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G.R. No. L-59266 February 29, 1988

SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,vs.HON. COURT OF APPEALS and ATILANO G. JABIL,respondents.

BIDIN, J.:

This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9thDivision, Court of Appeals dated July 31,1981, affirming with modification the Decision, datedAugust 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled AtilanoG. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, asAttorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution datedDecember 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for

lack of merit.

The undisputed facts as found by the Court of Appeals are as follows:

The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, ofthe cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants(petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant(respondent Atilano J. Jabil) for the sum of P28,000.00, payable in twoinstallments, with an assumption of indebtedness with the First Insular Bank ofCebu in the sum of P12,000.00, which was paid and acknowledged by the vendorsin the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next

installment in the sum of P4,000.00 to be paid on or before September 15, 1965.

On November 25, 1965, the Dignos spouses sold the same land in favor ofdefendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were thenU.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, alsomarked Exh. 3) was executed by the Dignos spouses in favor of the Cabigasspouses, and which was registered in the Office of the Register of Deeds pursuantto the provisions of Act No. 3344.

As the Dignos spouses refused to accept from plaintiff-appellant the balance ofthe purchase price of the land, and as plaintiff- appellant discovered the second

sale made by defendants-appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28)

After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, thedecretal portion of which reads:

WHEREFORE, the Court hereby declares the deed of sale executed on November25, 1965 by defendant Isabela L. de Dignos in favor of defendant Luciano



Cabigas, a citizen of the United States of America, null and void ab initio, and thedeed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsodde Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is herebyordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to thedefendants-spouses upon the execution of the Deed of absolute Sale of Lot No.

3453, Opon Cadastre and when the decision of this case becomes final andexecutory.

The plaintiff Atilano G. Jabil is ordered to reimburse the defendants LucianoCabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde,reasonable amount corresponding to the expenses or costs of the hollow blockfence, so far constructed.

It is further ordered that defendants-spouses Silvestre T. Dignos and IsabelaLumungsod de Dignos should return to defendants-spouses Luciano Cabigas andJovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall

enrich himself at the expense of another.

The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this decision.

With costs against the defendants.

From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein)appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R,"Atilano G. Jabil v. Silvestre T. Dignos, et al."

On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building ofa fence upon the land in question. The disposive portion of said decision of the Court of Appealsreads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to themodification of the judgment as pertains to plaintiff-appellant above indicated, the

judgment appealed from is hereby AFFIRMED in all other respects.

With costs against defendants-appellants.

SO ORDERED.Judgment MODIFIED.

A motion for reconsideration of said decision was filed by the defendants- appellants(petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the Court ofAppeals denying the motion for lack of merit.



Hence, this petition.

In the resolution of February 10, 1982, the Second Division of this Court denied the petition forlack of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In theresolution dated April 26,1982, respondents were required to comment thereon, which comment

was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with theresolution of June 16,1 982. On August 9,1982, acting on the motion for reconsideration and onall subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10,1982 and to give due course to the instant petition. On September 6, 1982, respondents filed arejoinder to reply of petitioners which was noted on the resolution of September 20, 1982.

Petitioners raised the following assignment of errors:

I

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY,

INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C,HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVERTHE PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY ACONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED INMISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT,EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMSTHEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL.

II

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY

APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE ASWARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION,EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED

NOR IS IT A NOTARIAL ACT.

III

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THEAPPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE ANDESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES ANDATTORNEY'S FEES TO PETITIONERS.

IV

PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEENDISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS.

V



BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMINGWITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVEMISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMSOF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO.

The foregoing assignment of errors may be synthesized into two main issues, to wit:

I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell.

II. Whether or not there was a valid rescission thereof.

There is no merit in this petition.

It is significant to note that this petition was denied by the Second Division of this Court in itsResolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and onthe basis of all subsequent pleadings filed, the petition was given due course.

I.

The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:

1. That Atilano G..Jabilis to pay the amount of Twelve Thousand PesosP12,000.00) Phil. Philippine Currency as advance payment;

2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos(P12,000.00) Loan from the First Insular Bank of Cebu;

3. That Atilano G. Jabil is to pay the said spouses the balance of Four. ThousandPesos (P4,000.00) on or before September 15,1965;

4. That the said spouses agrees to defend the said Atilano G. Jabil from otherclaims on the said property;

5. That the spouses agrees to sign a final deed of absolute sale in favor of AtilanoG. Jabil over the above-mentioned property upon the payment of the balance ofFour Thousand Pesos. (Original Record, pp. 10-11)

In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale

(Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two(2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or beforeSeptember 15,1965 and the immediate assumption of the mortgage of P12,000.00 with the FirstInsular Bank of Cebu. It is further contended that in said contract, title or ownership over the

property was expressly reserved in the vendor, the Dignos spouses until the suspensive conditionof full and punctual payment of the balance of the purchase price shall have been met. So thatthere is no actual sale until full payment is made (Rollo, pp. 51-52).



In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver thatthere is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey ortransfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a

private instrument and the absence of a formal deed of conveyance is a very strong indicationthat the parties did not intend "transfer of ownership and title but only a transfer after full

payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms andconditions of the contract, more particularly paragraph four which reads, "that said spouses hasagreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number fivewhich reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned

property upon the payment of the balance of four thousand pesos."

Such contention is untenable.

By and large, the issues in this case have already been settled by this Court in analogous cases.

Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed

of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to theeffect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract themoment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722;Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).

A careful examination of the contract shows that there is no such stipulation reserving the title ofthe property on the vendors nor does it give them the right to unilaterally rescind the contractupon non-payment of the balance thereof within a fixed period.

On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code,

are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that"The ownership of the thing sold shall be transferred to the vendee upon actual or constructivedelivery thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA276), this Court held that in the absence of stipulation to the contrary, the ownership of the thingsold passes to the vendee upon actual or constructive delivery thereof.

While it may be conceded that there was no constructive delivery of the land sold in the case at bar, as subject Deed of Sale is a private instrument, it is beyond question that there was actualdelivery thereof. As found by the trial court, the Dignos spouses delivered the possession of theland in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally'sBeach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resorton January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts wereadmitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108).

Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale wasintended by the parties and not a contract to sell.



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

II.

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

Applying the rationale of the case of Taguba v. Vda. de Leon ( supra ) which is on all fours withthe case at bar, the contract of sale being absolute in nature is governed by Article 1592 of theCivil Code. It is undisputed that petitioners never notified private respondents Jabil by notarialact that they were rescinding the contract, and neither did they file a suit in court to rescind thesale. The most that they were able to show is a letter of Cipriano Amistad who, claiming to be anemissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the latterhad no money and further advised petitioners to sell the land in litigation to another party(Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is no showing that

Amistad was properly authorized by Jabil to make such extra-judicial rescission for the latterwho, on the contrary, vigorously denied having sent Amistad to tell petitioners that he wasalready waiving his rights to the land in question. Under Article 1358 of the Civil Code, it isrequired that acts and contracts which have for their object the extinguishment of real rights overimmovable property must appear in a public document.

Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money onthe stipulated date of payment on September 15,1965 and was able to raise the necessary amountonly by mid-October 1965.

It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay

on the part of one party in the performance of his obligation is not a sufficient ground for therescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that privaterespondent has only a balance of P4,000.00 and was delayed in payment only for one month,equity and justice mandate as in the aforecited case that Jabil be given an additional periodwithin which to complete payment of the purchase price.

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

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

G.R. No. L-29421 January 30, 1971

LINO ARTATES and MANUELA POJAS, plaintiffs-appellants,vs.



DANIEL URBI, CRISANTO SOLIVEN, assisted by his Guardian 'ad li tem ,' MARCELAB. SOLIVEN, REMEGIO BUTACAN and NEMESIO OÑATE, in their private capacitiesand/or as Ex-Oficio Provincial Sheriff and Deputy Sheriff of Cagayan, respectively, andBIENVENIDO CACATIAN, as Deputy Register of Deeds of Cagayan,defendants-appellees.

Bienvenido J. Jimenez for plaintiffs-appellants.

Rogelio Re. Ubarde for defendants-appellees Daniel Urbi and Crisanto Soliven.

Alfredo J. Donato for defendant-appellant Nemesio Oñate.

The Provincial Fiscal (Cagayan) for defendants-appellees Provincial Sheriff and Deputy Register of Deeds.

REYES, J.B.L., J.:

This is an appeal from the decision of the Court of First Instance of Cagayan (Civil Case No.116-T), involving the public sale of a homestead to satisfy a civil judgment against the grantee.

The records show that in an action filed in the Court of First Instance of Cagayan, the spousesLino Artates and Manuela Pojas sought annulment of the execution of a homestead 1 covered byPatent No. V-12775 issued to them by the proper land authorities on 23 September 1952, andduly registered in their names (OCT No. P-572). The public sale, conducted by the ProvincialSheriff of Cagayan on 2 June 1962, was made to satisfy a judgment against Lino Artates in theamount of P1,476.35, and awarded to Daniel Urbi by the Justice of the Peace Court of

Camilaniugan, Cagayan, in its Civil Case No. 40, for physical injuries inflicted by Artates uponUrbi on 21 October 1955. In the execution sale, the property was sold to the judgment creditor,the only bidder, for P1,476.35. In their complaint, the plaintiffs spouses alleged that the sale ofthe homestead to satisfy an indebtedness of Lino Artates that accrued on 21 October 1955,violated the provision of the Public Land law exempting said property from execution for anydebt contracted within five years from the date of the issuance of the patent; that defendant Urbi,with the intention of defrauding the plaintiffs, executed on 26 June 1961 a deed for the sale ofthe same parcel of land to defendant Crisanto Soliven, a minor, supposedly for the sum ofP2,676.35; that as a result of the aforementioned transactions, defendants Urbi and Solivenentered into the possession of the land and deprived plaintiffs of the owners' share in the ricecrops harvested during the agricultural year 1961-1962. Plaintiffs, therefore, prayed that the

public sale of the land to defendant Urbi, as well as the deed of sale executed by the latter infavor of defendant Soliven, be declared null and void; that defendants be ordered to deliver to plaintiffs possession of the land; and to pay to plaintiffs compensatory damages at the rate ofP1,000.00 per agricultural year until possession is finally restored to them, the sum of P2,000.00as damages for maliciously casting cloud upon plaintiffs' title on the land, plus attorneys' feesand costs.



The defendants 2 filed separate answers disputing the averments of the complaint. On 29 March1953, the court rendered judgment upholding the regularity and validity of the executionconducted by the defendant Provincial Sheriff, but finding that the sale of the lands by defendantUrbi to the minor Soliven was simulated, intended to place the property beyond the reach of the

judgment debtor, and that plaintiffs had offered to redeem the land within the 5-year period

allowed by Section 119 of the Public Land law for reacquisition thereof by the grantee.Consequently, the court declared the sale of the land by defendant Daniel Urbi to defendantCrisanto Soliven null and void; and Daniel Urbi was ordered to reconvey the property to the

plaintiffs upon the latter's payment (to Urbi) of the sum of P1,476.35 plus the sheriff's feeincident to the sale at public auction, with interest thereon at the rate of 12% per annum from 2June 1961 until said amount shall have been fully paid, and the further sum of P783.45representing the amount paid by defendant Daniel Urbi to the Philippine National Bank for therelease of the real estate mortgage on the land, contracted by Lino Artates, with legal rate ofinterest thereon from 29 June 1961.

From this decision, the plaintiffs interposed the present appeal assigning several errors allegedly

committed by the court below, all hinged on the validity or invalidity of the public sale of the lotinvolved herein.

