Sales Sept. 24, 2015

SALES SEPTEMBER 24, 2015 1

G.R. No. 111238 January 25, 1995

ADELFA PROPERTIES, INC., petitioner, vs.COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD JIMENEZ, respondents.

REGALADO, J.:

The main issues presented for resolution in this petition for review on certiorari of the judgment of respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 34767 1 are (1) whether of not the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private respondents Rosario Jimenez-Castañeda and Salud Jimenez is an option contract; and (2) whether or not there was a valid suspension of payment of the purchase price by said petitioner, and the legal effects thereof on the contractual relations of the parties.

The records disclose the following antecedent facts which culminated in the present appellate review, to wit:

1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of Title (TCT) No. 309773, 2situated in Barrio Culasi, Las Piñas, Metro Manila.

2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." 3Subsequently, a "Confirmatory Extrajudicial Partition Agreement" 4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein private respondents.

3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was executed between petitioner and private respondents, under the following terms and conditions:

1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00)

2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an option money shall be credited as partial payment upon the consummation of the sale and the balance in the sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before November 30, 1989;

3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the option money to be forfeited in our favor and we will refund the remaining 50% of said money upon the sale of said property to a third party;

4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the VENDORS, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of ADELFA PROPERTIES, INC.

Considering, however, that the owner's copy of the certificate of title issued to respondent Salud Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel. Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.

4. Before petitioner could make payment, it received summons 6 on November 29, 1989, together with a copy of a complaint filed by the nephews and nieces of private respondents against the latter, Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household Corporation and recovery of ownership of the property covered by TCT No. 309773. 7

5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents that it would hold payment of the full purchase price and suggested that private respondents settle the case with their nephews and nieces, adding that ". . . if possible, although November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m." 8 Another letter of the same tenor and of even date was sent by petitioner to Jose and Dominador Jimenez. 9 Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the suspension of payment of the purchase price to "lack of word of honor."

6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-4, respectively.

7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they


were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted therefrom for the settlement of the civil case. This was rejected by private respondents. On December 22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter.

8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive option to purchase as Entry No. 4442-4.

9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was paid to private respondents on said date, with the balance to be paid upon the transfer of title to the specified one-half portion.

10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of the dismissal of the case against them, petitioner was willing to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private respondents.

11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a check for P25,000.00 representing the refund of fifty percent of the option money paid under the exclusive option to purchase. Private respondents then requested petitioner to return the owner's duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender the certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial Court of Pasay City, Branch 113, for annulment of contract with damages, praying, among others, that the exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered to return the owner's duplicate certificate of title; and that the annotation of the option contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint in intervention.

12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement entered into by the parties was merely an option contract, and declaring that the suspension of payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment in favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not involve the western portion of the land covered by the contract between petitioner and private respondents, but the eastern portion thereof which was the subject of the sale between petitioner and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and ordered petitioner to pay damages and attorney's fees to private respondents, with costs.

13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held that the failure of petitioner to pay the purchase price within the

period agreed upon was tantamount to an election by petitioner not to buy the property; that the suspension of payment constituted an imposition of a condition which was actually a counter-offer amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale or a contract to sell, but not to an option contract which it opined was the nature of the document subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional sale executed by private respondents in favor of intervenor Emylene Chua.

In the present petition, the following assignment of errors are raised:

1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the agreement entered into by petitioner and private respondents was strictly an option contract;

2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted with grave abuse of discretion in grievously failing to consider that while the option period had not lapsed, private respondents could not unilaterally and prematurely terminate the option period;

3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the attendant facts and circumstances when it made the conclusion of law that Article 1590 does not apply; and

4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not only excessive, but also without in fact and in law. 14

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and not an option contract or a contract of sale.

I

1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as a contract to sell, rather than a contract of sale. The distinction between the two is important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither


a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. 15

There are two features which convince us that the parties never intended to transfer ownership to petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in the event that petitioner does not comply with its obligation. With the absence of such a stipulation, although there is a provision on the remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer ownership to the petitioner to completion of payment of the purchase price.

In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the price. Article 1478 of the civil code does not require that such a stipulation be expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding and enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell.

Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is bolstered by the fact that the deed of absolute sale would have been issued only upon the payment of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16, 1990 16 wherein it informed private respondents that it "is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute sale."

Secondly, it has not been shown there was delivery of the property, actual or constructive, made to herein petitioner. The exclusive option to purchase is not contained in a public instrument the execution of which would have been considered equivalent to delivery. 17 Neither did petitioner take actual, physical possession of the property at any given time. It is true that after the reconstitution of private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law, such possession by the vendee is to be understood as a delivery. 18 However, private respondents explained that there was really no intention on their part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel in the petition for reconstitution. We have no reason not to believe this explanation of private respondents, aside from the fact that such contention was never refuted or contradicted by petitioner.

2. Irrefragably, the controverted document should legally be considered as a perfected contract to sell. On this particular point, therefore, we reject the position and

ratiocination of respondent Court of Appeals which, while awarding the correct relief to private respondents, categorized the instrument as "strictly an option contract."

The important task in contract interpretation is always the ascertainment of the intention of the contracting parties and that task is, of course, to be discharged by looking to the words they used to project that intention in their contract, all the words not just a particular word or two, and words in context not words standing alone. 19Moreover, judging from the subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a contract to sell. 20 In addition, the title of a contract does not necessarily determine its true nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to Purchase" is not controlling where the text thereof shows that it is a contract to sell.

An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to buy. 22 It is not a sale of property but a sale of property but a sale of the right to purchase. 23 It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that it is, the right or privilege to buy at the election or option of the other party. 24 Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. 25

On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons whereby one binds himself, with respect to the other, to give something or to render some service. 26 Contracts, in general, are perfected by mere consent, 27 which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. 28

The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are


concurrent, since the minds of the contracting parties meet in the terms of the agreement. 29

A perusal of the contract in this case, as well as the oral and documentary evidence presented by the parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and private respondents' acceptance thereof. The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale. 30

The records also show that private respondents accepted the offer of petitioner to buy their property under the terms of their contract. At the time petitioner made its offer, private respondents suggested that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing a petition for reconstitution. After the title was reconstituted, the parties agreed that petitioner would pay either in cash or manager's check the amount of P2,856,150.00 for the lot. Petitioner was supposed to pay the same on November 25, 1989, but it later offered to make a down payment of P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30, 1989. Private respondents agreed to the counter-offer made by petitioner. 31 As a result, the so-called exclusive option to purchase was prepared by petitioner and was subsequently signed by private respondents, thereby creating a perfected contract to sell between them.

It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the acceptance thereof was absolute and without any condition or qualification. The agreement as to the object, the price of the property, and the terms of payment was clear and well-defined. No other significance could be given to such acts that than they were meant to finalize and perfect the transaction. The parties even went beyond the basic requirements of the law by stipulating that "all expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of Adelfa properties, Inc." Hence, there was nothing left to be done except the performance of the respective obligations of the parties.

We do not subscribe to private respondents' submission, which was upheld by both the trial court and respondent court of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a counter-offer. It must be stressed that there already existed a perfected contract between the parties at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only when it is accepted by the other. In the case of private respondents, they actually refused to

concur in said offer of petitioner, by reason of which the original terms of the contract continued to be enforceable.

At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's sole purpose was to settle the civil case in order that it could already comply with its obligation. In fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it was being prevented from doing so because of the filing of the civil case which, it believed in good faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that suggestion given by petitioner that it was totally abandoning the original contract.

More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase price within the agreed period was attributed by private respondents to "lack of word of honor" on the part of the former. The reason of "lack of word of honor" is to us a clear indication that private respondents considered petitioner already bound by its obligation to pay the balance of the consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation from herein petitioner. with the arrival of the period agreed upon by the parties, petitioner was supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an option or a right to buy the property.

The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that is, the payment of the purchase price. The contract did not simply give petitioner the discretion to pay for the property.32 It will be noted that there is nothing in the said contract to show that petitioner was merely given a certain period within which to exercise its privilege to buy. The agreed period was intended to give time to herein petitioner within which to fulfill and comply with its obligation, that is, to pay the balance of the purchase price. No evidence was presented by private respondents to prove otherwise.

