment debtor
in the second case (No. C-1217) in Judge Salvador's court?3
The Court sustained the exclusive jurisdiction of Judge Cruz's court,
holding that "(I)t is patent that such exclusive jurisdiction was vested
in Judge Cruz' court. Having acquired jurisdiction over Case No. C-189
and rendered judgment that had become final and executory, it
retained jurisdiction over its judgment, to the exclusion of all other
coordinate courts for its execution and all incidents thereof, and to
control, in furtherance of justice, the conduct of its ministerial officers
in connection therewith. Execution of its judgment having been
carried out by the sheriff with the levy and sale of the judgment
debtor's properties, Eusebio Bernabe as judgment debtor could not
in the guise of a new and separate second action (Case No. 1217) ask
another court of co-ordinate jurisdiction, Judge Salvador's court, to
interfere by injunction with the execution proceedings, to set them
aside and to order the holding of a new execution sale — instead of
seeking such relief by proper motion and application from Judge Cruz'
court which had exclusive jurisdiction over the execution proceedings
and the properties sold at the execution sale. 4
This Court thus upheld the validity of the execution sale held on
February 14, 1967 of respondent Bernabe's two real properties
(registered under T.C.T. Nos. 94985 and 94986 of Caloocan City)
wherein petitioner Aurora de Leon (sister of the judgment creditor
Enrique de Leon) was the highest bidder and of Judge Cruz' orders of
September 5, 1969 and January 5, 1970 in the first case (No. C-189)
consolidating ownership of the properties in petitioner de Leon with
the expiration of the redemption period and ordering respondent to
surrender his owner's duplicate certificates of title to the properties
thus sold to petitioner "since said orders were within the exclusive
competence and jurisdiction of Judge Cruz' court."5
By the same token, this Court held that Judge Salvador had no
jurisdiction to take cognizance of respondent Bernabe's second action
(Case No. C-1217) against his judgment creditor Enrique de Leon and
20
herein petitioner Aurora P. de Leon as purchaser to set aside or annul
the execution on February 14, 1967 "for being anomalous and
irregular" and to order the holding of a new auction sale. This Court
therefore nullified Judge Salvador's orders of May 20, 1969 and June
23, 1969 allowing redemption of the properties "notwithstanding
that the one-year redemption period had already lapsed more than
one year ago on February 21, 1968"6 and declared his court "without
jurisdiction over Civil Case No. C-1217 other than to dismiss the
same."7
Pursuant to this Court's said decision, petitioner assumed control of
the properties and collection of the rentals therefrom, while under
the Court's resolution of March 15, 1971, Bernabe's motion for the
return of the redemption amount of P33,817.28 accepted by the
sheriff under Judge Salvador's order of May 20, 1969 which this Court
set aside and declared null and void, was granted as a matter of
equity.
It now turns out that respondent Bernabe filed under the same date
of March 15, 1971 still another action against petitioner Aurora P. de
Leon, et al. (docketed as Case No. C-2048)8 for annulment or
declaration of nullity of the judgment rendered against him in the first
case (No. C-189) at the execution sale of which petitioner de Leon had
acquired his properties in question on the ground that "the judgment
rendered in Civil Case No. C-189 which led to the execution and sale
of his properties, was null and void because the same was secured by
Enrique de Leon, Jr., petitioner's brother and the plaintiff named in
Civil Case No. C-189, through fraud, deceit and misrepresentation in
that his (Enrique de Leon, Jr.') signatures appearing in the document
(lease contract) on which his complaint in Civil Case No. C-189 was
founded, and in the verification of said complaint, were both
falsified by his father, Enrique de Leon, Jr. is not entitled to the
judgment he obtained in Civil Case No. C-189 because the complaint
which gave rise to it was not instituted by him but by his father,
Enrique de Leon, Sr. — the person who signed the verification thereof
declaring that he is the plaintiff named therein."9
When petitioner asked respondent judge to finally enforce his
previous orders of September 5, 1969 and January 5, 1970 for the
surrender and cancellation of respondent Bernabe's certificates of
title and the issuance of new certificates in petitioner's favor (as
upheld by this Court's previous decision above referred to),
respondent judge denied petitioner's motions to this effect per his
orders of June 11, 1971 and September 8, 1971 on the ground of
pendency of respondents' new action for annulment of judgment
(Case No.