Section 118 of the Public Land law (Commonwealth Act 141) provides as follows:

SEC. 118. Except in favor of the Government or any of its branches, units, orinstitution, or legally constituted banking corporations, lands acquired under free

patent or homestead provisions shall not be subject to encumbrance or alienationfrom the date of the approval of the application and for a term of five years fromand after the date of issuance of the patent or grant, nor shall they become liableto the satisfaction of any debt contracted prior to the expiration of said period, but

the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations or corporations.

xxx xxx xxx

As thus prescribed by law, for a period of five years from the date of the government grant, landsacquired by free or homestead patent shall not only be incapable of being encumbered oralienated except in favor of the government itself or any of its institutions or of duly constituted

banking corporations, but also, they shall not be liable to the satisfaction of any debt contractedwithin the said period ,3 whether or not the indebtedness shall mature during or after the

prohibited time. 4 This provision against the alienation or encumbrance of public lands grantedwithin five years from the issuance of the patent, it has been held, is mandatory; 5 a sale made inviolation thereof is null and void 6 and produces no effect whatsoever. Though it may be alimitation on the right of ownership of the grantee, the salutary purpose of the provision cannot

be denied: it is to preserve and keep for the homesteader or his family the land given to himgratuitously by the State, 7 so that being a property owner, he may become and remain acontented and useful member of our society. 8



In the case at bar, the homestead patent covering the land in question (No.V-12775) was issued to appellants on 23 September 1952 , and it was sold at public auction tosatisfy the civil liability of appellant Lino Artates to Daniel Urbi, adjudged in the 14 March 1956decision of the Justice of the Peace Court of Camalaniugan, Cagayan. lâwphî1.ñèt There can beno doubt that the award of damages to Urbi created for Artates a civil obligation, an

indebtedness, that commenced from the date such obligation was decreed on 14 March 1956 .Consequently, it is evident that it can not be enforced against, or satisfied out of, the sale of thehomestead lot acquired by appellants less than 5 years before the obligation accrued. And this istrue even if the sale involved here is not voluntary. For purposes of complying with the law, it isimmaterial that the satisfaction of the debt by the encumbrancing or alienation of the land grantmade voluntarily, as in the case of an ordinary sale, or involuntarily, such as that effectedthrough levy on the property and consequent sale at public auction. In both instances, the spirit ofthe law would have been violated. 9

Doubts have been expressed as to whether the words "debt contracted prior to the expiration ofsaid period" (of 5 years from and after the grant) would include the civil liability arising from a

crime committed by the homesteader. While there is no direct Philippine precedent on this point,there are various reasons why the non-liability of the homestead grant should be extended toextra-contractual obligations. First and foremost, whether it be viewed as an exemption or as acondition attached to the grant to encourage people to settle and cultivate public land, theimmunity in question is in consonance with the definite public policy underlying these grants,which is to "preserve and keep in the family of the homesteader that portion of public land whichthe State has given to him" so he may have a place to live with his family and become a happycitizen and a useful member of society, 10 and the exemption should not be given restrictiveapplication. 11 A levy and sale of the homestead on account of extra-contractual liability incurredwould uproot the homesteader and his family and turn them into homeless waifs as effectively asa levy for non-payment of a contractual debt. Secondly, the word "debt" in exemption statutes, —

in its wider sense, (it) includes all that is due to a man under any form orobligation or promise, and covers not only obligations arising under contract, butalso those imposed by law without contract . 12

Considering the protective policy of the law, it becomes apparent that "debt contracted" was usedin it in the sense of " obligation incurred ," since Webster gives the verb to "contract" the meaningof "to bring on; incur; acquire." Finally, our public land laws being copied from Americanlegislation, 13 resort to American precedents reveals that, under the weight of authority,exemption from "debts contracted" by a homesteader has been held to include freedom frommoney liabilities, from torts or crimes committed by him, such as from bigamy (State vs. O'Neil,7 Ore. 141, 11 Words and Phrases 318) or slander (Conway vs. Sullivan, 44 Ill. 451, 452), breachof contract (Flanagan vs. Forsythe, 50 Pac. 152, 153) or other torts (In Re Radway, 20 Fed. Cas.154, 162).

The execution sale in this case being null and void, the possession of the land should be returnedto the owners, the herein appellants. There would even be no need to order appellee Urbi toexecute a deed of reconveyance thereof to the owners. It appears that what was issued here to the

judgment creditor/purchaser was only the sheriff's provisional certificate, under which he derived



no definite title or right until the period for redemption has expired, without a redemption having been made, 14 or issuance of a final deed or certificate of sale. In other words, the purchaserherein has not acquired an absolute ownership or title in fee over the land that would necessitatea deed of reconveyance to revert ownership back to the appellant spouses. As things now stand,title to the property covered by OCT No. P-572 remains with the appellants, but Lino Artates

shall continue to be under obligation to satisfy the judgment debt to Daniel Urbi in the sum ofP1,476.35, with legal interest thereon accruing from the date the writ of execution was firstreturned unsatisfied. It appearing also that appellee Daniel Urbi paid to the Philippine NationalBank the sum of P783.45 to release the mortgage on the land, appellants should reimburse him ofsaid amount or of whatever amount appellants have actually been benefited by the said payment.

FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby reversed,and appellants are declared entitled to the return and possession of the lot covered by OriginalCertificate of Title No. P-572, without prejudice to their continuing obligation to pay the

judgment debt, and expenses connected therewith. No costs.

Concepcion, C.J., Dizon, Zaldivar, Fernando and Makasiar, JJ., concur.

G.R. No. L-54070 February 28, 1983

HEIRS OF ENRIQUE ZAMBALES and JOAQUINA ZAMBALES, petitioners,vs.COURT OF APPEALS, NIN BAY MINING CORPORATION, ANGELA C. PREYSLERand JOAQUIN B. PREYSLER, respondents.

MELENCIO-HERRERA, J.:

The Decision of respondent Court of Appeals in the case entitled "Enrique Zambales andJoaquina Zambales, Plaintiffs-appellees vs. Atty. Perfecto de los Reyes, Nin Bay MiningCorporation and Joaquin B. Preysler, Defendants-appellants" (CA-G.R. No. 59386-R), settingaside the judgment of the Court of First Instance of Palawan in Civil Case No. 678 forAnnulment of a Deed of Sale with Recovery of Possession and Ownership with Damages", is thesubject of this Petition for Review on Certiorari.

Joaquin B. Preysler is now deceased and was substituted by Angela C. Preysler, his widow.

Atty. Perfecto de los Reyes was originally a defendant in Civil Case No. 678 but he did notappeal from the Decision of the lower Court.

The Zambales spouses (Zambaleses, for brevity) were the homestead patentees of a parcel ofland with an area of 17,8474 hectares situated in the Municipality of Del Pilar, Roxas, Palawan,covered by Original Certificate of Title No. G 1193 of the Registry of Deeds for the Province ofPalawan, issued pursuant to Homestead Patent No. V-59502 dated September 6, 1955.



Claiming that the Nin Bay Mining Corporation (Corporation, for short) had removed silica sandfrom their land and destroyed the plants and others improvements thereon, the Zambalesesinstituted, on November 10, 1958, Civil Case No. 316 before the Court of First Instance ofPalawan claiming damages in the total sum of P48,000.00.

The Corporation denied having caused any damages and claimed that it had excavated andextracted silica sand only from its own mining claims and on which it had mining leasecontracts with the Philippine Government.

On October 29, 1959, the Zambaleses, duly assisted by their counsel, Atty. Perfecto de losReyes, and the Corporation, entered into a Compromise Agreement, the portions of which,

pertinent to this case, read:

1. DEFENDANT shall pay the PLAINTIFFS a rental of TWENTY (P20.00)PESOS per hectare per year from September 9, 1955 to September 30, 1960, or atotal rental price of ONE THOUSAND SEVEN HUNDRED EIGHTY-FOUR

PESOS AND SEVENTY- FOUR CENTAVOS (P1,784.74), Philippine currency,in lieu of all damages...

2. The payment to the PLAINTIFFS of the above-mentioned rental price shall beconsidered full, absolute and final payment and indemnity for all the allegeddamages to PLAINTIFFS' property and its improvements, or any other actual,moral, exemplary or other damages that PLAINTIFFS may have suffered or willsuffer in connection with the mining operations of DEFENDANT on the propertyin question, which property, by virtue of the terms of this Agreement shall be used

by DEFENDANT as occupant thereof until September 30, 1960.

3. PLAINTIFFS hereby agree and bind themselves to sell, transfer and convey,and DEFENDANT or its assigns, qualified to acquire or hold lands of the publicdomain, hereby agrees to purchase and pay for, the aforesaid property of thePLAINTIFFS, containing an area of 17.8474 hectares, situated in theMunicipality of Del Pilar, Roxas, Palawan, and covered by Original Certificate ofTitle No. G1193 of the Registry of Deeds of Palawan, at the fixed selling price ofFIVE HUNDRED (P500.00) PESOS per hectare or a total purchase price ofEIGHT THOUSAND NINE HUNDRED TWENTY THREE PESOS andSEVENTY CENTAVOS (P8,923.70), Philippine currency. The contract to purchase and sell herein provided for, shall be reciprocally demandable andenforceable by the parties hereto on September 10, 1960. PLAINTIFFS herebyirrevocably constitute and appoint DEFENDANT, its successors and/or assignstheir true and lawful attorney-in-fact with full power and authority to sell, transferand convey on September 10, 1960 or at any time thereafter the whole or any partof PLAINTIFFS' property hereinabove mentioned to the DEFENDANT, itssuccessors and/or assigns, or to any third party, and to execute and deliver allinstruments and documents whatsoever necessary for the purpose, and all actsdone and to be done by DEFENDANT, its successors and/or assigns in



conformity with the powers herein granted are hereby ratified and confirmed bythe PLAINTIFFS. ...

4. In consideration of the payment of the amount of P1,784.74 by DEFENDANT,and of other good and valuable consideration, PLAINTIFFS, jointly and

severally, hereby forever release, fully and completely, said DEFENDANT, itssuccessors and/or assigns in interest, from any and all liabilities, whether arisingfrom past, present or future excavation or removal of silica sand from the propertyin question or otherwise, and from all the other claims against the DEFENDANTcontained in their Complaint in Civil Case No. 316 of the Court of First Instanceof Palawan. 1

The Trial Court rendered judgment on October 29, 1959 based on the Compromise Agreement.The document was duly annotated an OCT No. G - 1193 (Exhibit " A ") the day after, or onOctober 30, 1959 (Exhibit " 10 A ").

On September 10, 1960, the Corporation, as attorney-in-fact for the Zambaleses, as Vendors,sold the disputed property to Joaquin B. Preysler for the sum of P8,923.70 fixed in theCompromise Agreement (Exhibit " 11 ").Transfer Certificate of Title No. T-970 was issued inthe vendee's name on December 19, 1960 (Exhibit " 2 ").

The Deed of Sale to Preysler contained the following proviso:

The VENDORS hereby represent and warrant that the five-year restrictive periodon alienation of lands acquired under the homestead provisions of CommonwealthAct No. 141, as amended, otherwise known as the Public Land Act, has alreadyexpired, the date of issuance of the herein homestead patent to the VENDORS as

aforesaid being September 6, 1955 as shown in Original Certificate of Title No.G-1193.

On October 18, 1960, the Secretary of Agriculture and Natural Resources approved the sale toPreysler of the subject property (Exhibit "13 ").

On. December 6, 1969, or ten (10) years after the Trial Court's Decision based on theCompromise Agreement, and nine (9) years after the sale to Preysler, the Zambaleses filed CivilCase No. 678 before the Court of First Instance of Palawan for "Annulment of a Deed of Salewith Recovery of Possession and Ownership with Damages". They contended that it was theirlawyer who prevailed upon them to sign the Compromise Agreement; that they are unschooled

and did not understand the contents thereof; that they were made to understand that they wouldreceive the sum of P10,700.00, only as payment for damages sustained by the land from 1955 to1960; that through fraud, deceit and manipulation by their lawyer and the Corporation, they weremade to agree to appoint the Corporation as their attorney-in-fact with full power and authorityto sell; that it was never their intention to sell the land; that in September 1969, they weresurprised to learn that the land was already titled in the name of Joaquin B. Preysler; that the landwas acquired and registered in the latter's name through fraud and deceit. The Zambaleses then



prayed that the deed of sale and the title in Preysler's name be annulled on the ground of fraudand that the property be reconveyed to them.

In their Answer, the Corporation denied all allegations that the Zambaleses had signed theCompromise Agreement without understanding the contents thereof, the truth being that it was

read to them by their counsel, Atty. Perfecto de los Reyes, who explained thoroughly the fullimplication and legal consequence of each and every provision, which was then submitted andapproved by then Presiding Judge Juan L. Bocar; and that the Corporation had sold the propertyto Preysler as a duly constituted attorney-in-fact pursuant to the Compromise Agreement.

After trial, the lower Court rendered judgment in favor of the Zambaleses, the dispositive part ofwhich reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and againstthe defendants as follows:

1) That the deed of sale executed by Nin Bay Mining Corporation through its president, to Joaquin B. Preysler is hereby declared null and void;

2) That the defendant Joaquin B. Preysler is hereby ordered to reconvey the landsubject matter of this litigation to the plaintiffs;

3) That the defendants Nin Bay Mining Corporation and Joaquin B. Preysler shall pay the plaintiffs the sum of P85,000.00 as actual damages plus the legal rate ofinterest from September 30, 1960 up to the time the amount is fully paid;

4) That the defendants to pay the sum of FIVE THOUSAND (P5,000.00) PESOS

as attorneys fees; and

5) The defendants to pay the costs.