The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be specifically enforced. 33 There is no doubt that the obligation of petitioner to pay the purchase price is specific, definite and certain, and consequently binding and enforceable. Had private respondents chosen to enforce the contract, they could have specifically compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence.

This is not a case where no right is as yet created nor an obligation declared, as where something further remains to be done before the buyer and seller obligate themselves. 34 An agreement is only an "option" when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified. 35 An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within specified time and providing forfeiture of money paid upon failure to make payment, where the purchaser does not agree to


purchase, to make payment, or to bind himself in any way other than the forfeiture of the payments made. 36 As hereinbefore discussed, this is not the situation obtaining in the case at bar.

While there is jurisprudence to the effect that a contract which provides that the initial payment shall be totally forfeited in case of default in payment is to be considered as an option contract, 37 still we are not inclined to conform with the findings of respondent court and the court a quo that the contract executed between the parties is an option contract, for the reason that the parties were already contemplating the payment of the balance of the purchase price, and were not merely quoting an agreed value for the property. The term "balance," connotes a remainder or something remaining from the original total sum already agreed upon.

In other words, the alleged option money of P50,000.00 was actually earnest money which was intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. 38 It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.

There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money ids the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy. 39

The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even though it was called "option money" by the parties. In addition, private respondents failed to show that the payment of the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the contrary, it has been sufficiently established that such payment was but an element of the performance of petitioner's obligation under the contract to sell. 40

II

1. This brings us to the second issue as to whether or not there was valid suspension of payment of the purchase price by petitioner and the legal consequences thereof. To justify its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code which provides:

Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a

foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price.

Respondent court refused to apply the aforequoted provision of law on the erroneous assumption that the true agreement between the parties was a contract of option. As we have hereinbefore discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article 1590 would properly apply.

Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties herein involved only the eastern half of the land subject of the deed of sale between petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect on private respondents' title and ownership over the western half of the land which is covered by the contract subject of the present case. We have gone over the complaint for recovery of ownership filed in said case 41 and we are not persuaded by the factual findings made by said courts. At a glance, it is easily discernible that, although the complaint prayed for the annulment only of the contract of sale executed between petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs' share in that parcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs therein were claiming to be co-owners of the entire parcel of land described in TCT No. 309773, and not only of a portion thereof nor, as incorrectly interpreted by the lower courts, did their claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers.

Such being the case, petitioner was justified in suspending payment of the balance of the purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did not have to worry about the case because it was pure and simple harassment 42 is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price.

2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold that private respondents may no longer be compelled to sell and deliver the subject property to petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by private respondents.

The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal of civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its counsel, wrote private respondents expressing its


willingness to pay the balance of the purchase price upon the execution of the corresponding deed of absolute sale. At most, that was merely a notice to pay. There was no proper tender of payment nor consignation in this case as required by law.

The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides, a mere tender of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase price. 44 The rule is different in case of an option contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. 47 A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of a privilege of a right. consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation.

Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact it has deposit the money with the trial court when this case was originally filed therein.

By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell. 48 Furthermore, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, 49 as in the contract involved in the present controversy.

We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. It is our considered view, however, that this rule applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall be subject to judicial determination 51 otherwise, if said party does not oppose it, the extrajudicial rescission shall have legal effect. 52

In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice of rescission which specified the grounds therefore, it

failed to reply thereto or protest against it. Its silence thereon suggests an admission of the veracity and validity of private respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the contract. 54 But then, the records bear out the fact that aside from the lackadaisical manner with which petitioner treated private respondents' latter of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of its alleged rights under the contract. If private respondents had not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take any legal action to compel specific performance from the former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now desires but which it had theretofore disdained.

WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been reached by respondent Court of Appeals with respect to the relief awarded to private respondents by the court a quo which we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED.

SO ORDERED.


G.R. No. 103577 October 7, 1996

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs.THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

MELO, J.:p

The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00.

The undisputed facts of the case were summarized by respondent court in this wise:

On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as Coronels) executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:

RECEIPT OF DOWN PAYMENT

P1,240,000.00 — Total amount

50,000 — Down payment———————————P1,190,000.00 — Balance

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.

We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the down payment above-stated.

On our presentation of the TCT already in or name, We will immediately execute the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.

Clearly, the conditions appurtenant to the sale are the following:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the document aforestated;

2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;

3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").

On February 6, 1985, the property originally registered in the name of the Coronels' father was transferred in their names under TCT No. 327043 (Exh. "D"; Exh. "4")

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")

For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.

On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the Coronels and caused the


annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").

On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").

On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh. "G"; Exh. "7").

On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").

(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their documentary evidence accordingly marked as Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1" through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30) days within which to simultaneously submit their respective memoranda, and an additional 15 days within which to submit their corresponding comment or reply thereof, after which, the case would be deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as follows:

WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements existing thereon free from all liens and encumbrances, and once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and declared to be without force and effect. Defendants and intervenor and all other persons

claiming under them are hereby ordered to vacate the subject property and deliver possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's fees, as well as the counterclaims of defendants and intervenors are hereby dismissed.

No pronouncement as to costs.

So Ordered.

Macabebe, Pampanga for Quezon City, March 1, 1989.

(Rollo, p. 106)

A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:

The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned Presiding Judge should be denied for the following reasons: (1) The instant case became submitted for decision as of April 14, 1988 when the parties terminated the presentation of their respective documentary evidence and when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was terminated before Judge Roura and therefore the same should be submitted to him for decision; (2) When the defendants and intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the first time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they are now estopped from questioning said authority of Judge Roura after they received the decision in question which happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority to act on any pending incident submitted before this Court during his incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve such cases submitted to him for decision or resolution because he continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and supported by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to decide the case notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court).


Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a meticulous examination of the documentary evidence presented by the parties, she is convinced that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed.

IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render Anew Decision by the Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED.

SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial court.

Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents' Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned.

While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit.

The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise determination of the legal significance of the document entitled "Receipt of Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact that said document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows:

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

While, it is the position of private respondents that the "Receipt of Down Payment" embodied a perfected contract of sale, which perforce, they seek to enforce by means

of an action for specific performance, petitioners on their part insist that what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract absolute sale.

Plainly, such variance in the contending parties' contentions is brought about by the way each interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever relevant and admissible evidence may be available on record, this, Court, as were the courts below, is now called upon to adjudge what the real intent of the parties was at the time the said document was executed.

The Civil Code defines a contract of sale, thus:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:

Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and


failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force.

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller's obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith

and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller's title per se, but the latter, of course, may be used for damages by the intending buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been previous delivery of the subject property, the seller's ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller's title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered into by petitioners and private respondents.

It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down Payment" that they —

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.

without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property.

When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioner's father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price.

The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land.


Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then.

Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the properly to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale.

Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter. What may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer full ownership of the subject house and lot to the buyer if the documents were then in order. It just happened, however, that the transfer certificate of title was then still in the name of their father. It was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price arise.

There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the sellers were the one who were unable to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their father. It was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of absolute sale.

What is clearly established by the plain language of the subject document is that when the said "Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to their names.

The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became

obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment."

Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus,

Art. 1475. 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 the moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that:

3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the downpayment above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.)

(Rollo, p. 16)

Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they contend, continuing in the same paragraph, that:


. . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale. (Emphasis supplied.)

(Ibid.)

not aware that they set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that:

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is the fact that the condition herein referred to was actually and indisputably fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4").

The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject only to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of their father's name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").

We, therefore, hold that, in accordance with Article 1187 which pertinently provides —

Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . .

In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.

the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose.

Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the absolute owners of the inherited property.

We cannot sustain this argument.

Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to be extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law.

Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).

Be it also noted that petitioners' claim that succession may not be declared unless the creditors have been paid is rendered moot by the fact that they were able to effect the transfer of the title to the property from the decedent's name to their names on February 6, 1985.

Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they cannot be allowed to now take a posture contrary to that which they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that time.

Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible the consummation thereof by going to the United States of America, without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct in unilaterally rescinding rescinding the contract of sale.

We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. We note that these supposed grounds for petitioners' rescission, are mere allegations found only in their responsive pleadings, which by


express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).

Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the contract of sale, there being no express stipulation authorizing the sellers to extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])

Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.

Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona's corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default.

Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default, to wit:

Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

xxx xxx xxx

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with

what is incumbent upon him. From the moment one of the parties fulfill his obligation, delay by the other begins. (Emphasis supplied.)

There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents.

With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

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

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith.

The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply.

The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer.

In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court, Justice Jose C. Vitug, explains:

The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer


of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it has held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).

Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in good faith.

We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold.

As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had already been previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners' title to the property at the time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers that sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a pervious sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts below.

Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed between mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this point.

WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED.

SO ORDERED.


G.R. No. 119580 September 26, 1996

PHILIPPINE NATIONAL BANK, petitioner, vs.COURT OF APPEALS and LAPAZ KAW NGO, respondents.

HERMOSISIMA, JR., J.:

The question at issue, one of law, is whether or not from the undisputed facts there was entered the Philippine National Bank and Lapaz Kaw Ngo a perfected contract of sale of prime real property located in the heart of downtown Manila.

Before us is a petition for review on certiorari seeking the reversal of the decision 1 of the respondent Court of Appeals 2 in an action for specific performance 3 filed in the Regional Trial Court (RTC) 4 by private respondent Lapaz Kaw Ngo against petitioner Philippine National Bank (hereafter, "PNB"). Except for the award of P610,000.00 as actual damages which was deleted, respondent appellate court affirmed in all other respects the judgment 5 rendered by the RTC in favor of private respondent Ngo.

The facts of this case, as narrated by respondent appellate court, are undisputed:

The subject matter of the case is a parcel of land containing a net area of 1,190.72 square meters (1391.70 square meters minus 200.98 square meters reserved for road widening and Light Rail Transit) situated at the corner of Carlos Palanca and Helios Streets, Sta. Cruz, Manila, covered by and embraced in Transfer Certificate of Title No. 134695 of the Registry of Deeds of Manila . . . owned and registered in the name of . . . the Philippine National Bank. . . .

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On July 14, 1983 Lapaz made a formal offer to purchase the parcel of land consisting of 1,250.70 [square meters] located at the corner of Carlos Palanca and Helios Streets, Sta. Cruz, Manila, owned by and registered in the name of . . . PNB . . . PNB advised Lapaz of its approval of the latter's offer to purchase the subject property subject to the terms and conditions stated in its official communication to the plaintiff [private respondent] dated September 8, 1983, viz:

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. . . your offer to purchase the Bank-acquired property . . . was approved by the Bank, subject to the following terms and conditions:

1. That the selling price shall be P5,394,300.00 (P100,000.00 already deposited) . . .

2. (a) That upon your failure to pay the additional deposit of P978,860.00 upon receipt of advice accepting your offer, your P100,000.00 initial deposit shall be forfeited and for this purpose the Bank shall be authorized to sell the property to other interested parties.

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3. That the Bank sells only whatever rights, interests and participation it may have in the property and you are charged with full knowledge of the nature and extent of said rights, interests and participation and waives [sic] your right to warranty against eviction.

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4. That the property shall be cleared of its present tenants/occupation but all expenses to be incurred in connection with the ejectment proceedings shall be for your account.

6. That the sale shall be subject to such other terms and conditions that the Legal Department may impose to protect the interest of the Bank.

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On December 15, 1983, the plaintiff [private respondent] signified her conformity to the above letter-agreement by affixing her signature thereon . . . .

One of the conditions in the agreement was to clear the subject property of its then accupants; thus, Lapaz undertook the ejectment of the squatters/tenants at her own expense.


In a letter dated January 23, 1984, Lapaz, citing the then prevailing credit squeeze, requested for adjustment of payment proposals . . . .

On February 28, 1984, PNB wrote Lapaz reminding her of her failure to remit the amount of P978,860.00 as embodied in its letter dated December 6, 1983 . . . and of her refusal to send her letter of conformity to the letter-agreement. Lapaz was likewise advised to remit her cash payment of the full price amounting to P5,378,902.50; otherwise, the subject property shall be sold to other interested party/ies and her deposit forfeited. Lapaz's request for adjustment of payments was likewise denied . . . .

In a letter dated March 1, 1984 . . . Lapaz, due to a significant reduction in the land area being purchased, requested for the reduction of the selling price from P5,394,300.00 to P5,135,599.17 on cash basis or a total of P6,066,706.49 on installment . . . .

On May 15, 1984, PNB favorably acted on Lapaz's request . . . .

However, when no further payment was received by PNB from Lapaz, the former notified the latter by telegram that it was giving her a last chance to pay the balance of the required downpayment of P563,341.29; failure of which shall cause the cancellation of the sale in her favor and the forfeiture of her P100,000.00 deposit . . . .

The sale in favor of Lapaz never materialized because of her failure to remit the required amount agreed upon; hence, the proposed sale was cancelled . . . and the plaintiff's [private respondent's] deposit of P100,000.00 was forfeited by the defendant [petitioner]. PNB then leased the property to a certain Morse Rivera . . . .

On October 3, 1984 Lapaz requested for a refund of her deposit in the total amount of P660,000.00 (P550,000.00) with a further request that since the Bank was willing to refund to her her deposit provided that the P100,000.00 is forfeited in favor of the Bank, the amount of P100,000.00 be reduced to P30,000.00 because her deposit of P660,000.00 (P550,000.00) had, after all, already accumulated to a sizable amount of interest and, besides there was a delay in the approval of the contract or proposal. Lapaz further intimated that her request for refund shall be subject to the release of the fund within one (1) week from receipt thereof; otherwise, she would insist on purchasing the property subject to mutually agreed grace period . . . .

On October 16, 1984, PNB released in favor of Lapaz the amount of P550,000.00 representing the refund of deposit made on the offer to purchase the subject property . . . .

On August 30, 1985, [Lapaz] wrote a letter to the former President of the Philippines, Ferdinand E. Marcos, requesting for the lifting of the directive suspending the sale of the subject property, which letter was transmitted to the then President of the PNB for comment and/or action.

In its letter date May 14, 1986, PNB advised Lapaz of the approval of her request for revival of the previously approved offer to purchase the subject to the terms and conditions as follows:

1. That the selling price shall be P5,135,599.17 (P200,000.00) already deposited . . .

2.a. That upon your failure to pay the additional deposit of P827,119.83 upon receipt of advise of approval, your P200,000.00 deposit shall be forfeited and for this purpose, the Bank can sell the property to other interested parties;

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3. That your previous deposit of P100,000.00 which was forfeited by the Bank due to your failure to consummate the previously-approved sale, shall not be considered as part of the purchase price;

4. That the Bank sells only whatever rights, interests and participation it may have in the property and you are charged with full knowledge of the nature and extent of said rights, interest and participation and waives [sic] your right to warranty against eviction;

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6. That the property shall be cleared of its present tenants/occupants but all expenses to be incurred in connection with the ejectment proceedings shall be for your account;


7. That the sale shall be subject to all terms and conditions covering sale of similar acquired real estate properties;

8. That the sale shall also be subject to all terms and conditions that the Legal Department may impose to protect the interest of the Bank. . . .

A copy of the said letter appears to have been received by the plaintiff [private respondent] herself on May 20, 1986 . . . .

In a letter dated May 23, 1986 . . . Lapaz informed the PNB management that the terms and conditions set forth in its letter of May 14, 1986 were acceptable to her except condition no. 6 which says:

6. That the property shall be cleared of its present tenants/occupants but all expenses to be incurred in connection with the ejectment proceedings shall be for your account.