C-2048). Respondent Judge had per his order of June 10, 1971 in this
new annulment case denied petitioner's motion to dismiss (on
grounds of res judicata and lack of cause of action since it was
premised on allegations of intrinsic, not extrinsic, fraud) stating that
petitioner's grounds for dismissal "do not appear to be indubitable"
and ordered petitioner to answer the complaint. 10 In an earlier order
of March 17, 1971, "to preserve the status quobetween the parties"
he had ordered petitioner and her co-defendants "to refrain from
taking any further action on the properties of the plaintiff, Eusebio
Bernabe." 11
Hence, the present petition for certiorari, prohibition
and mandamus. 12 The Court, in giving due course, issued on January
15, 1972 its writ of preliminary injunction enjoining respondents from
further restraining this Court's final decision in Cases L-30871 and L-
31603 above referred to and respondent judge from further taking
cognizance of and proceeding with the annulment case (No. C-2048).
The crucial issue thus presented at bar is whether respondent judge
acted with grave abuse of discretion amounting to excess of
jurisdiction in issuing his challenged orders restraining in effect
implementation of this Court's final decision of December 28, 1970
which sustained his own orders of September 5, 1969 and January 5,
1970 in the original case (No. C-189) "confirming Aurora's acquisition
of title to the properties by virtue of the execution sale and ordering
Bernabe to transfer possession to her" 13 simply from the bare fact
that respondent Bernabe has filed on March 15, 1971 a second action
for annulment of the executed judgment for alleged fraud (Case No.
C-2048) after his first action for annulment of the execution sale in
favor of petitioner Aurora (Case No. C-1217) had failed and this Court

had sustained by final judgment the very orders implementing the
execution sale which respondent judge would now enjoin?
The Court holds that respondent judge did so act with grave abuse of
discretion. In the absence of overriding considerations — and none
has been shown here — the implementation of execution
proceedings already performed in satisfaction of a judgment and
sustained by final judgment of this Court (for consolidation of title of
the properties acquired in the execution sale by petitioner Aurora and
her exercise of the rights of ownership and possession the same) will
not be enjoined, simply because of the filing by the judgment debtor
of a new action for annulment of the executed judgment on the
ground of fraud, because the presumption is that such judgment was
legally and validly rendered. This is doubly true where as in this case
respondent judgment debtor has already failed in a previous action
to annul the execution sale and this Court sustained the validity of
such sale in a final judgment rendered over three years ago on
December 28, 1970.
As was stressed in the similar case of Quintero vs. Martinez 14 where
the judgment debtor sought to enjoin execution of a final judgment
of the municipal court in an action filed by him for the annulment
thereof on the ground "that the said judgment was obtained through
fraud, falsification and collusion", the Court sustained the court of
first instance's action of refusing to issue a preliminary injunction
against execution of the final judgment, ruling that "unless and until
the court sets aside as null and void the final judgment of the
municipal court of Manila ... on the ground of fraud, the execution
thereof cannot be enjoined ... because the presumption is that the
judgment was legally rendered. ... To issue a preliminary injunction
(on mere allegations of fraud) would be to allow judgment debtors to
delay the execution of a final judgment against them by filing a
complaint (for annulment of judgment with injunction) irrespective of
the final outcome of the action." 15 Parenthetically, it may be noted
that a judgment debtor seeking annulment of judgment affecting real
property may avail of a notice of lis pendens as provided in Rule 14,
section 24 for the protection of his alleged rights to the property.