On appeal by the Corporation, the Court of Appeals reversed the Trial Court, after finding thatthe alleged fraud or misrepresentation in the execution of the Compromise Agreement had not

been substantiated by evidence.

The case is now before us on review.

The controversy revolves around the issue of due execution and validity of the Compromise

Agreement (Exhibit "8") dated October 29; 1959, and of the subsequent Deed of Sale (Exhibit"11 "), dated 10 September 1960.

I

The general rule is that whoever alleges fraud or mistake must substantiate his allegation, sincethe presumption is that a person takes ordinary care of his concerns and that private transactions



have been fair and regular. The rule admits of an exception in Article 1332 of the Civil Codewhich provides:

When one of the parties is unable to read, or if the contract is in a language notunderstood by him, and mistake or fraud is alleged, the person enforcing the

contract must show that the terms thereof have been fully explained to the former.

For the proper application of said provision, it has first to be established convincingly that theilliterate or the party at a disadvantage could not read or understand the language in which thecontract was written. 2 The evidence discloses that the spouses Zambales are unschooled. Theycannot read, speak, much less understand English or write, except to sign their names. 3 TheZambaleses alleged in their Complaint that the Compromise Agreement (Exhibit "8") wasexecuted through fraud by the Corporation and by their counsel Atty. Perfecto de los Reyes,whom they included as a defendant. The burden of proof, therefore, shifted to the Corporation toshow that the compromise agreement had been fully explained to the plaintiffs.

In refuting the allegation that plaintiffs were misled into signing the compromise agreement,their former counsel, Atty. Perfecto de los Reyes, and the notary, Atty. Salomon Reyes, a lawyerfor Nin Bay Mining Corporation, established that the terms and conditions of the CompromiseAgreement were thoroughly explained and fully understood by the spouses Zambales inaccordance with their proposal to sell the land at P500.00 a hectare; that before the signing of theCompromise Agreement, the notary requested Atty. de los Reyes to read and explain each andevery provision to the spouses, and with the help of Ricardo Nunala, Atty. de los Reyes did so intheir dialect (Cuyuno). Thereafter, the parties went to Judge Juan Bocar, who was assured thatthe spouses Zambales understood and signed the Compromise Agreement. 4

We sustain the finding of the Court of Appeals that fraud and misrepresentation did not vitiate

petitioners' consent to the Agreement when it observed:Taking into account the foregoing observations, this Court is not convinced thatindeed appellees were victims of a fraudulent scheme employed upon them bytheir former counsel by reason of their alleged illiteracy and ignorance. Theevidence discloses that appellees, although unschooled, are intelligent, well-informed and intelligent people. They are not the kind of persons who couldeasily be fooled of their rights and interests. Even as commented by the court aquo , which had a chance to observe the demeanor of the witness, it had noobservation that the witness, Joaquina Zambales, is ignorant. As correctlyobserved by appellants, appellees 'are political leaders and chief campaigners;they speak in the platform during political rallies; and they are widely travelled'(p. 28, Appellants' Brief). As a matter of fact they are knowledgeable of the rightconnections in the government. They had approached former Sen. Rogelio de laRosa, no less, the congressman and the governor. Even the lawyers they haveretained previous to their present counsel are the Padilla Law Office and theDiokno Law Office, It is common knowledge that these law offices are among theestablished law offices in Manila. It is far convincing that an ignorant couplewould have knowledge of these law firms. All these are obvious manifestations of



their being well-informed and the way they have conducted their way of livingapparently is inconsistent with the plea of being illiterate and/or ignorant. Theycannot capitalize on the fact that they are uneducated only because they had noformal schooling inasmuch as one's knowledge of the facts of life is notdependent on whether one had formal schooling or not and it does not necessarily

follow always that if one is unschooled he is ignorant.

Furthermore, when plaintiffs-appellees signed the questioned compromiseagreement they were duly assisted and represented by their counsel, Atty. de losReyes. When Atty. de los Reyes testified in court he categorically declared that itwas to the best interest of his clients that they compromise Civil Case No. 316.This declaration finds support in Joaquina Zambales' testimony wherein she statedthus:

ATTY. SEMBRANO:

Q. Except for this present case, would you say to the Court thatAtty. de los Reyes extended to you legal assistance to yoursatisfaction?

A. Yes, sir, he is good to us.

xxx xxx xxx

Q. So these people never gave their services to you?

A. Nobody was able to help us except Atty. de los Reyes. (Tsn.,

pp. 29, 31 & 32, June 19, 1974)

... Thus, it having been established that appellees could not have been misled bytheir former counsel into signing the compromise agreement and taking intoaccount the acts of the appellees and their children subsequent to the execution ofthe compromise agreement perforce the court a quo erred in not giving credenceto the clear and convincing testimonies of Atty. Perfecto de los Reyes and Atty.Salomon Reyes anent the execution of the compromise agreement. 5

However, although we find that the Zambaleses were not misled into signing the CompromiseAgreement, we hold that there has been violation of the Public Land Act. The evidence on record

shows that the land in question was awarded t the Zambaleses as a homestead on September 6,1955 (Exhibit "A"). Before us, the Zambaleses now argue that the Compromise Agreementexecuted on October 29, 1959 is in violation of the Public Land Act, which prohibits alienationand encumbrance of a homestead lot within five years from the issuance of the patent. 6

We sustain that contention. The fact that the issue was not raised in the Courts below is not adeterrent factor considering that the question affects the validity of the agreement between the

parties. The Supreme Court has the authority to review matters even if they are not assigned as



errors in the appeal, if it is found that their consideration is necessary in arriving at a justdecision of the case. 7 Moreover, a party may change his legal theory on appeal only when thefactual bases thereof would not require presentation of any further evidence by the adverse partyin order to enable it to properly meet the issue raised in the new theory. 8 In the case at bar it isindisputable that Homestead Patent No. V-59502 was issued on September 6, 1955 as shown in

Original Certificate of Title No. 1193 (Exhibit "A ").

The sale of a homestead lot within the five-year prohibitory period is illegal and void. The lawdoes not distinguish between executory and consummated sales.

The law prohibiting any transfer or alienation of homestead land within five yearsfrom the issuance of the patent does not distinguish between executory andconsummated sales; and it would hardly be in keeping with the primordial aim ofthis prohibition to preserve and keep in the family of the homesteader the piece ofland that the state had gratuitously given to them, to hold valid a homestead saleactually perfected during the period of prohibition but with the execution of the

formal deed of conveyance and the delivery of possession of the land sold to the buyer deferred until after the expiration of the prohibitory period, purposely tocircumvent the very law that prohibits and declares invalid such transaction to

protect the homesteader and his family. 9

In the compromise agreement executed between the parties, (1) the Zambaleses promised to selland the Corporation agreed to buy the disputed lot at P500.00 per hectare, the contract to bereciprocally demandable and enforceable on September 10, 1960; and as a substitute procedure,(2) an irrevocable agency was constituted in favor of the Corporation as attorney- in-fact to sellthe land to any third person on September 10, 1960 or any time thereafter.

Clearly, the bilateral promise to buy and sell the homestead lot at a price certain, which wasreciprocally demandable 10, was entered into within the five-year prohibitory period and istherefore, illegal and void. Further, the agency to sell the homestead lot to a third party wascoupled with an interest inasmuch as a bilateral contract was dependent on it and was notrevocable at will by any of the parties. 11 To all intents and purposes, therefore, there was anactual executory sale perfected during the period of prohibition except that it was reciprocallydemandable thereafter and the agency to sell to any third party was deferred until after theexpiration of the prohibitory period. That "rentals" were ostensibly to be paid during the five-year prohibitory period, and the agency to sell made effective only after the lapse of the said

period, was merely a devise to circumvent the prohibition.

To hold valid such an arrangement would be to throw the door wide open to all possiblesubterfuges that persons interested in homesteads may devise to defeat the legal prohibitionagainst alienation within five years from the issuance of the patent.

We hold, therefore, that the bilateral promise to buy and sell, and the agency to sell, entered intowithin five years from the date of the homestead patent, was in violation of section 118 of thePublic Land Law, although the executed sale was deferred until after the expiration of the five-year- prohibitory period.



As the contract is void from the beginning, for being expressly prohibited by law 12 the action forthe declaration of its inexistence does not prescribe. 13 Being absolutely void, it is entitled to noauthority or respect, the sale may be impeached in a collateral proceeding by any one with whoserights and interest it conflicts. There is no presumption of its validity. 14 The approval of the sale

by the Secretary of Agriculture and Natural Resources after the lapse of five years from the date

of the patent would neither legalize the sale.15

The homestead in question should be returned to the Zambaleses, petitioners herein, who are, inturn, bound to restore to the Corporation the sum of P8,923.70 as the price thereof. The actualdamages awarded by the Trial Court of P85,000.00 have not been adequately substantiated.Moreover, under the agreement, the total rental price of P1,784.74 was intended to be "in lieu ofall damages, or any other actual, moral, exemplary or other damages.

This is without prejudice to the corresponding action on the part of the State for reversion of the property and its improvements, if any, under Section 124 of the Public Land Act. 16

WHEREFORE, the judgment under review is hereby REVERSED, and another one entered (1)declaring null and void a) the bilateral promise to buy and sell entered into between EnriqueZambales and Joaquina Zambales, on the one hand, and the Nin Bay Mining Corporation on theother, and b) the sale executed by Nin Bay Mining Corporation in favor of Joaquin B. Preysler;(2) ordering Angela C. Preysler to reconvey the land subject matter of this litigation to

petitioners upon refund by the latter to the Nin Bay Mining Corporation of the sum of P8,923.70,all expenses for the reconveyance to be borne by private respondents; (3) ordering Nin BayMining Corporation to pay rentals to petitioners at the price of P20.00 per hectare per year fromDecember 6, 1969, the date of the institution of the Complaint, till the date that possession isturned over to petitioners; and (4) ordering the Register of Deeds for the Province of Palawan tocancel Transfer Certificate of Title No. T-970 of his Registry, and reissue to the Heirs of Enrique

Zambales and Joaquina Zambales the title to the homestead in question.Let a copy of this Decision be served on the Solicitor General.

No costs.

SO ORDERED.

Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.



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

ANDRES QUIROGA, plaintiff-appellant,vs.PARSONS HARDWARE CO., defendant-appellee.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.Crossfield & O'Brien for appellee.

AVANCEÑA, J. :

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into byand between the plaintiff, as party of the first part, and J. Parsons (to whose rights andobligations the present defendant later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.

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

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in theVisayan Islands to J. Parsons under the following conditions:

(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter'sestablishment in Iloilo, and shall invoice them at the same price he has fixed for sales, inManila, and, in the invoices, shall make and allowance of a discount of 25 per cent of theinvoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by thedozen, whether of the same or of different styles.

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

(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and thefreight, insurance, and cost of unloading from the vessel at the point where the beds arereceived, shall be paid by Mr. Parsons.

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

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

(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of anyalteration in price which he may plan to make in respect to his beds, and agrees that if onthe date when such alteration takes effect he should have any order pending to be servedto Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby



be lowered, but shall not be affected by said alteration if the price thereby be increased,for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the priceat which the order was given.

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

ART. 2. In compensation for the expenses of advertisement which, for the benefit of bothcontracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumesthe obligation to offer and give the preference to Mr. Parsons in case anyone should applyfor the exclusive agency for any island not comprised with the Visayan group.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of"Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents,and shall immediately report such action to Mr. Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be terminated by either

of the contracting parties on a previous notice of ninety days to the other party.

Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitutethe subject matter of this appeal and both substantially amount to the averment that the defendantviolated the following obligations: not to sell the beds at higher prices than those of the invoices;to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on publicexhibition, and to pay for the advertisement expenses for the same; and to order the beds by thedozen and in no other manner. As may be seen, with the exception of the obligation on the partof the defendant to order the beds by the dozen and in no other manner, none of the obligationsimputed to the defendant in the two causes of action are expressly set forth in the contract. Butthe plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that

said obligations are implied in a contract of commercial agency. The whole question, therefore,reduced itself to a determination as to whether the defendant, by reason of the contracthereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

In order to classify a contract, due regard must be given to its essential clauses. In the contract inquestion, what was essential, as constituting its cause and subject matter, is that the plaintiff wasto furnish the defendant with the beds which the latter might order, at the price stipulated, andthat the defendant was to pay the price in the manner stipulated. The price agreed upon was theone determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to25 per cent, according to their class. Payment was to be made at the end of sixty days, or before,at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases anadditional discount was to be allowed for prompt payment. These are precisely the essentialfeatures of a contract of purchase and sale. There was the obligation on the part of the plaintiff tosupply the beds, and, on the part of the defendant, to pay their price. These features exclude thelegal conception of an agency or order to sell whereby the mandatory or agent received the thingto sell it, and does not pay its price, but delivers to the principal the price he obtains from the saleof the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue ofthe contract between the plaintiff and the defendant, the latter, on receiving the beds, was



necessarily obliged to pay their price within the term fixed, without any other consideration andregardless as to whether he had or had not sold the beds.

It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a

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

The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of thedefendant corporation and who established and managed the latter's business in Iloilo. It appears

that this witness, prior to the time of his testimony, had serious trouble with the defendant, hadmaintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, offalsification. He testified that it was he who drafted the contract Exhibit A, and, when questionedas to what was his purpose in contracting with the plaintiff, replied that it was to be an agent forhis beds and to collect a commission on sales . However, according to the defendant's evidence, itwas Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, evensupposing that Ernesto Vidal has stated the truth, his statement as to what was his idea incontracting with the plaintiff is of no importance, inasmuch as the agreements contained inExhibit A which he claims to have drafted, constitute, as we have said, a contract of purchaseand sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken inhis classification of the contract. But it must be understood that a contract is what the law definesit to be, and not what it is called by the contracting parties.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell;that, without previous notice, it forwarded to the defendant the beds that it wanted; and that thedefendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo.But all this, at the most only shows that, on the part of both of them, there was mutual tolerancein the performance of the contract in disregard of its terms; and it gives no right to have thecontract considered, not as the parties stipulated it, but as they performed it. Only the acts of thecontracting parties, subsequent to, and in connection with, the execution of the contract, must beconsidered for the purpose of interpreting the contract, when such interpretation is necessary, butnot when, as in the instant case, its essential agreements are clearly set forth and plainly showthat the contract belongs to a certain kind and not to another. Furthermore, the return made wasof certain brass beds, and was not effected in exchange for the price paid for them, but was forother beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consentwith respect to said beds, which shows that it was not considered that the defendant had a right,

by virtue of the contract, to make this return. As regards the shipment of beds without previousnotice, it is insinuated in the record that these brass beds were precisely the ones so shipped, andthat, for this very reason, the plaintiff agreed to their return. And with respect to the so-calledcommissions, we have said that they merely constituted a discount on the invoice price, and the



reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisementof the plaintiff's beds, such sales were to be considered as a result of that advertisement.

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

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

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

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

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

G.R. No. 55793 May 18, 1990

CONCRETE AGGREGATES, INC., petitioner,vs.COURT OF TAX APPEALS and COMMISSIONER OF INTERNALREVENUE, respondents.

Santiago, Tinga & Associates for petitioner.

REGALADO, J .:

This petition for review on certiorari seeks the annulment of the decision of respondent Court ofTax Appeals, 1dated September 19, 1980, and its resolution denying reconsideration thereof,dated December 3, 1980, both promulgated in CTA Case No. 2433, entitled "ConcreteAggregates, Inc. vs. Commissioner of Internal Revenue," the decretal portion of which decisionreads:

Having reached the conclusion that petitioner is a manufacturer subject to the 7%sales tax under Section 186 of the then National Internal Revenue Code, thedecision of respondent dated July 24, 1972 should therefore be sustained.Accordingly, petitioner Concrete Aggregates, Inc. is hereby ordered to pay torespondent Commissioner of Internal Revenue the total amount of P244,022.76representing sales and ad valorem taxes for the first semester of 1968 inclusive ofsurcharges, plus interest at the rate of 14% per centum from January 1, 1973 up to



the date of full payment thereof pursuant to Section 183 (now 193) of the NationalInternal Revenue Code.

WHEREFORE, the decision appealed from is hereby affirmed at petitioner'scosts.

SO ORDERED. 2

The records disclose that petitioner is a domestic corporation, duly organized and existing underthe laws of the Philippines, with business address at Longos, Quezon City. It has an aggregate

plant at Montalban, Rizal which processes rock aggregates mined by it from private lands.Petitioner also maintains and operates a plant at Longos, Quezon City for the production ofready-mixed concrete and plant-mixed hot asphalt.

Sometime in 1968, the agents of respondent commissioner conducted an investigation of petitioner's tax liabilities. As a consequence thereof, in a letter dated December 14, 1970 said

respondent assessed and demanded payment from petitioner of the amount of P244,002.76 assales and ad valorem taxes for the first semester of 1968, inclusive of surcharges. Petitionerdisputed the said assessment in its letter dated February 2, 1971 without, however, contesting the

portion pertaining to the ad valorem tax.

In his letter dated July 24, 1972, respondent reiterated the said assessment of sales and advalorem taxes which, as explained in his preceding letter, had been arrived at as follows. 3

Taxable sales P 4,164,092.44 ——————

7% sales tax due thereon P 291,486.47

Less: Tax already paid 116,523.55 ——————

Deficiency tax due P 174,962.92

Add: 25% surcharge 43,740.73 ——————

Total deficiency tax and surcharge P 218,703.65

Add: 1 1/2% ad valorem on P20,239.29

25% surcharge thereon 5,059.82 25,299.11 ———— —————

TOTAL AMOUNT DUE & COLLECTIBLE P244,002.76



Consequently, demand for the payment of the said amount within ten days from receipt of theletter was made by respondent on petitioner, otherwise the same would be collected thru thesummary remedies provided for by law. Instead of paying, petitioner appealed to respondentcourt.

As earlier stated, a judgment adverse to petitioner was handed down by respondent court,whereupon he came to this Court on a petition for review. In its resolution dated September 7,1981, the Court, through its First Division, denied the petition for review for lack ofmerit. 4 Petitioner filed a motion for reconsideration which was likewise denied in the resolutionof October 19, 1981 for lack of merit, the denial being expressly declared to be final. 5 Withleave of court, petitioner filed its second motion for reconsideration which was granted by theCourt in its resolution dated November 23, 1981. 6

The sole issue in this case is whether petitioner is a contractor subject to the 3% contractor's taxunder Section 191 of the 1968 National Internal Revenue Code or a manufacturer subject to the7% sales tax under Section 186 of the same Code.

Petitioner disclaims liability on the ground that it is a contractor within the meaning of Section191 of the 1968 Tax Code, the pertinent portion of which reads:

Sec. 191. Percentage tax on road, building, irrigation, artesian well, waterworks,and other construction work contractors, proprietors or operators of dockyards,and others . — Road, building, irrigation, artesian well, waterworks, and otherconstruction work contractors; . . . and other independent contractors, . . . shall

pay a. tax equivalent to three per centum of their gross receipts.

xxx xxx xxx

Petitioner contends that its business falls under "other construction work contractors" or "otherindependent contractors" and, as such, it was a holder of a license under Republic Act No. 4566,otherwise known as the "Contractors Licensing Law" and was classified thereunder as a "generalengineering contractor" and "specialty asphalt and concrete contractor. 7 It advances the theorythat it produced asphalt and concrete mix only upon previous orders, which may be proved by itssystem of requiring the filling of job orders where the customers specify the constructionrequirements, and that without such order, it would not do so considering the highly perishablenature of the asphalt and concrete mix. 8

It emphasizes that the mixing of asphalt and cement, if they were to be sold to the public, is not asimple matter of putting things together in a rotating bowl but involves a careful selection ofcomponents, proper measuring and weighing of ingredients, calibration of the plant to arrive atthe right mixing temperature, and testing of the strength of the material, altogether using its ownmeans and methods without submitting itself to control by the customers. 9

Thus, it adopts the view that if the article subject of the sale is one which is not ready fordelivery, as it is yet to be manufactured according to the order, the seller thereof is a contractor.However, if the article subject of the sale is one which is ready for delivery when the order



therefor is placed, the seller is a manufacturer. 10 Complementary to this, it postulates that as acontractor dealing exclusively in the construction of roads, buildings and other building orconstruction works, its business consists of rendering service by way of furnishing its customerswith pre-mixed concrete or asphalt, in effect merely doing for the customers what the latter usedto do themselves, that is, to buy the ingredients and then mix the concrete or asphalt. 11 It

concludes that in doing so, it does not become a manufacturer.

We have had the occasion to construe Section 191, now Section 205, of the Tax Codein Commissioner of Internal Revenue vs . The Court of Tax Appeals, et al . 12 where we reiteratedthe test as to when one may be considered a contractor within its context, thus;

The word "contractor" has come to be used with special reference to a personwho, in the pursuit of the independent business, undertakes to do a specific job or

piece of work for other persons, using his own means and methods withoutsubmitting himself to control as to the petty details. (Aranas, Annotations andJurisprudence on the National Internal Revenue Code, p. 318, par. 191(2), 1970

Ed.) The true test of a contractor as was held in the cases of Luzon StevedoringCo. vs. Trinidad, 43 Phil. 803, 807-808, and La Carlota Sugar Centralvs. Trinidad , 43 Phil. 816, 819, would seem to be that he renders service in thecourse of an independent occupation, representing the will of his employer onlyas to the result of his work, and not as to the means by which it is accomplished.(Emphasis supplied)

It is quite evident that the percentage tax imposed in Section 191 is generally a tax on the sale ofservices or labor. In its factual findings, respondent court found that petitioner was formed andorganized primarily as a manufacturer; that it has an aggregate plant at Montalban, Rizal, which

processes rock aggregates mined by it from private lands; it operates a concrete batching plant at

Longos, Quezon City where the specified aggregates from its plant at Montalban are mixed withsand and cement, after which water is added and the concrete mixture is sold and delivered tocustomers; and at its plant site at Longos, Quezon City, petitioner has also an asphalt mixingmachinery where bituminous asphalt mix is manufactured. 13

We see no reason to disturb the findings of respondent court. Petitioner is a manufacturer asdefined by Section 194(x), now Section 187(x), of the Tax Code.

Sec. 1 94. Words and phrases defined . — In applying the provisions of this Titlewords and phrases shall be taken in the sense and extension indicated below:

xxx xxx xxx

(x) "Manufacturer" includes every person who by physical or chemical processalters the exterior texture or form or inner substance of any raw material ormanufactured or partially manufactured product in such manner as to prepare itfor a special use or uses to which it could not have been put in its originalcondition, or who by any such process alters the quality of any such raw materialor manufactured or partially manufactured product so as to reduce it to marketable



It is readily apparent that, in declaring private respondent in the aforesaid Engineering Equipment case as a contractor, the Court relied on findings of fact distinguishable from those inthe case at bar.

. . . We find that Engineering did not manufacture air conditioning units for sale to

the general public, but imported some items (as refrigeration coils, . . .) whichwere used in executing contracts entered into by it. Engineering, therefore,undertook negotiations and execution of individual contracts for the design,supply and installation of air conditioning units of the central type . . ., taking intoconsideration in the process such factors as the area of the space to be airconditioned; the number of persons occupying or would be occupying the

premises; the purpose for which the various air conditioning areas are to be used;and the sources of heat gain or cooling load on the plant such as the sun load,lighting, and other electrical appliances which are or may be in the plan. . . .Engineering also testified during the hearing in the Court of Tax Appeals thatrelative to the installation of air conditioning system, Engineering designed and

engineered complete each particular plant and that no two plants were identical but each had to be engineered separately.

As found by the lower court, which finding We adopt —

Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its various customers the central type air conditioning system; prepares the plans and specifications therefor which are distinct and differentfrom each other; the air conditioning units and spare parts or accessories thereofused by petitioner are not the window type of air conditioners which aremanufactured, assembled and produced locally for sale to the general market; and

the imported air conditioning units and spare parts or accessories thereof aresupplied and installed by petitioner upon previous orders of its customersconformably with their needs and requirements.

The facts and circumstances aforequoted support the theory that Engineering is acontractor rather than a manufacturer.