She therefore requested for the deletion of the above condition because she had already defrayed the expenses for the ejectment of the previous occupants of the premises in compliance with the condition in the original approved offer to purchase. Besides, the present occupants are not squatters, but lessees of PNB . . . Lapaz's request for modification was not acceptable to the Bank; thus, she was given up to July 10, 1986 to submit, duly signed, the letter-conforme dated May 14, 1986 to submit, duly signed, the letter-conforme dated May 14, 1986 and to remit the initial amount of P827,119.83 to comply with the approved terms and conditions; otherwise, the approved sale will be cancelled and her deposit of P200,000.00 forfeited . . . .

In a letter dated January 14, 1987, Lapaz through counsel informed PNB that she was willing to pay and remit the amount of P827,119.83 representing the balance of the 20% down payment of the approved purchase price as soon as the subject property was cleared of its present tenants/occupants. However, the bank in its letter dated January 30, 1987 informed Lapaz that it could no longer grant her any extension to pay the above stated amount, and cancelled on January 30, 1987 the approved sale in plaintiff's [private respondent's] favor for being stale and unimplemented and forfeited her deposit of P200,000.00 . . . .

To demonstrate her protest over the cancellation, Lapaz through counsel sent the letter dated February 6, 1987 asking for a

reconsideration of bank's position on the matter by honoring the approved sale in plaintiff's [private respondent's] favor as well as her deposit . . . . In reply, the Bank denied any further extension in favor of the plaintiff [private respondent] and likewise informed her that it had already decided to sell the property for not less than P7,082,972.00 through negotiated or sealed bidding . . . .

As a consequence of the cancellation of the approved offer to purchase in her favor, Lapaz filed [an] action for Specific Performance and Damages with Prayer for a Writ of Preliminary Injunction and Temporary Restraining Order.

After trial, the lower court, on November 15, 1990, rendered judgment in favor of the plaintiff [private respondent] . . . 6

In the decretal portion of the trial court's judgment, petitioner was ordered to comply with the approved sale of the subject property but without the right to impose the condition that private respondent shall bear the expenses for ejecting the occupants of the subject property. Petitioner was also ordered to pay P610,000.00 as actual expenses, P100,000.00 as attorney's fees, plus P1,000.00 per appearance, and the costs of suit.

The aforeceited judgment of the court a quo, totally unacceptable to petitioner, was appealed to the respondent court. Petitioner took exception to the following postulations of the trial court: (1) that there was a perfected contract of sale between herein private parties notwithstanding the suspensive condition imposed upon private respondent for her to bear the expenses for ejecting the occupants of the subject property; (2) that the deposit of P200,000.00 given by private respondent was earnest money which is proof of the perfection of the contract of sale albeit the said condition imposed thereon; and (3) that the cancellation of the second sale was baseless notwithstanding proof of private respondent's refusal to pay the balance of the 20% down payment of the purchase price of the subject property.

The respondent court disagreed with and answered each of, the aforegoing asseverations of petitioner in this wise:

The plaintiff-appellee's [private respondent's] offer to purchase the subject property was originally approved by the defendant-appellant [petitioner] on September 8, 1983 subject however to the terms and conditions enumerated therein. . . .

From the moment the plaintiff-appellee [private respondent] signed the letter-agreement signifying her conformity thereto, which simply means that she was accepting the terms and conditions therein


absolutely, there was created between the parties, a perfected contract of sale.

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The failure of the plaintiff [private respondent] to remit the required downpayment does not negate the perfection of the first contract of sale between the parties. The failure of the vendee . . . to pay the price agreed upon in the contract only gives the vendor . . . the right to exact the fulfillment or to rescind the contract (Art. 1191, supra.; Jacinto vs. Kaparaz, 209 SCRA 246).

The terms and conditions in the letter-agreement need not be complied with before it could be said that the contract had already attained its perfection. A reading of the letter-agreement would reveal that the perfection of the contract does not depend on the fulfillment of the terms and conditions therein. Since there was a meeting of the minds between the parties upon the object of the contract and upon the price, the contract of sale had already been perfected. Thus, whether or not the conditions were fulfilled, the agreement remains to be valid and each party may reciprocally demand for its performance. . . .

Admittedly, the . . . [private respondent] failed to remit the required downpayment for the first contract after several notices for payment therefor . . . Thus, it was just proper for the defendant-Bank [petitioner] to cancel the agreement to protect its interests. Anyway, it was merely exercising its right under Article 1191 of the New Civil Code which right was clearly stipulated in the agreement . . . .

The agreement nonetheless was subsequently revived, pursuant to which, another letter-agreement dated May 14, 1986 was sent by appellant [petitioner] to appellee [private respondent] . . . . The latter did not sign the letter-agreement but instead sent a letter to the appellant [petitioner] dated May 23, 1986 expressing her conformity to the terms and conditions stipulated therein except for the condition which states that the subject "property shall be cleared of its present tenants/occupants" at her expense . . . . On the other hand, appellant [petitioner] posits the view that since the approval of the revival of the offer to purchase was made subject to the terms and conditions stated therein, which conditions were necessary for the enforceability of the obligation against the appellant [petitioner], and there being no absolute acceptance by the plaintiff [petitioner], and there being no absolute acceptance by the plaintiff [private respondent] of such terms and conditions, then no contract of sale was perfected between the parties.

Appellant's [petitioner's] view is devoid of merit.

We note that the appellant [petitioner] itself admitted that the second agreement was merely a revival of the first agreement which was duly approved by the bank, and the terms and conditions thereof accepted by the appellee [private respondent] . . . Although there were some changes in the second agreement, such changes were not substantial so as to make it a different contract of sale from that of the first agreement of the parties . . . .

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Considering that there was already an ejectment case filed by the appellant [petitioner] against its lessees, then there was no longer any need for the plaintiff-appellee [private respondent] to initiate another ejectment case at her expense, much less was there a need to incorporate condition no. 6 in the agreement. Thus, the forfeiture of the plaintiff's [private respondent's] deposit of P200,000.00 and the subsequent unilateral cancellation of the agreement have no legal basis at all. Such cancellation was made without the appellant's [petitioner's] action on the appellee's [private respondent's] request for reconsideration of the PNB's denial of her request for deletion of condition no. 6 . . . .

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Appellant [petitioner] likewise argues that the deposits given by the appellee [private respondent] were expressly subject to conditions agreed upon by the parties; hence, cannot be deemed as earnest money contemplated in Article 1482 of the New Civil Code.

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A close scrutiny of the two letters-agreement shows that the deposits of P100,000.00 . . . and P20,000.00 . . . were made part of the selling/purchase price. . . .

On the basis of the above, there can be no other conclusion than that the deposits made . . . were actually earnest money, such that from the total selling price the arras (earnest money) must be deducted and the balance is all that has to be paid . . . .

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The appellant [petitioner] likewise assigns as error the findings of the lower court on the absence of proof that the appellee [private respondent] refused to pay the . . . downpayment in the second agreement. . .

. . . The only reason which prevented the appellee [private respondent] from paying the required downpayment was the stipulation in the agreement requiring her to eject the present occupants of the premises when in fact she already spent for the eviction of its previous tenants . . . . However . . . there is no need for such stipulation because anyway the appellant [petitioner] had already instituted an action against its tenants . . . Besides, the protest letter sent by appellee's [private respondent's] lawyer . . . as well as the filing of this case are eloquent proofs of the appellee's [private respondent's] desire, capacity and willingness to proceed with the sale of the property. As we noted above, the appellant [petitioner] never replied to the appellee's [private respondent's] request for reconsideration of its refusal a delete condition no. 6. PNB's inaction must have made Lapaz to suspend payment. 7

Likewise rebuffed by the respondent Court of Appeals which, however, deleted the P610,000.00 award for actual damages granted by the trial court to private respondent, petitioner prays that the herein assailed decision be set aside because the respondent court apparently decided questions of substance not in accord with statutory and case law:

THE COURT OF APPEALS ERRED:

I

IN HOLDING THAT THERE WAS A PERFECTED CONTRACT BETWEEN PNB AND MS. NGO DESPITE THEIR CLEAR DISAGREEMENT ON THE SUBSTANTIVE CONDITION THAT THE LATTER SHOULDER THE EXPENSES FOR THE EJECTMENT OF THE OCCUPANTS OF THE LOT TO BE SOLD

A. PNB's acceptance of Ms. Ngo's offer to revive her purchase of subject lot was subject to certain substantive conditions.