Equally pertinent is the established doctrine that where there is no
question about the jurisdiction of the court over the parties and
subject matter and the proceedings were free from extrinsic fraud,
the judgment cannot be declared null and void even if it were
assumed that the court committed an error of judgment or reached
an erroneous conclusion in deciding the case, since such errors of
judgment — not of jurisdiction are correctible and reviewable only by
appeal and "if no appeal is taken, the decision, erroneous or not,
becomes final and executory, and is valid and binding between the
parties."16
Thus, when respondent judge in obedience to this Court's preliminary
injunction subsequently ordered respondent Bernabe to surrender
his titles under pain of cancellation and authorized petitioner Aurora
"to resume collecting rentals from the properties" per his orders of
April 7, 1972, July 1, 1972 and September 11, 1972 and Bernabe
sought to impugn such orders in a petition for certiorari filed with this
Court on September 28, 1972 (docketed as Case L-35559 17) the Court
dismissed the petition for lack of merit per its resolutions of October
31, 1972 and November 28, 1972.
Here, respondent Bernabe admittedly had his day in Court in the
original case (No. C-189) where judgment was obtained and executed
against him, his appeal from the judgment failed, and his special civil
action for certiorariagain Judge Cruz' orders confirming petitioner
Aurora's acquisition of title to the properties by virtue of the
execution sale was decided adversely against him in this Court's
decision of December 28, 1970.
He now alleges fraud in his new complaint only in the judgment
creditor's father (Enrique de Leon, Sr.) allegedly falsified his (the
son's) signatures in the lease contract and in the
complaint supra. 18 In respondent Bernabe's belated supplementary
memorandum of May 19, 1973, however, realizing perhaps that his
bare allegations as to the father having falsified the signatures of his
son, the judgment creditor, in the lease contract and the complaint
do not make out a case of extrinsic fraud since he was no way
deprived of his day in court, he now makes for the first time
21
allegations not made below of a "second fraud" alleged collusion
between his lawyer in the first case (C-189) and the de Leons and
indicates that he would correspondingly seek an "amendment of
pleading if necessary to serve the ends of justice."
The best-case view for respondent then is that while he could file such
action or amended action for annulment of the executed judgment
(on the assumption that his first action to annul the execution sale in
Case No. 1217 is not res judicata) such filing per se does not invalidate
the judgment nor entitle him to a preliminary injunction suspending
effects and consequences of the executed judgment to prejudice of
petitioner Aurora, whose rights as purchaser of the properties at the
execution sale have been recognized by this Court's final judgment of
December 28, 1970, until and unless he shall have obtained a final
judgment for annulment.
The worst-case view for respondent is that respondent judge may
take a second look at petitioner's motion to dismiss for lack of cause
of action on the ground that the fraud alleged in respondent's new
complaint does not constitute extrinsic fraud —
which alone warrants annulment of a judgment — and then resolve
after hearing the parties that indeed no extrinsic fraud is alleged in
respondent's second complaint for annulment or such amendments
thereof as shall have been permitted and that the same should
therefore be dismissed without need of trial for failure to state a
cause of action.
The question of extrinsic fraud has been extensively discussed in the
Court's ample jurisprudence on the matter. In the latest case of Cruz
vs. Navarro, 19 Mr. Justice Castro succinctly defined fraud as "extrinsic
when it is employed to deprive a party of his day in court, thereby
preventing him from asserting his right to the property."
In Libudan vs. Gil 20, extrinsic fraud was likewise described as the
"fraudulent scheme of the prevailing litigant (which) prevents a party
from having his day in court or from presenting his case." It was
therein emphasized that an action to annul judgment on grounds
of intrinsic fraud such as "acts of a party in a litigation during the trial,
such as the use of forged instruments or perjured testimony, which
did not affect the presentation of the case, but did prevent a fair and
just determination of the case," 21 would be unavailing, since it is the
business of a party litigant to meet and repel his opponent's perjured
or falsified evidence and it is settled law that judicial determination
however erroneous of matters brought within the court's
jurisdiction must be corrected in the same proceeding on appeal and
cannot be invalidated in another proceeding as otherwise the losing
party could attack the judgment at any time by attributing imaginary
falsehoods to his adversary's proofs.