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

Petitioner insists that it would produce asphalt or concrete mix only upon previous job ordersotherwise it would not do so. It does not and will not carry in stock cement and asphaltmix. 20 But the reason is obvious. What practically prevents the petitioner from mass productionand storage is the nature of its products, that is, they easily harden due to temperature change andwater and cement reaction. 21 Stated differently by respondent court, "it is self-evident that it isdue to the highly perishable nature of asphalt and concrete mix, as petitioner itself argues, that



makes impossible for them to be carried in stock because they cool and harden with time, andonce hardened, they become useless. 22

Had it not been for this fact, petitioner could easily mass produce the ready-mixed concrete orasphalt desired and needed by its various customers and for which it is mechanically equipped to

do. It is clear, however, that petitioner does nothing more than sell the articles that it habituallymanufactures. It stocks raw materials, ready at any time, for the manufacture of asphalt and/orconcrete mix. 23 Its marketing system would readily disclose that its products are available forsale to anyone needing them. Whosoever would need its products, whether builder, contractor,homeowner or payer with sufficient money, may order aggregates, concrete mix or bituminousasphalt mix of the kind manufactured by petitioner. 24 The habituality of the production of goodsfor the general public characterizes the business of petitioner.

We are likewise persuaded by the submissions of the Solicitor General that the rulingin Celestino Co & Company vs . Collector of Internal Revenue 25 is applicable to this case in thatunless an activity is covered by Section 191 of the Tax Code, one who manufactures articles,

although upon a previous order and subject to the specifications of the buyer, is nonetheless amanufacturer.

We also reject petitioner's theory that, with the amendment of Section 191 of the Tax Code, itcan be considered as a "specialty contractor." As observed by respondent, a specialty contractoris one whose operations pertain to construction work requiring special skill and involves the useof specialized building trades or crafts. The manufacture of concrete and cement mix do notinvolve the foregoing requirements as to put it within such special category.

ON THE FOREGOING CONSIDERATIONS, certiorari is DENIED and the appealed decisionof respondent Court of Tax Appeals is AFFIRMED.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

G.R. No. L-61623 December 26, 1984

PEOPLE'S HOMESITE & HOUSING CORPORATION, petitioner-appellant,vs.

COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA R.MENDOZA,respondents-appellees.

Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M. Brillantes for petitioner PHHC.

Tolentino, Cruz, Reyes, Lava and Manuel for private respondents.



The issue is whether there was a perfected sale of Lot 4, with the reduced area, to the Mendozaswhich they can enforce against the PHHC by an action for specific performance.

We hold that there was no perfected sale of Lot 4. It was conditionally or contingently awardedto the Mendozas subject to the approval by the city council of the proposed consolidation

subdivision plan and the approval of the award by the valuation committee and higherauthorities.

The city council did not approve the subdivision plan. The Mendozas were advised in 1961 ofthe disapproval. In 1964, when the plan with the area of Lot 4 reduced to 2,608.7 square meterswas approved, the Mendozas should have manifested in writing their acceptance of the award forthe purchase of Lot 4 just to show that they were still interested in its purchase although the areawas reduced and to obviate ally doubt on the matter. They did not do so. The PHHC board ofdirectors acted within its rights in withdrawing the tentative award.

"The contract of sale is perfected at the moment there is a meeting of minds upon the thing

which is the object of the contract and upon the price. From that moment, the parties mayreciprocally demand performance, subject to the law governing the form of contracts." (Art.1475, Civil Code).

"Son, sin embargo, excepcion a esta regla los casos en que por virtud de la voluntad de las parteso de la ley, se celebra la venta bajo una condicion suspensiva, y en los cuales no se perfeccionala venta hasta el cumplimiento de la condicion" (4 Castan Tobenas, Derecho Civil Español 8thed. p. 81).

"In conditional obligations, the acquisition of rights, as well as the extinguishment or loss ofthose already acquired, shall depend upon the happening of the event which constitutes the

condition. (Art. 1181, Civil Code). "Se llama suspensive la condicion de la que depende la perfeccion, o sea el principio del contrato". (9 Giorgi, Teoria de las Obligaciones, p. 57).

Under the facts of this case, we cannot say there was a meeting of minds on the purchase of Lot4 with an area of 2,608.7 square meters at P21 a square meter.

The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is not in point because the awardee inthat case applied for the purchase of the lot, paid the 10% deposit and a conditional contract tosell was executed in his favor. The PHHC could not re-award that lot to another person.

WHEREFORE, the decision of the Appellate Court is reversed and set aside and the judgment of

the trial court is affirmed. No costs.SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur.



G.R. No. L-116650 May 23, 1995

TOYOTA SHAW, INC., petitioner,vs.COURT OF APPEALS and LUNA L. SOSA,respondents.

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the privaterespondent, which was signed by a sales representative of Toyota Shaw, Inc. named PopongBernardo. The document reads as follows:

AGREEMENTS BETWEEN MR. SOSA

& POPONG BERNARDO OF TOYOTASHAW, INC.

1. all necessary documents will be submitted to TOYOTA SHAW, INC.(POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from theProvince (Marinduque) where the unit will be used on the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.

3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [ sic ] andreleased by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.



(Sgd.)POPO

NGBERNARDO

.Was this document, executed and signed by the petitioner's sales representative, a perfectedcontract of sale, binding upon the petitioner, breach of which would entitle the privaterespondent to damages and attorney's fees? The trial court and the Court of Appeals took theaffirmative view. The petitioner disagrees. Hence, this petition for review on certiorari .

The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, aswell as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota ) and respondentLuna L. Sosa (hereinafter Sosa ) are as follows. Sometime in June of 1989, Luna L. Sosa wantedto purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a

dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told thatthere was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyotaoffice at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a salesrepresentative of Toyota.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 becausehe, his family, and a balikbayan guest would use it on 18 June 1989 to go to Marinduque, hishome province, where he would celebrate his birthday on the 19th of June. He added that if hedoes not arrive in his hometown with the new car, he would become a "laughing stock."Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989.Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo ofToyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase pricewould be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of hisfather, signed the documents of Toyota and B.A. Finance pertaining to the application forfinancing.

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment ofP100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal(VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document



shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 GuijoStreet, United Parañaque II; that the model series of the vehicle is a "Lite Ace 1500" described as"4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cashoutlay of P100,000.00 broken down as follows:

a) downpayment — P 53,148.00 b) insurance — P 13,970.00c) BLT registration fee — P 1,067.00

CHMO fee — P 2,715.00service fee — P 500.00accessories — P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for

"Delivery Terms" were not filled-up. It also contains the following pertinent provisions:

CONDITIONS OF SALES

1. This sale is subject to availability of unit.

2. Stated Price is subject to change without prior notice, Price prevailing and ineffect at time of selling will apply. . . .

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.

On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehiclewould not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. thatsame day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa,Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for aboutan hour, Bernardo told them that the car could not be delivered because " nasulot ang unit ngibang malakas ."

Toyota contends, however, that the Lite Ace was not delivered to Sosa because of thedisapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a

particular unit had already been reserved and earmarked for Sosa but could not be released due tothe uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the

option to purchase the unit by paying the full purchase price in cash but Sosa refused.

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that hisdownpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank checkfor the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher ofToyota, 5 which Sosa signed with the reservation, "without prejudice to our future claims fordamages."



Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed byhim, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00

plus interest from the time he paid it and the payment of damages with a warning that in case ofToyota's failure to do so he would be constrained to take legal action. 6 The second, dated 4

November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos

representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer wasmade and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of theRegional Trial Court (RTC) of Marinduque a complaint against Toyota for damages underArticles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, interalia, that:

9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguishand sleepless nights because: (i) he and his family were constrained to take the

public transportation from Manila to Lucena City on their way to Marinduque; (ii)his balikbayan-guest canceled his scheduled first visit to Marinduque in order toavoid the inconvenience of taking public transportation; and (iii) his relatives,friends, neighbors and other provincemates, continuously irked him about "hisBrand-New Toyota Lite Ace — that never was." Under the circumstances,defendant should be made liable to the plaintiff for moral damages in the amountof One Million Pesos (P1,000,000.00). 10

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa,that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signedExhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSPdid not state date of delivery; Sosa had not completed the documents required by the financingcompany, and as a matter of policy, the vehicle could not and would not be released prior to fullcompliance with financing requirements, submission of all documents, and execution of the salesagreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue wasimproperly laid; and Sosa did not have a sufficient cause of action against it. It also interposedcompulsory counterclaims.

After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTSBETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale

between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreedwith Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him.

As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trialcourt held that the extent of Bernardo's authority "was not made known to plaintiff," for astestified to by Quirante, "they do not volunteer any information as to the company's sales policyand guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of thetransaction up to its consummation when the downpayment was made by the plaintiff, thedefendants had made known to the plaintiff the impression that Popong Bernardo is an



authorized sales executive as it permitted the latter to do acts within the scope of an apparentauthority holding him out to the public as possessing power to do these acts." 14 Bernardo then"was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15

The court further declared that "Luna Sosa proved his social standing in the community and

suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to becompensated." 16 Accordingly, it disposed as follows:

WHEREFORE, viewed from the above findings, judgment is hereby rendered infavor of the plaintiff and against the defendant:

1. ordering the defendant to pay to the plaintiff the sum ofP75,000.00 for moral damages;

2. ordering the defendant to pay the plaintiff the sum of P10,000.00for exemplary damages;

3. ordering the defendant to pay the sum of P30,000.00 attorney'sfees plus P2,000.00 lawyer's transportation fare per trip inattending to the hearing of this case;

4. ordering the defendant to pay the plaintiff the sum of P2,000.00transportation fare per trip of the plaintiff in attending the hearingof this case; and

5. ordering the defendant to pay the cost of suit.

SO ORDERED.

Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The casewas docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 theCourt of Appeals affirmed in toto the appealed decision.

Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponencia and also the following related issues: (a) whether or not the standardVSP was the true and documented understanding of the parties which would have led to theultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to thedelivery of the vehicle despite the non-payment of the consideration and the non-approval of his

credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did notrelease the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages.

We find merit in the petition.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" isa perfected contract of sale .



Article 1458 of the Civil Code defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himselfto transfer the ownership of and to deliver a determinate thing, and the other to

pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected:

Art. 1475. The contract of sale is perfected at the moment there is a meeting ofminds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject tothe provisions of the law governing the form of contracts.

What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see.It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of adeterminate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a

price certain appears therein. The provision on the downpayment of P100,000.00 made nospecific reference to a sale of a vehicle. If it was intended for a contract of sale, it could onlyrefer to a sale on installment basis, as the VSP executed the following day confirmed. Butnothing was mentioned about the full purchase price and the manner the installments were to be

paid.

This Court had already ruled that a definite agreement on the manner of payment of the price isan essential element in the formation of a binding and enforceable contract of sale. 18 This is so

because the agreement as to the manner of payment goes into the price such that a disagreementon the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 19

Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. Forone thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in

bold letters, viz .,

AGREEMENTS BETWEEN MR. SOSA & POPONGBERNARDO OF TOYOTA SHAW, INC.

that he was not dealing with Toyota but with Popong Bernardo and that the latter did notmisrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo wasonly a sales representative of Toyota and hence a mere agent of the latter. It was incumbent uponSosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo'sauthority as anagent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is putupon inquiry and must discover upon his peril the authority of the agent. 21



At the most, Exhibit "A" may be considered as part of the initial phase of the generation ornegotiation stage of a contract of sale. There are three stages in the contract of sale, namely:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties cometo agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the termsagreed upon in the contract. 22

The second phase of the generation or negotiation stage in this case was the execution of theVSP. It must be emphasized that thereunder, the downpayment of the purchase price wasP53,148.00 while the balance to be paid on installment should be financed by B.A. FinanceCorporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota,

otherwise it should not have mentioned B.A. Finance in the VSP.

Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No.1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the CentralBank of the Philippines, the Insurance Commission and the Cooperatives Administration Office,which are primarily organized for the purpose of extending credit facilities to consumers and toindustrial, commercial, or agricultural enterprises, either by discounting or factoring commercial

papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, orother evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrialmachinery, business and office machines and equipment, appliances and other movable

property." 23

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts themwith a financing company, and the financing company which is subrogated in the place of theseller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve Sosa'sapplication, there was then no meeting of minds on the sale on installment basis.

We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application forwhich reason it suggested to Sosa that he pay the full purchase price. When the latter refused,Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP wascancelled because, according to Bernardo, the vehicle was delivered to another who was " masmalakas " does not inspire belief and was obviously a delayed afterthought. It is claimed thatBernardo said, " Pasensiya kayo, nasulot ang unit ng ibang malakas ," while the Sosas hadalready been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989.However, in paragraph 7 of his complaint, Sosa solemnly states:

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's salesrepresentative, Mr. Popong Bernardo, called plaintiff's house and informed the



plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went todefendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle butthe defendant for reasons known only to its representatives, refused and/or failedto release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but

nothing was given ; . . . (Emphasis supplied).25

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that theVSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and itsnon-delivery did not cause any legally indemnifiable injury.