B. PNB's acceptance of Ms. Ngo's offer was in fact a counter-offer which she rejected by her insistence that PNB delete condition number 6.

C. PNB's Condition Number 6 is material and should be agreed upon at inception of contract.

D. The area of agreement in PNB's counter offer/acceptance extends to Condition number 6 together with all other conditions PNB specified.

II

IN HOLDING THAT MS. NGO'S REFUSAL TO PAY THE P827,199.83 DOWNPAYMENT IS NOT A VALID BASIS FOR PNB'S CANCELLATION OF THE "APPROVED" SALE." 8

The petition is meritorious.

There are two separate transactionsin the instant case; the first having beenunconditionally cancelled, effects thereofcannot be deemed applicable to thesecond transaction

Even private respondent admits in her pleadings that she failed to remit the required down payment under the first letter-agreement, dated September 8, 1983. On this basis, respondent appellate court held that "[t]hus, it was just proper for the [petitioner] Bank to cancel the agreement to protect itsinterests 9," as it did so on October 16, 1984. Notwithstanding such ruling, however, respondent court theorized that because private respondent accepted the terms and conditions in that first letter-agreement, and petitioner approved the revival thereof in another letter-agreement, dated May 14, 1986, conformity to this second letter-agreement by private respondent would be superfluous, the letter-agreement dated May 14, 1986 being "merely a revival of the first agreement which was duly approved by the bank and the terms and conditions thereof accepted by the appellee [private respondent]" 10. Needless to say, this postulation of respondent court is in complete disregard of the status of the first letter-agreement as being non-existent and totally inefficacious as a result of its cancellation.

Respondent court then proceeded to state that petitioner having already complied with the condition that the shoulder all expenses for the ejectment of the occupants of the subject property under the first letter-agreement, "it would have been too cumbersome and inequitable if the plaintiff-appellee [private respondent] were again made to shoulder the expenses for the eviction of the subsequent tenants/occupants of the subject property. 11". Evidently, respondent court perceived the two letter-agreements to be a single transaction such that it justified private respondent's non-compliance with condition No. 6 in the second letter-agreement by invoking her earlier compliance with the same condition in the first letter-agreement.

This confused sophism. When the first letter-agreement was cancelled by petitioner, and private respondent agreed to that cancellation upon receiving P550,000.00 as refund of her aggregate deposit, all the effects of that


agreement were terminated. Upon mutual assent to that cancellation, the agreement so cancelled thereafter no longer existed. Thus, compliance by private respondent with the terms and conditions of that first agreement served the purposes of that agreement and cannot be made to serve the purpose of the second letter-agreement. Respondent court fallaciously tacked the two agreements with each other and commingled their effects; in incorrectly considered petitioner's successful ejectment of the subject property's 1983 occupants under the first letter-agreement to be sufficient compliance with the condition under the second letter-agreement that the subject property be cleared of its 1986 occupants.

The records attest to the fact that private respondent refused to accept condition No. 6 of the second letter-agreement, dated May 14, 1986. Private respondent offered, for the second time, after the first letter-agreement was cancelled, to buy the subject property from petitioner who accepted such offer but subject to specified terms and conditions. Thus, petitioner's acceptance of private respondent's offer was qualified acceptance, which effect, is a counter-offer necessitating private respondent's acceptance in return. Refusing to bind herself to bear the expenses for a second ejectment suit involving the subject property, private respondent in effect rejectment petitioner's counter offer or at the least, accepted the same subject to the deletion of condition No. 6. This, it has to be noted, is another counter-offer necessitating acceptance this time by petitioner. Petitioner was unwilling to accept the same and demanded remittance of the remainder of the down payment, the failure of which payment, petitioner warned private respondent, would result in the forfeiture of the initial deposit of P200,000.00 and the ipso facto cancellation of the second letter-agreement enabling petitioner to sell the subject property through sealed bidding.

From the foregoing, it is clear that private respondent and petitioner were negotiating for terms mutually acceptable to them. Unfortunately, a mutually acceptable set of terms was not reached between them, and petitioner exercised its right under the second letter-agreement to cancel the same. This process of negotiation undertaken in 1986 by herein private parties is undeniably distinct from and entirely independent of the events that transpired in 1983 in the context of the first letter agreement. Precisely another negotiation was necessary because this 1986 transaction is different and separate from that undertaken by the said parties in 1983.

Both letter-agreements are in the nature of contracts to sell; non-compliance with the suspensive conditions set forth therein prevents the obligation of the vendor to convey title from having obligatory force

The fundamental flaw in the reasoning of both the trial court and the respondent appellate court is their admitted premise that both letter-agreements are contracts of sale the perfection of which are proven by the earnest money tendered to and accepted by petitioner in the form of

deposits of P100,000.00 and P200,000.00 under the first and second letter-agreements, respectively.

A perusal of the letter-agreements shows that they are contracts to sell and not contracts of sale.

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of future and uncertain event so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed 12. The suspensive condition is commonly full payment of the purchase price 13.

Thus it has been held that a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property is sold is reversed in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period . . . . 14

If it were not full payment of the purchase price upon which depends the passing of title from the vendor to the vendee, it may be some other condition or conditions that have been stipulated and must be fulfilled before the contract is converted from a contract to sell or at the most an executory sale into an executed one 15.

. . . Where the seller promised to execute a deed of absolute sale upon completing payment of the price, it is a contract to sell. In the case at bar, the sale is still in the executory stage, namely, that if private respondent is able to secure the needed funds to be used in the purchase of the two lots owned by petitioners. A mere executory sale, one where the sellers merely promise to transfer the property at some future date, or where some conditions have to be fulfilled before the contract is converted from an executory to an executed one, does not pass ownership over the real estate being sold.

In our jurisdiction, it has been held that an acceptable bilateral promise to buy and sell is in a sense similar to, but not exactly the same, as a perfected contract of sale because there is already a meeting of minds upon the thing which is the object of the contract and upon the price but a contract of sale is consummated only upon delivery and payment. . . .

. . . Petitioners as promisors were never obliged to convey title before the happening of the suspensive condition. In fact, nothing


stood in the way of their selling the property to another after unsuccessful demand for said price upon the expiration of the time agreed upon. 16

The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, we have held that:

. . . [a] distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell . . . where by agreement the ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the fist case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. 17

In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price or the fulfillment of some other conditions either which is a future and uncertain event the non-happening of which is not a breach, casual or serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. 18 To illustrate the effect of a positive suspensive condition upon the nature of the transaction, as to whether it is a contract to sell or a contract of sale, we have held thus:

In the agreement in question, entitlement PURCHASE AND SALE OF SCRAP IRON, the seller bound and promised itself to sell the scrap iron upon the fulfillment by the private respondent of his obligation to make or indorse an irrevocable and unconditional letter of credit in payment of the purchase price. Its principal stipulation reads, to wit:

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Witnesseth:

That the SELLER agrees to sell, and the BUYER agrees to buy . . . on the following terms and conditions:

1. . . .

2. To cover payment of the purchase price, BUYER will open, make or indorse an irrevocable and unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust Company, Dumaguete City Branch, in favor of the SELLER in the sum of . . . (P250,000.00) . . .

3. . . .

4. . . .

The petitioner corporation's obligation to sell is unequivocally subject to a positive suspensive condition, i.e., the private respondent's opening, making or indorsing of an irrevocable and unconditional letter of credit. The former agreed to deliver the scrap iron only upon payment of the purchase price by means of an irrevocable and unconditional letter of credit. Otherwise stated, the contract is not one of sale where the buyer acquired ownership over the property subject to the resolutory condition that the purchase price would be paid after delivery. Thus, there was to be no actual sale until the opening, making or indorsing of the irrevocable and unconditional letter of credit. Since what obtains in the case at bar is a mere promise to sell, the failure of the private respondent to comply with the positive suspensive condition cannot even be considered a breach-casual or serious-but simply an event that prevented the obligation of petitioner corporation to convey title from acquiring binding force.