In Cordovis vs. Obias 22 it was stressed that while "equity abhors fraud
... not every fraud can be a ground to annul a judgment, otherwise
litigations would never end."
ACCORDINGLY, the writ of certiorari is granted and respondent
judge's questioned orders of June 11, 1971 and September 8, 1971 in
Case No. C-189 denying implementation of his previous orders
confirming petitioner's acquisition of title to the properties (as set
aside by respondent judge in his subsequent orders of April 7, July 1,
and September 11, 1972) are hereby set aside and annulled. The
preliminary injunction heretofore issued on January 15, 1972 by the
Court is set aside insofar as it enjoined respondent judge from further
taking cognizance of and proceeding with the annulment case (No. C-
2048) with instructions to dispose of the same, particularly as to the
unresolved question raised in petitioner's pending motion to dismiss
of whether the allegations of respondent's complaint therein make
out a case of extrinsic fraud so as to state a cause of action, in
consonance with the controlling principles and jurisprudence thereon
as set forth in the Court's opinion. No pronouncement as to costs.

G.R. No. L-28527 June 16, 1988
ALFONSO FLORES AND VALENTIN GALLANO, defendants-appellants,
vs.
JOHNSON SO, plaintiff-appellee.
YAP, C. J.:
This case was certified to us by the Court of Appeals there being no
question of fact involved, but the application of the pertinent
provisions of the old and new Civil Code on the "Pacto de Retro Sale"
executed by defendant Valentin Gallano on February 27, 1950 in favor
of defendant-appellant Alfonso Flores over the land in question which
sale is contested by plaintiff-appellee Johnson So on the ground that
in truth and in fact, it was an equitable mortgage to secure a loan of
P2,550.00, the supposed purchase price. Valentin Gallano, impleaded
as co-defendant by order of the lower court, has aligned himself with
the cause of Johnson So.
The antecedent facts are:
On August 2, 1958, Johnson So filed an action for specific
performance before the Court of First Instance (now Regional Trial
Court) of Sorsogon, Tenth Judicial District, and docketed as Civil Case
No. 1305, against Alfonso Flores to effect the redemption of a parcel
of coconut and rice land situated in Matnog, Sorsogon, containing an
area of 165,056 square meters which was alleged to have been
ostensibly sold to the latter by Valentin Gallano on February 27, 1950,
with right of repurchase within four (4) years from the date of the
sale, for a price of P2,550.00. Valentin Gallano sold in an absolute
manner the same land to Johnson So on February 26, 1958 for the
price of P5,000.00. On the allegation that the Pacto de Retro Sale did
not embody the real intent and nature of the agreement between the
parties, the transaction being pi mere mortgage to secure a loan,
Johnson So prayed that the court declare the said Pacto de Retro Sale
as a mere equitable mortgage and order Alfonso Flores receive the
sum of P2,550.00 deposited with the court in Civil Case No. 1224 and
to consider the land in question redeemed from the latter for all legal
purposes. On September 24, 1960, the lower court ruled that, on the
issue of the nature of the contract in question, it is a contract of sale
of a parcel of land with the reservation in favor of the vendor a retro
of the right to repurchase it within a period of four (4) years from
execution thereof, that the execution of the affidavit of consolidation
of ownership by Flores on March 6, 1958 and its subsequent
registration in the Office of the Register of Deeds of Sorsogon did not
make his ownership over the land in question absolute and
indefeasible because of non-compliance with Articles 1606 and 1607
of the New Civil Code, which require a judicial order for consolidation
of the title of vendee a retro; and that the right of redemption
belonging to Valentin Gallano was, ipso facto, acquired by Johnson So
when he brought the land in question. Thus, the Court ordered
Alfonso Flores to deliver the possession of the land in question to
Johnson So and to execute the necessary deed of resale in favor of
the latter and authorized Flores to withdraw for his own use and
benefit the redemption money in the sum of P2,550.00. Valentin
Gallano was absolved from liability.