The award then of moral and exemplary damages and attorney's fees and costs of suit is withoutlegal basis. Besides, the only ground upon which Sosa claimed moral damages is that since itwas known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace whichthey expected to see on his birthday, he suffered humiliation, shame, and sleepless nights whenthe van was not delivered. The van became the subject matter of talks during his celebration that

he may not have paid for it, and this created an impression against his business standing andreputation. At the bottom of this claim is nothing but misplaced pride and ego. He should nothave announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay thefull purchase price. It was he who brought embarrassment upon himself by bragging about athing which he did not own yet.

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated,or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229of the Civil Code, exemplary or corrective damages are imposed by way of example orcorrection for the public good, in addition to moral, temperate, liquidated, or compensatorydamages.

Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the bodyof the decision, and not only in the dispositive portion thereof, the legal reason for the award ofattorney's fees. 26 No such explicit determination thereon was made in the body of the decision ofthe trial court. No reason thus exists for such an award.

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court ofAppeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court ofMarinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint inCivil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.



G.R. No. L-12342 August 3, 1918

A. A. ADDISON, plaintiff-appellant,

vs.MARCIANA FELIX and BALBINO TIOCO, defendants-appellees.

Thos. D. Aitken for appellant. Modesto Reyes and Eliseo Ymzon for appellees.

FISHER, J. :

By a public instrument dated June 11, 1914, the plaintiff sold to the defendant Marciana Felix,with the consent of her husband, the defendant Balbino Tioco, four parcels of land, described inthe instrument. The defendant Felix paid, at the time of the execution of the deed, the sum of

P3,000 on account of the purchase price, and bound herself to pay the remainder in installments,the first of P2,000 on July 15, 1914, and the second of P5,000 thirty days after the issuance to herof a certificate of title under the Land Registration Act, and further, within ten years from thedate of such title P10, for each coconut tree in bearing and P5 for each such tree not in bearing,that might be growing on said four parcels of land on the date of the issuance of title to her, withthe condition that the total price should not exceed P85,000. It was further stipulated that the

purchaser was to deliver to the vendor 25 per centum of the value of the products that she mightobtain from the four parcels "from the moment she takes possession of them until the Torrenscertificate of title be issued in her favor."

It was also covenanted that "within one year from the date of the certificate of title in favor of

Marciana Felix, this latter may rescind the present contract of purchase and sale, in which caseMarciana Felix shall be obliged to return to me, A. A. Addison, the net value of all the productsof the four parcels sold, and I shall obliged to return to her, Marciana Felix, all the sums that shemay have paid me, together with interest at the rate of 10 per cent per annum."

In January, 1915, the vendor, A. A. Addison, filed suit in Court of First Instance of Manila tocompel Marciana Felix to make payment of the first installment of P2,000, demandable inaccordance with the terms of the contract of sale aforementioned, on July 15, 1914, and of theinterest in arrears, at the stipulated rate of 8 per cent per annum. The defendant, jointly with herhusband, answered the complaint and alleged by way of special defense that the plaintiff hadabsolutely failed to deliver to the defendant the lands that were the subject matter of the sale,notwithstanding the demands made upon him for this purpose. She therefore asked that she beabsolved from the complaint, and that, after a declaration of the rescission of the contract of the

purchase and sale of said lands, the plaintiff be ordered to refund the P3,000 that had been paidto him on account, together with the interest agreed upon, and to pay an indemnity for the lossesand damages which the defendant alleged she had suffered through the plaintiff's non-fulfillmentof the contract.



the purchaser; and as regards the other two, more than two-thirds of their area was in the hostileand adverse possession of a third person.

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing isconsidered to be delivered when it is placed "in the hands and possession of the vendee." (Civ.

Code, art. 1462.) It is true that the same article declares that the execution of a public instrumentsis equivalent to the delivery of the thing which is the object of the contract, but, in order that thissymbolic delivery may produce the effect of tradition, it is necessary that the vendor shall havehad such control over the thing sold that, at the moment of the sale, its material delivery couldhave been made. It is not enough to confer upon the purchaser the ownership and the right of

possession. The thing sold must be placed in his control . When there is no impediment whateverto prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor,symbolic delivery through the execution of a public instrument is sufficient. But if,notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment andmaterial tenancy of the thing and make use of it himself or through another in his name, becausesuch tenancy and enjoyment are opposed by the interposition of another will, then fiction yields

to reality — the delivery has not been effected.As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries on article 1604 of theFrench Civil code, "the word "delivery" expresses a complex idea . . . the abandonment of thething by the person who makes the delivery and the taking control of it by the person to whomthe delivery is made."

The execution of a public instrument is sufficient for the purposes of the abandonment made bythe vendor; but it is not always sufficient to permit of the apprehension of the thing by the

purchaser.

The supreme court of Spain, interpreting article 1462 of the Civil Code, held in its decision of November 10, 1903, (Civ. Rep., vol. 96, p. 560) that this article "merely declares that when thesale is made through the means of a public instrument, the execution of this latter is equivalent tothe delivery of the thing sold: which does not and cannot mean that this fictitious traditionnecessarily implies the real tradition of the thing sold, for it is incontrovertible that, while itsownership still pertains to the vendor (and with greater reason if it does not), a third person may

be in possession of the same thing; wherefore, though, as a general rule, he who purchases bymeans of a public instrument should be deemed . . . to be the possessor in fact, yet this

presumption gives way before proof to the contrary."

It is evident, then, in the case at bar, that the mere execution of the instrument was not afulfillment of the vendors' obligation to deliver the thing sold, and that from such non-fulfillmentarises the purchaser's right to demand, as she has demanded, the rescission of the sale and thereturn of the price. (Civ. Code, arts. 1506 and 1124.)

Of course if the sale had been made under the express agreement of imposing upon the purchaserthe obligation to take the necessary steps to obtain the material possession of the thing sold, andit were proven that she knew that the thing was in the possession of a third person claiming tohave property rights therein, such agreement would be perfectly valid. But there is nothing in the



instrument which would indicate, even implicitly, that such was the agreement. It is true, as theappellant argues, that the obligation was incumbent upon the defendant Marciana Felix to applyfor and obtain the registration of the land in the new registry of property; but from this it cannot

be concluded that she had to await the final decision of the Court of Land Registration, in orderto be able to enjoy the property sold. On the contrary, it was expressly stipulated in the contract

that the purchaser should deliver to the vendor one-fourth "of the products ... of the aforesaidfour parcels from the moment when she takes possession of them until the Torrens certificate oftitle be issued in her favor." This obviously shows that it was not forseen that the purchasermight be deprived of her possession during the course of the registration proceedings, but thatthe transaction rested on the assumption that she was to have, during said period, the material

possession and enjoyment of the four parcels of land .

Inasmuch as the rescission is made by virtue of the provisions of law and not by contractualagreement, it is not the conventional but the legal interest that is demandable.

It is therefore held that the contract of purchase and sale entered into by and between the plaintiff

and the defendant on June 11, 1914, is rescinded, and the plaintiff is ordered to make restitutionof the sum of P3,000 received by him on account of the price of the sale, together with interestthereon at the legal rate of 6 per annum from the date of the filing of the complaint until

payment, with the costs of both instances against the appellant. So ordered.

Torres, Johnson, Street, Malcolm and Avanceña, JJ., concur.

G.R. No. L-43059 October 11, 1979

SAMPAGUITA PICTURES, INC., plaintiff-appellant,vs.JALWINDOR MANUFACTURERS, INC.,defendant-appellee.

DE CASTRO, J:

This case was certified to this Court by the Court of Appeals pursuant to the provisions ofSection 17, paragraph (6) in relation to Section 31 of the Judiciary Act of 1948.

Plaintiff-appellant Sampaguita Pictures, Inc. (hereinafter referred to as Sampaguita) is the ownerof the Sampaguita Pictures Building located at the corner of General Araneta and General Roxas

Streets, Cubao, Quezon City. The roofdeck of the building and all existing improvements thereonwere leased by Sampaguita to Capitol "300" Inc. (Capitol for short), and it was agreed, amongother things, that the premises shall be used by said club for social purposes exclusively for itsmembers and guests; that all permanent improvements made by the lessee on the leased premisesshall belong to the lessor without any obligation on the part of the lessor to reimburse the lesseefor the sum spent for said improvements; that the improvements made by lessee have beenconsidered as part of the consideration of the monthly rental and said improvements belong tothe lessor; that any remodelling, alterations and/or addition to the premises shall be at the



expense of the lessee and such improvements belong to the lessor, without any obligation toreimburse the lessee of any sum spent for said improvements. (pp. 29-32, Record on Appeal).

Capitol "300" purchased on credit from defendant-appellee Jalwindor Manufacturers, Inc.(hereinafter referred to as Jalwindor) glass and wooden jalousies which were delivered and

installed in the leased premises by Jalwindor replacing the existing windows. On June 1, 1964,Jalwindor filed with the Court of First Instance of Rizal, Quezon City, an action for collection ofa sum of money with a petition for preliminary attachment against Capitol for its failure to payits purchases. The parties submitted to the trial court a Compromise Agreement wherein Capitolacknowledged its indebtedness to Jalwindor in the amount of P9,531.09, exclusive of attorney'sfees and interest, payable in monthly installments of at least P300.00 a month beginningDecember 15, 1964; and pending liquidation of the said obligation, all the materials purchased

by Capitol will be considered as security for such undertaking. (p. 13, Record on Appeal).

In the meantime, Capitol "300" was not able to pay rentals to Sampaguita from March 1, 1964 toApril 30, 1965, water, electric and telephone services. Sampaguita filed a complaint for

ejectment and for collection of a sum of money against Capitol and on June 8, 1965, the CityCourt of Quezon City rendered judgment ordering Capitol to vacate the premises and to paySampaguita.

On the other hand, Capitol likewise failed to comply with the terms of the CompromiseAgreement, and on July 31, 1965, the Sheriff of Quezon City made levy on the glass and wooden

jalousies in question. Sampaguita filed a third party claim alleging that it is the owner of saidmaterials and not Capitol, Jalwindor however, filed an indemnity bond in favor of the Sheriff andthe items were sold et public auction on August 30, 1965 with Jalwindor as the highest bidder forP6,000.00.

Sampaguita filed with the Court of First Instance of Rizal, Branch IV of Quezon City, an actionto nullify the Sheriff's Sale and for the issuance of a writ of preliminary injunction againstJalwindor from detaching the glass and wooden jalousies. Jalwindor was ordered to maintainthe status quo pending final determination of the case. No actual hearing was held and the partiessubmitted the following stipulation of facts for the consideration of the court.