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In the instant case, . . . private respondent fail[ed] to open, make or indorse an irrevocable and unconditional letter of credit . . .

Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot be compelled by specific performance to comply with its prestation. . . . 19

In the instant case, private respondent does not dispute the fact that, under identical provisions in the two letter-agreements, her obligation was to deposit an initial amount (P100,000.00 under the first letter-agreement and P200,000.00 under the second letter-agreement) and then subsequently to deposit an additional amount representing roughly 20% of the purchase price (P978,860.00 under the first letter agreement and P827,119.83 under the second letter-agreement). Under both letter-agreements, the consequences of private respondent's failure to remit the additional deposit, are unequivocal and plainly comprehensive: ". . . deposit shall be forfeited


and for this purpose, the Bank can sell the property to other interested parties . . . due to your [private respondent's] failure to consummate the previously-approved sale . . ." 20.

This right reserved in the petitioner to in effect cancel the agreement to sell upon failure of petitioner to remit the additional deposit and to consequently open the subject property anew to purchase offers, is in the nature of a stipulation reserving title in the vendor until full payment of the purchase price or giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period.

We had already made the finding that the letter-agreements in question indeed bear the provisions reserving title in petitioner until payment of the additional deposit representing more or less 20% of the purchase price. We also find, however, that the intention of the private parties herein to make the sale dependent on petitioner's compliance with a certain other conditions, is undeniable and plainly evident in the letter-agreements. Identical provisions therein relating to petitioner's waiver of her right to warranty against eviction and her accountability for the expense for the ejectment proceeding, are not so called "standard" provisions that are more of a rhetorical device than conditions genuinely meant by the parties to be suspensive conditions in the legal sense. In fact we find the inclusion of these provisions to be part of the consideration of petitioner in considering private respondent's offer to purchase the subject property. Corollarily, we find condition No. 6 under the second letter-agreement relating to the accountability of petitioner for the expenses for the ejectment proceedings, to be a positive suspensive condition, among the other positive suspensive conditions embodied in the letter-agreement, non-compliance of which prevents petitioner's obligation to proceed with the sale and ultimately transfer title to private respondent, from having obligatory force.

Moreover, no less revealing is the fact that the letter-agreements are not deeds of sale, thereunder no title having been passed from petitioner to private respondent. Herein lies another important distinction between a contract to sell and a contract of sale.

. . . The distinction between the two is important for in a contract of sale, the title passes to the vendee upon the delivery of the thing sold, whereas in a contract to sell, by agreement, ownership is reserved in the vendor and is not pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded, whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition, failure of which is not breach but an event that prevented the obligation of the vendor to convey title from becoming effective. 21

We have often stated that it is not enough to say that the contract of sale, being consensual, became automatically and immediately effective. 22

Manuel v. Rodriguez, 109 Phil. 1, was one such occasion. In Manuel, "only the price and the terms of payment were in writing," but the most important matter in the controversy, the alleged transfer of title was never "reduced to any written document. It was held that the contract should not considered . . . a sale but a promise to sell; and that "the absence of a formal deed of conveyance" was a strong indication "that the parties did not intend immediate transfer of title, but only a transfer after full payment of the price." Under these circumstances, the Court ruled Article 1504 of the Civil Code of 1889 (Art. 1592 of the present Code) to be inapplicable to the contract in controversy — a contract to sell or promise to sell — "where title remains with the vendor until fulfillment of a positive suspensive condition . . ." 23

Thus, we have applied the above doctrine not in a few cases and looked into, in determining the true nature of an alleged sale transaction, whether or not there was transfer of title. In one case, we found that:

Applying these distinctions, the Court finds that the agreement between PBC and the private respondent was only a contract to sell, not a contract of sale. And the reasons are obvious.

There was no immediate transfer of title to the private respondents as would have happened if there had been a sale at the outset. The supposed sale was never registered and TCT No. 218661 in favor of PBC was not replaced with another certificate of title of favor of the private respondents. . . . 24

In the instant case, there was apparently no transfer of title, not even mention of such a transfer in the future, considering that all the parties were aware of the occupancy of the subject property by third persons. This circumstance all the more reinforces our finding that the transaction contemplated under the letter-agreements was a contract to sell or a conditional sale which absolutely depends, for its efficacy, upon the happening of the conditions specified in the said letter-agreements.

Private respondent also asseverates that the initial deposit of P200,000.00 under the second letter-agreement is earnest money, that is, by express provision of the Civil Code, considered part of the purchase price and proof of the perfection of the sale.

Indeed under Article 1482 of the Civil Code, earnest money given in a sale transaction is considered part of the purchase price and proof of the perfection of the sale. This provision, however, gives no more than a


disputable presumption that prevails in the absence of contrary or rebuttal evidence. In the instant case, the letter-agreements themselves are the evidence of an intention on the part of herein private parties to enter into negotiations leading to a contract of sale that is mutually acceptable as to absolutely bind them to the performance of their obligations thereunder. The letter-agreements are replete with substantial condition precedents, acceptance of which on the part of private respondent must first be made in order for petitioner to proceed to the next step in the negotiations. The initial deposits under the two letter-agreements, therefore, should rather be construed, not strictly as earnest money, but as part of the consideration for petitioner's promise to reserve the subject property for private respondent. Certainly in excluding all other prospective buyers from bidding for the subject property, petitioner was in effect giving up what may have been more lucrative offers or better deals.

WHEREFORE, the Petition for Review is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 33490 and the decision of the Regional Trial Court of Manila, Branch XXVI, in Civil Case No. 87-39598, are hereby reversed and set aside. Private respondent's complaint for specific performance and damages in Civil Case No. 87-39598 is dismissed.


SO ORDERED.

G.R. No. 124045 May 21, 1998

SPOUSES VIVENCIO BABASA and ELENA CANTOS BABASA, petitioners, vs.COURT OF APPEALS, TABANGAO REALTY, INC., and SHELL GAS PHILIPPINES, INC., respondents.


BELLOSILLO, J.:

On 11 April 1981 El contract of "Conditional Sale of Registered Lands" was executed between the spouses Vivencio and Elena Babasa as vendors and Tabangao Realty, Inc. (TABANGAO) as vendee over three (3) parcels of land, Lots Nos. 17827-A, 17827-B and 17827-C, situated in Brgy. Libjo, Batangas City. Since the certificates of title over the lots were in the name of third persons who had already executed deeds of reconveyance and disclaimer in favor of the BABASAS, it was agreed that the total purchase price of P2,121,920.00 would be paid in the following manner: P300,000.00 upon signing of the contract, and P1,821,920.00 upon presentation by the BABASAS of transfer certificates of titles in their name, free from all liens and encumbrances, and delivery of registerable documents of sale in favor of TABANGAO within twenty (20) months from the signing of the contract. In the meantime, the retained balance of the purchase price would earn interest at seventeen percent (17%) per annum or P20,648.43 monthly payable to the BABASAS until 31 December 1982. It was expressly stipulated that TABANGAO would have the absolute and unconditional right to take immediate possession of the lots as well as introduce any improvement thereon.

On 18 May 1981 TABANGAO leased the lots to Shell Gas Philippines, Inc. (SHELL), which immediately started the construction thereon of a Liquefied Petroleum Gas Terminal Project, an approved zone export enterprise of the Export Processing Zone. TABANGAO is the real estate arm of SHELL.

The parties substantially complied with the terms of the contract. TABANGAO paid the first installment of P300,000.00 to the BABASAS while the latter delivered actual possession of the lots to the former. In addition, TABANGAO paid P379,625.00 to the tenants of the lots as disturbance compensation and as payment for existing crops as well as P334,700.00 to the owners of the houses standing thereon in addition to granting them residential lots with the total area of 2,800 square meters. TABANGAO likewise paid the stipulated monthly interest for the 20-month period amounting to P408,580.80. Meanwhile, the BABASAS filed Civil Case No. 519 1and Petition No. 373 2 for the transfer of titles of the lots in their name.