Alfonso Flores moved for a reconsideration of the above decision but
the motion was denied. On appeal to the Court of Appeals, the latter
certified the case to this Court as involving purely questions of law.
In essence, the question to be resolved is whether or not the
execution of the affidavit of consolidation of ownership by Alfonso
Flores and its subsequent registration in the Office of the Register of
Deeds of Sorsogon made his ownership over the land in question
absolute and indefeasible.
In its determination of the nature of the contract, the lower court
ruled that, based on the document itself which is the only evidence,
its terms being clear, explicit and without any confusion, it is a pacto
de retro sale with the vendor a retro being given four years from
22
execution thereof to redeem the subject property; however,
notwithstanding the fact that Valentin Gallano had four years from
February 27, 1950, or until February 27, 1954 only to redeem the
property, he could still exercise the right of redemption in 1958 when
he sued the vendee, Flores, for redemption, since, upon the
effectivity of the New Civil Code on August 30, 1950, Flores" right of
ownership over the land was not yet absolute and indefeasible for his
failure to comply with the requirements of Articles 1606 and 1607 of
the said Code.
We disagree. The pacto de retro sale between Gallano and Flores was
executed when the Civil Code of Spain was still in effect. It is provided
in Article 1509 thereof that if the vendor does not comply with the
provisions of Article 1518, (i.e. to return the price, plus expenses) the
vendee shall acquire irrevocably the ownership of the thing sold.
Under the old Civil Code, the ownership was consolidated in the
vendee a retro by operation of law. Accordingly, upon the failure of
Valentin Gallano, as the vendor a retro, to redeem the property
subject of the pacto de retro sale within the period agreed upon, the
vendee a retro, Alfonso Flores, became the absolute owner of the
subject property.
This right of ownership which had already vested in Alfonso Flores
way back in 1954 upon Gallano's failure to redeem within the
stipulated period cannot be defeated by the application of Articles
1606 and 1607 of the New Civil Code which requires registration of
the consolidation of ownership in the vendee a retro only by judicial
order. Article 2252 on Transitional Provisions in the New Civil Code
provides that:
Art. 2252. — Changes made and new provisions
and rules laid down by this Code which may
prejudice or impair vested or acquired rights in
accordance with the old legislation shall have no
retroactive effect ...
Furthermore, Article 2255 thereof states that:
Art. 2255.— The former laws shall regulate acts
and contracts with a condition or period which
were executed or entered into before the
effectivity of this Code, even though the condition
or period may still be pending at the time this
body of laws goes into effect.
In Manalansan v. Manalang, 108 Phil. 1041, we held that in a sale
with the right of redemption, the ownership over the thing sold is
transferred to the vendee upon execution of the contract, "subject
only to the resolutory condition that the vendor exercise his right of
repurchase within the period agreed upon." Consequently, since the
pacto de retro sale in question, which was executed in February of
1950, before the effectivity of the New Civil Code in August of 1950,
was a contract with a resolutory condition, and the condition was still
pending at the time the new law went into effect, the provisions of
the old Civil Code would still apply.
The trial court, therefore, erred in allowing redemption of the subject
property by plaintiff-appellee, Johnson So. Valentin Gallano was no
longer the owner of the same at the time of sale to Johnson So, thus,
no right whatsoever was transmitted to the latter, except the right to
redeem the property. Ownership over the subject property had long
vested upon the defendant appellant Alfonso Flores.
In view of the foregoing, the decision appealed from is reversed and
defendant-appellant Alfonso Flores is hereby declared the absolute
owner of the land subject of the controversy. Plaintiff- appellee
Johnson So is hereby ordered to pay the defendant-appellant the sum
of P500.00 as attorney's fees Plus costs of suit pursuant to their
agreement. 1
SO ORDERED.
23