1. That plaintiff and defendant are both domestic corporations duly organized andexisting by and under the laws of the Philippines:

2. That plaintiff leased to the CAPITOL "300", Inc. the roofdeck of theSampaguita building and all the existing improvements thereon for a monthly,rental of P650.00; that the parties to the lease contract agreed that all permanentimprovements made by the lessee on the leased premises shall belong to the lessorwithout any obligation on the part of the lessor to reimburse the lessee for the sumspent for said improvements; that it was agreed upon by the parties that theimprovements made by the lessee have been considered as part of theconsideration of the monthly rental;



3. That CAPITOL "300", Inc. made alterations on the leased premises; that itremoved the then existing windows and replaced 'them with the following items

bought on credit from the JALWINDOR MANUFACTURERS INC.. valued atP9,531.09, to wit:

J-21(lever-type) Solex Bluepane

Glass Jaluosies

11 Sets 15'-1 3/4" x 47-7/8" (5 units)

4 Sets 13'-5 3/4" x 47-7/8" (5 units)

3 Sets 10'-9 3/4" x 47-7/7" (4 units)

2 Sets 18'-1 3/3" x 56-3/8" (6 units)

1 Set 9'-1 3/4" x 65-3/8" (3 units)

115 Pcs. Roto Operators for J-21

MODEL J-21 (Roto-type) Glass

and Wood Jalousies

8 Sets 32-1/2" x 60" Solex Bluepane

19 Sets 31-1/4" x 48" Solex Bluepane

18 Sets 34" x 48" Wood

4. That after the CAPITOL "300", Inc. failed to pay the price of the itemsmentioned in the preceding paragraph, JALWINDOR MANUFACTURERS, Inc,filed a case for collection of a sum of money against CAPITOL "300", Inc. withthe Court of First Instance of Rizal (Branch IV Quezon City), Civil Case No. Q-8040; that by virtue of a Compromise Agreement, CAPITOL "300", Inc.acknowledged indebtedness in favor of JALWINDOR in the amount ofP9,531,09, with a stipulation in the said Compromise Agreement, that the items

forming part of the improvements will form as security for such an undertaking;

5. That due to non-compliance by CAPITOL "300", Inc., JALWINDOR executed judgment that the Sheriff of Quezon City made levy on the items above-stated in paragraph 3 hereof and sold them at a public auction to JALWINDORMANUFACTURERS, INC. as the highest bidder, on August 30, 1965, for thetotal amount of P 6,000.00:



6. That after CAPITOL "300", Inc. failed to pay the rentals in arrears from March1, 1964 to April 30, 1965, water, electric and telephone services amounting to P10,772.90, the plaintiff SAMPAGUITA PICTURES, INC. filed with the CityCourt of Quezon City, Civil Case No. 11-13161 for ejectment and collection of asum of money against the CAPITOL "300", Inc,; that the City Court rendered

judgment in favor of the Sampaguita Pictures, Inc., on June 8, 1965, ordering theCAPITOL "300", Inc. to vacate the premises located at the Sampaguita Buildingand to pay the Sampaguita Pictures, Inc.;

7. That after the Sheriff of Quezon City made levy on the items above-stated in paragraph 3 hereof situated on the roofdeck of the Sampaguita Building, plaintifffiled a Third Party Claim stated in its affidavit on the ground of its right and titleto the possession of the items and that CAPITOL "300", Inc. has no right or titlewhatsoever to the possession over said items; that defendant filed a bond toindemnify the Sheriff against the claim, and the Sheriff sold the items to thedefendant; that the JALWINDOR MANUFACTURERS, Inc., being the highest

bidder and the execution creditor, considered itself paid to the amount ofP6,000.00;

8. That the parties herein agree that the matter of attorney's fees be left to thesound discretion of the Court, which shall not be less than P500.00. (Record onAppeal, pp. 11-14).

On October 20, 1967, based on said Stipulation of Facts, the lower court dismissed the complaintand ordered Sampaguita to pay Jalwindor the amount of P500.00 as attorney's fees. Sampaguitafiled a motion for reconsideration which was likewise denied, hence, the instant appeal.

Petitioner-appellant raised the following assignment of errors:I

The lower court erred in holding that Capitol "300" Inc. could not legally transferor assign the glass and wooden jalousies in question to the plaintiff-appellant.

II

The lower court erred in not holding that plaintiff-appellant was the rightfulowner of the glass and wooden jalousies when they were sold by the Sheriff at the

public auction,III

The lower court erred in not declaring as null and void the levy on execution andthe Sheriff's sale at public auction of the glass and wooden jalousies.

IV



The lower court erred in holding that defendant-appellee became the rightfulowner of the glass and wooden jalousies.

When the glass and wooden jalousies in question were delivered and installed in the leased premises, Capitol became the owner thereof. Ownership is not transferred by perfection of the

contract but by delivery, either actual or constructive. This is true even if the purchase has beenmade on credit, as in the case at bar. Payment of the purchase price is not essential to the transferof ownership as long as the property sold has been delivered. Ownership is acquired from themoment the thing sold was delivered to vendee, as when it is placed in his control and

possession. (Arts. 1477, 1496 and 1497, Civil Code of the Phil.)

Capitol entered into a lease Contract with Sampaguita in 1964, and the latter became the ownerof the items in question by virtue of the agreement in said contract "that all permanentimprovements made by lessee shall belong to the lessor and that said improvements have beenconsidered as part of the monthly rentals." When levy or said items was made on July 31, 1965,Capitol, the judgment debtor, was no longer the owner thereof.

The action taken by Sampaguita to protect its interest is sanctioned by Section 17, Rule 39 of theRules of Court, which reads:

Section 17, Proceedings where property claimed by third person.

... The officer is not liable for damages for the taking or keeping of the property toany third-party claimant unless a claim is made by the latter and unless an actionfor damages is brought by him against the officer within one hundred twenty(120) days from the date of the filing of the bond. But nothing herein contained

shall prevent claimant from vindicating his claim to the property by any action.

It is, likewise, recignized in the case of Bayer Phil., Inc. vs. Agana, et al ., 63 SCRA 358, whereinthe Court declared, "that the rights of third party claimants over certain properties levied upon bythe sheriff to satisfy the judgment, may not be taken up in the case where such claims are

presented but in a separate and independent action instituted by claimants. ... and should a third- party appear to claim is denied, the remedy contemplated by the rules in the filing by said partyof a reinvicatiry action against the execution creditor or the purchaser of the property after thesale is completed or that a complaint for damages to be charged against the bond filed by thecreditor in favor of the sheriff. ... Thus, when a property levied upon by the sheriff pursuant to awrit of execution is claimed by a third person in a sworn statement of ownership thereof, as

prescribed by the rules, an entirely different matter calling for a new adjudication arises."

The items in question were illegally levied upon since they do not belong to the judgemnt debtor.The power of the Court in execution of judgment extends only to properties unquestionably

belonging to the judgment debtor. The fact that Capitol failed to pay Jalwindor the purchase price of the items levied upon did not prevent the transfer of ownership to Capitol. Thecomplaint of Sampaguita to nullify the Sheriff's sale well-founded, and should prosper.Execution sales affect the rights of judgment debtor only, and the purchaser in the auction saleacquires only the right as the debtor has at the time of sale. Since the items already belong to



Sampaguita and not to Capitol, the judgment debtor, the levy and auction sale are, accordingly,null and void. It is well-settled in this jurisdiction that the sheriff is not authorized to attach

property not belonging to the judgment debtor. (Arabay, Inc. vs. Salvador, et al., 3 PHILAJUR,413 [1978], Herald Publishing vs. Ramos, 88 Phil. 94, 100).

WHEREFORE, the decision appealed from is hereby reversed, and plaintiff-appellantSampaguita is declared the lawful owner of the disputed glass and wooden jalousies. Defendant-appellee Jalwindor is permanently enjoined from detaching said items from the roofdeck of theSampaguita Pictures Building, and is also ordered to pay plaintiff-appellant the sum of P1,000.00for and as attorney's fees, and costs.

SO ORDERED.

Teehankee, Actg. C.J., (Chairman), Makasiar, Fernan, Guerrero and Melencio-Herrera, JJ.,concur.

[G.R. No. 151212. September 10, 2003]

TEN FORTY REALTY AND DEVELOPMENT CORP., Represented by its President,VERONICA G. LORENZANA,petit ioner, vs . MARINA CRUZ,respondent .

D E C I S I O N

PANGANIBAN,J.:

In an ejectment suit, the question of ownership may be provisionally ruled upon for the sole purpose of determining who is entitled to possession de facto . In the present case, both parties base their alleged right to possess on their right to own. Hence, the Court of Appeals did not errin passing upon the question of ownership to be able to decide who was entitled to physical

possession of the disputed land.

The Case

Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to nullify

the August 31, 2001 Decision[2]

and December 19, 2001 Resolution[3]

of the Court of Appeals(CA) in CA- GR SP No. 64861. The dispositive portion of the assailed Decision is as follows:

―WHEREFORE, premises considered, the petition is hereby DISMISSED and the Decisi ondated May 4, 2001 is hereby AFFIRMED.‖ [4]

The assailed Resolution denied petitioner's Motion for Reconsideration.

http://sc.judiciary.gov.ph/jurisprudence/2003/sep2003/151212.htm#_ftn1














The Facts

The facts of the case are narrated by the CA as follows:

―A complaint for ejectment was filed by [Petitioner Ten Forty Realty and DevelopmentCorporation] against x x x [Respondent Marina Cruz] before the Municipal Trial Court in Cities(MTCC) of Olongapo City, docketed as Civil Case 4269, which alleged that: petitioner is thetrue and absolute owner of a parcel of lot and residential house situated in #71 18th Street,E.B.B. Olongapo City, particularly described as:

‗A parcel of residential house and lot situated in the above -mentioned address containing an areaof 324 square meters more or less bounded on the Northeast by 041 (Lot 255, Ts-308); on theSoutheast by 044 (Lot 255, Ts-308); on the Southwest by 043 (Lot 226-A & 18th street) and onthe Northwest by 045 (Lot 227, Ts-308) and declared for taxation purposes in the name of[petitioner] under T.D. No. 002-4595-R and 002- 4596.‘

having acquired the same on December 5, 1996 from Barbara Galino by virtue of a Deed ofAbsolute Sale; the sale was acknowledged by said Barbara Galino through a ' Katunayan' ;

payment of the capital gains tax for the transfer of the property was evidenced by a CertificationAuthorizing Registration issued by the Bureau of Internal Revenue; petitioner came to know thatBarbara Galino sold the same property on April 24, 1998 to Cruz, who immediately occupied the

property and which occupation was merely tolerated by petitioner; on October 16, 1998, acomplaint for ejectment was filed with the Barangay East Bajac-Bajac, Olongapo City but forfailure to arrive at an amicable settlement, a Certificate to File Action was issued; on April 12,1999 a demand letter was sent to [respondent] to vacate and pay reasonable amount for the useand occupation of the same, but was ignored by the latter; and due to the refusal of[respondent] to vacate the premises, petitioner was constrained to secure the services of acounsel for an agreed fee of P 5,000.00 as attorney‘s fee and P500.00 as appearance fee andincurred an expense of P5,000.00 for litigation.

―In respondent‘s Answer with Counterclaim, it was alleged that: petitioner is not qualified toown the residential lot in dispute, being a public land; according to Barbara Galino, she did notsell her house and lot to petitioner but merely obtained a loan from Veronica Lorenzana; the

payment of the capital gains tax does not necessarily show that the Deed of Absolute Sale was atthat time already in existence; the court has no jurisdiction over the subject matter because thecomplaint was filed beyond the one (1) year period after the alleged unlawful deprivation of

possession; there is no allegation that petitioner had been in prior possession of the premises andthe same was lost thru force, stealth or violence; evidence will show that it was Barbara Galinowho was in possession at the time of the sale and vacated the property in favor ofrespondent; never was there an occasion when petitioner occupied a portion of the premises,

before respondent occupied the lot in April 1998, she caused the cancellation of the taxdeclaration in the name of Barbara Galino and a new one issued in respondent‘s name; petitionerobtained its tax declaration over the same property on November 3, 1998, seven (7) months[after] the respondent [obtained hers]; at the time the house and lot [were] bought by respondent,the house was not habitable, the power and water connections were disconnected; being a publicland, respondent filed a miscellaneous sales application with the Community Environment and



Natural Resources Office in Olongapo City; and the action for ejectment cannot succeed where itappears that respondent had been in possession of the property prior to the petitioner. ‖

[5]

In a Decisio n[6] dated October 30, 2000, the Municipal Trial Court in Cities (MTCC)ordered respondent to vacate the property and surrender to petitioner possession thereof. It also

directed her to pay, as damages for its continued unlawful use, P500 a month from April 24,1999 until the property was vacated, P 5,000 as attorney‘s fees, and the costs of the suit.

On appeal, the Regional Trial Cour t[7] (RTC) of Olongapo City (Branch 72) reversed theMTCC. The RTC ruled as follows: 1) respondent‘s entry into the property was not by meretolerance of petitioner, but by virtue of a Waiver and Transfer of Possessory Rights and Deed ofSale in her favor; 2) the execution of the Deed of Sale without actual transfer of the physical

possession did not have the effect of making petitioner the owner of the property, because therewas no delivery of the object of the sale as provided for in Article 1428 of the Civil Code; and 3)

being a corporation, petitioner was disqualified from acquiring the property, which was publicland.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioner had failed to make a case for unlawfuldetainer, because no contract -- express or implied -- had been entered into by the parties withregard to possession of the property. It ruled that the action should have been for forcible entry,in which prior physical possession was indispensable -- a circumstance petitioner had not showneither.

The appellate court also held that petitioner had challenged the RTC‘s ruling on the questionof ownership for the purpose of compensatin g for the latter‘s failure to counter such ruling. TheRTC had held that, as a corporation, petitioner had no right to acquire the property which wasalienable public land.