However, two (2) days prior to the expiration of the 20-month period, specifically on 31 December 1982, the BABASAS asked TABANGAO for an indefinite extension within which to deliver clean titles over the lots. They asked that TABANGAO continue paying the monthly interest of P20,648.43 starting January 1983 on the ground that Civil Case No. 519 and Petition No. 373 had not yet been resolved with finality in their favor. TABANGAO refused the request. In retaliation the BABASAS executed a notarized unilateral rescission dated 28 February 1983 to which TABANGAO responded by reminding the BABASAS that they were the ones who did not comply with their contractual obligation to deliver clean titles within the stipulated 20-month period, hence, had no right to rescind their contract. The BABASAS insisted on the unilateral rescission and demanded that SHELL vacate the lots.

On 19 July 1983 TABANGAO instituted an action for specific performance with damages in the Regional Trial Court of Batangas City to compel the spouses to comply with their obligation to deliver clean titles over the properties. 3 TABANGAO alleged that the BABASAS were already in a position to secure clean certificates of title and execute registerable documents of sale since execution of judgment pending appeal had already been granted in their favor in Civil Case No. 519, while an order directing reconstitution of the original copies of TCT Nos. T-32565, T-32566 and T-32567 covering the lots had been issued in Petition No. 373. The BABASAS moved to dismiss the complaint on the ground that their contract with TABANGAO became null and void with the expiration of the 20-month period given them within which to deliver clean certificates of title. SHELL entered the dispute as intervenor praying that its lease over the premises be respected by the BABASAS.

Despite the pendency of the case the BABASAS put up several structures within the area in litigation to impede the movements of persons and vehicles therein, laid claim to twelve (12) heads of cattle belonging to intervenor SHELL and threatened to collect levy from all buyers of liquefied petroleum gas (LPG) for their alleged use of the BABASA estate in their business transactions with intervenor SHELL. As a result, SHELL applied for and was granted on 10 April 1990 a temporary restraining order against the Babasa spouses and anyone acting for and in their behalf upon filing of a P2-million bond. 4

Eventually, judgment was rendered in favor of TABANGAO and SHELL. 5 The court a quo ruled that the 20-month period stipulated in the contract was never meant to be its term such that upon its expiration the respective obligations of the parties would be extinguished. On the contrary, the expiration thereof merely gave rise to the right of TABANGAO to either rescind the contract or to demand that the BABASAS comply with their contractual obligation to deliver to it clean titles and registerable documents of sale. The notarial rescission executed by the BABASAS was declared void and of no legal effect —

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1. The unilateral rescission of contract, dated February 28, 1983, executed by the defendant-spouses is null and void, without any legal force and effect on the agreement dated April 11, 1981, executed between the plaintiff and the defendant-spouses;

2. The lease contract, dated May 18, 1981, executed by the plaintiff in favor of the intervenor is deemed legally binding on the defendant-spouses insofar as it affects the three lots subject of this case;

3. The defendant-spouses Vivencio Babasa and Elena Cantos are hereby ordered to deliver to the plaintiff Tabangao Realty, Inc., clean transfer certificates of title in their name and execute all the necessary deeds and documents necessary for the Register of


Deeds of Batangas City to facilitate the issuance of Transfer Certificates of Title in the name of plaintiff, Tabangao Realty, Inc. In the event the defendant-spouses fail to do so, the Register of Deeds of Batangas City is hereby directed to cancel the present transfer certificates of title over the three lots covered by the Conditional Sale of Registered Lands executed by and between plaintiff, Tabangao Realty, Inc., and the defendant-spouses Vivencio Babasa and Elena Cantos-Babasa on April 11, 1981, upon presentation of credible proof that said defendant-spouses have received full payment for the lots or payment thereof duly consigned to the Court for the account of the defendant-spouses;

4. Plaintiff Tabangao Realty, Inc., is directed to pay the defendant-spouses Vivencio Babasa and Elena Cantos-Babasa the remaining balance of P1,821,920.00 out of the full purchase price for these three lots enumerated in the agreement dated April 11, 1981 plus interest thereon of 17% per annumor P20,648.43 a month compounded annually beginning January 1983 until fully paid;

5. The Order dated April 10, 1990 issued in favor of the intervenor enjoining and restraining defendant-spouses Vivencio Babasa and Elena Cantos-Babasa and/or anyone acting for and in their behalf from putting up any structure on the three lots or interfering in any way in the activities of the intervenor, its employees and agents, is made permanent, and the bond posted by the intervenor cancelled; and,

6. Defendant-spouses Vivencio Babasa and Elena Cantos-Babasa shall pay the costs of this proceeding as well as the premium the intervenor may have paid in the posting of the P2,000,000.00 bond for the issuance of the restraining order of April 10, 1990. 6

The BABASAS appealed to the Court of Appeals 7 which on 29 February 1996 affirmed the decision of the trial court rejecting the contention of the BABASAS that the contract of 11 April 1981 was one of lease, not of sale; 8 and described it instead as one of absolute sale though denominated "conditional." However, compounded interest was ordered paid from 19 July 1983 only, the date of filing of the complaint, not from January 1983 as decreed by the trial court.

The BABASAS now come to us reiterating their contention that the contract of 11 April 1981 was in reality a contract of lease, not of sale; but even assuming that it was indeed a sale, its nature was conditional only, the efficacy of which was extinguished upon the non-happening of the condition, i.e., non-delivery of clean certificates of title and registerable documents of sale in favor of TABANGAO within twenty (20) months from the signing of the contract.

We find no merit in the petition. Respondent appellate court has correctly concluded that the allegation of petitioners that the contract of 11 April 1981 is one of lease, not of sale, is simply incredible. First, the contract is replete with terms and stipulations clearly indicative of a contract of sale. Thus, the opening whereas clause states that the parties desire and mutually "agreed on the sale and purchase of the . . . three parcels of land;" the BABASAS were described as the "vendors" while TABANGAO as the "vendee" from the beginning of the contract to its end; the amount of P2,121,920.00 was stated as the purchase price of the lots; TABANGAO, as vendee, was granted absolute and unconditional right to take immediate possession of the premises while the BABASAS, as vendors, warranted such peaceful possession forever; TABANGAO was to shoulder the capital gains tax, and; lastly, the BABASAS were expected to execute a Final Deed of Absolute Sale in favor of TABANGAO necessary for the issuance of transfer certificates of title the moment they were able to secure clean certificates of title in their name. Hence, with all the foregoing, we cannot give credence to the claim of petitioners that subject contract was one of lease simply because the word "ownership" was never mentioned therein. Besides, as correctly pointed out by respondent court, the BABASAS did not object to the terms and stipulations employed in the contract at the time of its execution when they could have easily done so considering that they were then ably assisted by their counsel, Atty. Edgardo M. Carreon, whose legal training negates their pretended ignorance on the matter. Hence, it is too late for petitioners to insist that the contract is not what they intended it to be.

But the BABASAS lament that they never intended to sell their ancestral lots but were merely forced to do so when TABANGAO dangled the threat of expropriation by the government (through the Export Processing Zone Authority) in the event voluntary negotiations failed. Although a cause to commiserate with petitioners may be perceived, it is not enough to provide them with an avenue to escape contractual obligations validly entered into. We have already held that contracts are valid even though one of the parties entered into it against his own wish and desire, or even against his better judgment. 9 Besides, a threat of eminent domain proceedings by the government cannot be legally classified as the kind of imminent, serious and wrongful injury to a contracting party as to vitiate his consent. 10 Private landowners ought to realize, and eventually accept, that property rights must yield to the valid exercise by the state of its all-important power of eminent domain. 11

Finally, petitioners contend that ownership over the three (3) lots was never transferred to TABANGAO and that the contract of 11 April 1981 was rendered lifeless when the 20-month period stipulated therein expired without them being able to deliver clean certificates of title to TABANGAO through no fault of their own. Consequently, their unilateral rescission dated 28 February 1983 should have been upheld as valid.