Hence, this Petition .[8]

Issues

Petitioner submits the following issues for our consideration:

―1. The Honorable Court of Appeals had clearly erred in not holding that[r]espondent‘s occupation or possession of the property in question was merelythrough the tolerance or permission of the herein [p]etitioner;

―[2.] The Honorable Court of Appeals had likewise erred in holding that the ejectmentcase should have been a forcible entry case where prior physical possession isindispensable; and



















―[3.] The Honorable Court of Appeals had also erred when it ruled that the herein[r]espondent‘s possession or occupation of the said property is in the nature of anexercise of ownership which should put the herein [p]etitioner on guard. ‖

[9]

The Court’s Ruling

The Petition has no merit.

First Issue:Al leged Occupation by Tolerance

Petitioner faults the CA for not holding that the former merely tolerated respondent‘soccupation of the subject property. By raising this issue, petitioner is in effect asking this Court

to reassess factual findings. As a general rule, this kind of reassessment cannot be done througha petition for review on certiorari under Rule 45 of the Rules of Court, because this Court is not atrier of facts; it reviews only questions of law .[10] Petitioner has not given us ample reasons todepart from the general rule.

On the basis of the facts found by the CA and the RTC, we find that petitioner failed tosubstantiate its case for unlawful detainer. Admittedly, no express contract existed between the

parties. Not shown either was the corporation‘s alleged tolerance of respondent‘s possession.

While possession by tolerance may initially be lawful, it ceases to be so upon the owner‘sdemand that the possessor by tolerance vacate the property .[11] To justify an action for unlawfuldetainer, the permission or tolerance must have been present at the beginning of the

possession .[12]

Otherwise, if the possession was unlawful from the start, an action for unlawfuldetainer would be an improper remedy. Sarona v. Villega s[13] elucidates thus:

―A close assessment of the law and the concept of the word ‗tolerance‘ confirms our viewheretofore expressed that such tolerance must be present right from the start of possession soughtto be recovered, to categorize a cause of action as one of unlawful detainer not of forcibleentry. Indeed, to hold otherwise would espouse a dangerous doctrine. And for tworeasons. First. Forcible entry into the land is an open challenge to the right of the

possessor. Violation of that right authorizes the speedy redress – in the inferior court – providedfor in the rules. If one year from the forcible entry is allowed to lapse before suit is filed, thenthe remedy ceases to be speedy; and the possessor is deemed to have waived his right to seek

relief in the inferior court. Second, if a forcible entry action in the inferior court is allowed afterthe lapse of a number of years, then the result may well be that no action for forcible entry canreally prescribe. No matter how long such defendant is in physical possession, plaintiff willmerely make a demand, bring suit in the inferior court – upon a plea of tolerance to prevent

prescription to set in – and summarily throw him out of the land. Such a conclusion isunreasonable. Especially if we bear in mind the postulates that proceedings of forcible entry andunlawful detainer are summary in nature, and that the one year time bar to suit is but in

pursuance of the summary nature of the action.‖ [14]


























In this case, the Complaint and the other pleadings do not recite any averment of fact thatwould substantiate the claim of petitioner that it permitted or tolerated the occupation of the

property by Respondent Cruz. The Complaint contains only bare allegations that 1) respondentimmediately occupied the subject property after its sale to her, an action merely tolerated by

petitioner ;[15] and 2) her allegedly illegal occupation of the premises was by mere tolerance .[16]

These allegations co ntradict, rather than support, petitioner‘s theory that its cause of actionis for unlawful detainer. First , these arguments advance the view that respondent‘s occupationof the property was unlawful at its inception. Second , they counter the essential requirement inunlawful detainer cases that petitioner‘s supposed act of sufferance or tolerance must be presentright from the start of a possession that is later sought to be recovered .[17]

As the bare allegation of petitioner‘s tolerance of respondent‘s occupation of the premiseshas not been proven, the possession should be deemed illegal from the beginning. Thus, the CAcorrectly ruled that the ejectment case should have been for forcible entry -- an action that hadalready prescribed, however, when the Complaint was filed on May 12, 1999. The prescriptive

period of one year for forcible entry cases is reckoned from the date of respondent‘s actual entry

into the land, which in this case was on April 24, 1998.

Second Issue:Nature of the Case

Much of the difficulty in the present controversy stems from the legal characterization of theejectment Complaint filed by petitioner. Specifically, was it for unlawful detainer or for forcibleentry?

The answer is given in Section 1 of Rule 70 of the Rules of Court, which we reproduce as

follows:

―SECTION 1. Who may institute proceedings, and when. - Subject to the provisions of the nextsucceeding section, a person deprived of the possession of any land or building by force,intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person againstwhom the possession of any land or building is unlawfully withheld after the expiration ortermination of the right to hold possession, by virtue of any contract, express or implied, or thelegal representatives or assigns of any such lessor, vendor, vendee, or other person, may, at anytime within one (1) year after such unlawful deprivation or withholding of possession, bring anaction in the proper Municipal Trial Court against the person or persons unlawfully withholdingor depriving of possession, or any person or persons claiming under them, for the restitution of

such possession, together with dama ges and costs.‖

While both causes of action deal only with the sole issue of physical or de facto possession ,[18] the two cases are really separate and distinct, as explained below:

―x x x. In forcible entry, one is deprived of physical possession of land or building by means offorce, intimidation, threat, strategy, or stealth. In unlawful detainer, one unlawfully withholds

possession thereof after the expiration or termination of his right to hold possession under any


















contract, express or implied. In forcible entry, the possession is illegal from the beginning andthe basic inquiry centers on who has the prior possession de facto . In unlawful detainer, the

possession was originally lawful but became unlawful by the expiration or termination of theright to possess, hence the issue of rightful possession is decisive for, in such action, thedefendant is in actual possession and the plaintiff‘s cause of ac tion is the termination of the

defendant‘s right to continue in possession.

―What determines the cause of action is the nature of defendant‘s entry into the land. If the entryis illegal, then the action which may be filed against the intruder within one year therefrom isforcible entry. If, on the other hand, the entry is legal but the possession thereafter becameillegal, the case is one of unlawful detainer which must be filed within one year from the date ofthe last demand.‖ [19]

It is axiomatic that what determines the nature of an action as well as which court has jurisdiction over it are the allegations in the complain t[20] and the character of the reliefsought .[21]

In its Complaint, petitioner alleged that, having acquired the subject property from BarbaraGalino on December 5, 1996 ,[22] it was the true and absolute owne r [23] thereof; that Galino hadsold the property to Respondent Cruz on April 24, 1998 ;[24] that after the sale, the latterimmediately occupied the property, an action that was merely tolerated by petitioner ;[25] and that,in a letter given to respondent on April 12, 1999 ,[26] petitioner had demanded that the formervacate the property, but that she refused to do so .[27] Petitioner thereupon prayed for judgmentordering her to vacate the property and to pay reasonable rentals for the use of the premises,attorney‘s fees and the costs of the suit .[28]

The above allegations appeared to show the elements of unlawful detainer. They alsoconferred initiatory jurisdiction on the MTCC, because the case was filed a month after the last

demand to vacate -- hence, within the one-year prescriptive period.However, what was actually proven by petitioner was that possession by respondent had

been illegal from the beginning. While the Complaint was crafted to be an unlawful detainersuit, petitioner‘s real cause of action was for forcible entry, which had already

prescribed. Consequently, the MTCC had no more jurisdiction over the action.

The appellate court, therefore, did not err when it ruled that petitioner‘s Complaint forunlawful detainer was a mere subterfuge or a disguised substitute action for forcible entry, whichhad already prescribed. To repeat, to maintain a viable action for forcible entry, plaintiff musthave been in prior physical possession of the property; this is an essential element of the suit .[29]

Third Issue:Al leged Acts of Ownership

Petitioner next questions the CA‘s pronouncement that respondent‘s occupation of the property was an exercise of a right flowing from a claim of ownership. It submits that theappellate court should not have passed upon the issue of ownership, because the only questionfor resolution in an ejectment suit is that of possession de facto .














































Clearly, each of the parties claimed the right to possess the disputed property because ofalleged ownership of it. Hence, no error could have been imputed to the appellate court when it

passed upon the issue of ownership only for the purpose of resolving the issue of possession de facto .[30] The CA‘s holding is moreover in accord with jurisprudence and the law.

Execution of a D eed of Sale Not Suff ici ent as Delivery

In a contract of sale, the buyer acquires the thing sold only upon its delivery ―in any of theways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the

possession is transferred from the vendor to the v endee. ‖[31] With respect to incorporeal property,Article 1498 lays down the general rule: the execution of a public instrument shall be equivalentto the delivery of the thing that is the object of the contract if, from the deed, the contrary doesnot appear or cannot be clearly inferred.

However, ownership is transferred not by contract but by tradition or delivery .[32]

Nowherein the Civil Code is it provided that the execution of a Deed of Sale is a conclusive presumptionof delivery of possession of a piece of real estate .[33]

This Court has held that the execution of a public instrument gives rise only to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment .[34] Pasagui v. Villablanc a [35] had earlier ruled that suchconstructive or symbolic delivery, being merely presumptive, was deemed negated by the failureof the vendee to take actual possession of the land sold.

It is undisputed that petitioner did not occupy the property from the time it was allegedlysold to it on December 5, 1996 or at any time thereafter. Nonetheless, it maintains that Galino‘s

continued stay in the premises from the time of the sale up to the time respondent‘s occupationof the same on April 24, 1998, was possession held on its behalf and had the effect of deliveryunder the law .[36]

Both the RTC and the CA disagreed. According to the RTC, petitioner did not gain controland possession of the property, because Galino had continued to exercise ownership rights overthe realty. That is, she had remained in possession, continued to declare it as her property for tax

purposes and sold it to respondent in 1998.

For its part, the CA found it highly unbelievable that petitioner -- which claims to be theowner of the disputed property -- would tolerate possession of the property by respondent fromApril 24, 1998 up to October 16, 1998. How could it have been so tolerant despite its knowledge

that the property had been sold to her, and that it was by virtue of that sale that she hadundertaken major repairs and improvements on it?

Petitioner should have likewise been put on guard by responden t‘s declaration of the property for tax purposes on April 23, 1998 ,[37] as annotated in the tax certificate filedseven months later .[38] Verily, the tax declaration represented an adverse claim over theunregistered property and was inimical to the right of petitioner.







































Indeed, the above circumstances derogated its claim of control and possession of the property.

Order of Pr eference in Doubl e

Sale of I mmovable Property

The ownership of immovable property sold to two different buyers at different times isgoverned by Article 1544 of the Civil Code, which reads as follows:

―Article 1544. x x x

―Should it be immovable property, the ownership shall belong to the person acquiring it who ingood faith first recorded it in the Registry of Property.

―Should there be no inscription, the ownership shall pertain to the pe rson who in good faith wasfirst in possession; and, in the absence thereof, to the person who presents the oldest title,

provided there is good faith.‖

Galino allegedly sold the property in question to petitioner on December 5, 1996 and,subsequently, to respondent on April 24, 1998. Petitioner thus argues that being the first buyer,it has a better right to own the realty. However, it has not been able to establish that its Deed ofSale was recorded in the Registry of Deeds of Olongapo City .[39] Its claim of an unattested andunverified notation on its Deed of Absolute Sal e[40] is not equivalent to registration. It admitsthat, indeed, the sale has not been recorded in the Registry of Deeds .[41]

In the absence of the required inscription, the law gives preferential right to the buyer who in

good faith is first in possession. In determining the question of who is first in possession, certain basic parameters have been established by jurisprudence.

First , the possession mentioned in Article 1544 includes not only material but also symbolic possession .[42] Second , possessors in good faith are those who are not aware of any flaw in theirtitle or mode of acquisition .[43] Third , buyers of real property that is in the possession of personsother than the seller must be wary -- they must investigate the rights of the possessors .[44] Fourth ,good faith is always presumed; upon those who allege bad faith on the part of the possessorsrests the burden of proof .[45]

Earlier, we ruled that the subject property had not been delivered to petitioner; hence, it didnot acquire possession either materially or symbolically. As between the two buyers, therefore,

respondent was first in actual possession of the property.Petitioner has not proven that respondent was aware that her mode of acquiring the property

was defective at the time she acquired it from Galino. At the time, the property -- which was public land -- had not been registered in the name of Galino; thus, respondent relied on the taxdeclarations thereon. As shown, the former‘s name appeared on the tax declarations for the

property until its sale to the latter in 1998. Galino was in fact occupying the realty whenrespondent took over possession. Thus, there was no circumstance that could have placed thelatter upon inquiry or required her to further investigate petitioner‘s right of ownership.





























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