We disagree. Although denominated "Conditional Sale of Registered Lands," we hold, as did respondent court, that the 11 April 1981 between petitioners and respondent TABANGAO is one of absolute sale. Aside from the terms and stipulations used therein indicating such kind of sale, there is absolutely no proviso reserving title in the BABASAS until full payment of the purchase price, nor any stipulation giving them the


right to unilaterally rescind the contract in case of non-payment. A deed of sale is absolute in nature although denominated a "conditional sale" absent such stipulations. 12 In such cases, ownership of the thing sold passes to the vendee upon the constructive or actual delivery thereof. 13 In the instant case, ownership over Lots Nos. 17827-A, 17827-B and 17827-C passed to TABANGAO both by constructive and actual delivery. Constructive delivery was accomplished upon the execution of the contract of 11 April 1981 without any reservation of title on the part of the BABASAS while actual delivery was made when TABANGAO took unconditional possession of the lots and leased them to its associate company SHELL which constructed its multi-million peso LPG Project thereon. 14

We do not agree with petitioners that their contract with TABANGAO lost its efficacy when the 20-month period stipulated therein expired without petitioners being able to deliver clean certificates of title such that TABANGAO may no longer demand performance of their obligation. In Romero v. Court of Appeals 15 and Lim v. Court of Appeals 16 the Court distinguished between a condition imposed on the perfection of a contract and a condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a contract, failure to comply with the second merely gives the other party the option to either refuse to proceed with the sale or to waive the condition. 17

Here, a perfected contract of absolute sale exists between the BABASAS and TABANGAO when they agreed on the sale of a determinate subject matter, i.e., Lots No. 17827-A, 17827-B and 17827-C, and the price certain therefor without any condition or reservation of title on the part of the BABASAS. However, the obligation of TABANGAO as vendee to pay the full amount of the purchase price was made subject to the condition that petitioners first deliver the clean titles over the lots within twenty (20) months from the signing of the contract. If petitioners succeed in delivering the titles within the stipulated 20-month period, they would get P1,821,920.00 representing the entire balance of the purchase price retained by TABANGAO. Otherwise, the deed of sale itself provides that —

. . . upon the expiration of the 20-month period from the signing of the contract the Vendee is hereby authorized to settle out of the balance retained by the Vendee all legally valid and existing obligations on the properties. . . and whatever balance remaining after said settlement shall be paid to the Vendor.

Clearly then, the BABASAS' act of unilaterally rescinding their contract with TABANGAO is unwarranted. Even without the abovequoted stipulation in the deed, the failure of petitioners to deliver clean titles within twenty (20) months from the signing of the contract merely gives TABANGAO the option to either refuse to proceed with the sale or to waive the condition in consonance with Art. 1545 of the New Civil Code. 18 Besides, it would be the height of inequity to allow the BABASAS to rescind their contract of sale with TABANGAO by invoking as a ground therefor their own failure to deliver the titles over the lots within the stipulated period.

WHEREFORE, the petition is DENIED. The appealed decision of the Court of Appeals in CA-G.R. CV No. 39554 affirming that of the Regional Trial Court of Batangas City, Br. 4, is AFFIRMED. No costs.

SO ORDERED.

G.R. No. L-28602 September 29, 1970

UNIVERSITY OF THE PHILIPPINES, petitioner, vs.WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST INSTANCE IN QUEZON CITY, et al., respondents.

Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M. Amores and Special Counsel Perfecto V. Fernandez for petitioner.


Norberto J. Quisumbing for private respondents.

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

Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued in its Civil Case No. 9435, are sought to be annulled in this petition for certiorari and prohibition, filed by herein petitioner University of the Philippines (or UP) against the above-named respondent judge and the Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The first order, dated 25 February 1966, enjoined UP from awarding logging rights over its timber concession (or Land Grant), situated at the Lubayat areas in the provinces of Laguna and Quezon; the second order, dated 14 January 1967, adjudged UP in contempt of court, and directed Sta. Clara Lumber Company, Inc. to refrain from exercising logging rights or conducting logging operations on the concession; and the third order, dated 12 December 1967, denied reconsideration of the order of contempt.

As prayed for in the petition, a writ of preliminary injunction against the enforcement or implementation of the three (3) questioned orders was issued by this Court, per its resolution on 9 February 1968.

The petition alleged the following:

That the above-mentioned Land Grant was segregated from the public domain and given as an endowment to UP, an institution of higher learning, to be operated and developed for the purpose of raising additional income for its support, pursuant to Act 3608;

That on or about 2 November 1960, UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the president of UP, and which stipulated the following:

3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR, the balance outstanding after the said payments have been applied shall be paid by the DEBTOR in full no later than June 30, 1965;

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5. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document, the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for liquidated damages;

ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged.

That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960; and on 7 September 1965, UP filed a complaint against ALUMCO, which was docketed as Civil Case No. 9435 of the Court of First Instance of Rizal (Quezon City), for the collection or payment of the herein before stated sums of money and alleging the facts hereinbefore specified, together with other allegations; it prayed for and obtained an order, dated 30 September 1965, for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant.

That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation, by advertising an invitation to bid; that bidding was conducted, and the concession was awarded to Sta. Clara Lumber Company, Inc.; the logging contract was signed on 16 February 1966.

That, meantime, ALUMCO had filed several motions to discharge the writs of attachment and preliminary injunction but were denied by the court;

That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University from conducting the bidding; on 27 November 1965, it filed a second petition for preliminary injunction; and, on 25 February 1966, respondent judge issued the first of the questioned orders, enjoining UP from awarding logging rights over the concession to any other party.

That UP received the order of 25 February 1966 after it had concluded its contract with Sta. Clara Lumber Company, Inc., and said company had started logging operations.

That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the court, in an order dated 14 January 1967, declared petitioner UP in contempt of court and, in the same order, directed Sta. Clara Lumber Company, Inc., to refrain from exercising logging rights or conducting logging operations in the concession.


The UP moved for reconsideration of the aforesaid order, but the motion was denied on 12 December 1967.

Except that it denied knowledge of the purpose of the Land Grant, which purpose, anyway, is embodied in Act 3608 and, therefore, conclusively known, respondent ALUMCO did not deny the foregoing allegations in the petition. In its answer, respondent corrected itself by stating that the period of the logging agreement is five (5) years - not seven (7) years, as it had alleged in its second amended answer to the complaint in Civil Case No. 9435. It reiterated, however, its defenses in the court below, which maybe boiled down to: blaming its former general manager, Cesar Guy, in not turning over management of ALUMCO, thereby rendering it unable to pay the sum of P219,382.94; that it failed to pursue the manner of payments, as stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" because the logs that it had cut turned out to be rotten and could not be sold to Sta. Clara Lumber Company, Inc., under its contract "to buy and sell" with said firm, and which contract was referred and annexed to the "Acknowledgment of Debt and Proposed Manner of Payments"; that UP's unilateral rescission of the logging contract, without a court order, was invalid; that petitioner's supervisor refused to allow respondent to cut new logs unless the logs previously cut during the management of Cesar Guy be first sold; that respondent was permitted to cut logs in the middle of June 1965 but petitioner's supervisor stopped all logging operations on 15 July 1965; that it had made several offers to petitioner for respondent to resume logging operations but respondent received no reply.

The basic issue in this case is whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. Respondent ALUMCO contended, and the lower court, in issuing the injunction order of 25 February 1966, apparently sustained it (although the order expresses no specific findings in this regard), that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect.

We find that position untenable.

In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider, the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit." As to such special stipulation, and in connection with Article 1191 of the Civil Code, this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:

there is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other

words, it is not always necessary for the injured party to resort to court for rescission of the contract.

Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).

We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation, 1 since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription.

Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render nugatory the general rule requiring judicial action (v. Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit, instead of the rescinder.

In fact, even without express provision conferring the power of cancellation upon one contracting party, the Supreme Court of Spain, in construing the effect of Article 1124 of the Spanish Civil Code (of which Article 1191 of our own Civil; Code is practically a reproduction), has repeatedly held that, a resolution of reciprocal or synallagmatic contracts may be made extrajudicially unless successfully impugned in court.


El articulo 1124 del Codigo Civil establece la facultad de resolver las obligaciones reciprocas para el caso de que uno de los obligados no cumpliese lo que le incumbe, facultad que, segun jurisprudencia de este Tribunal, surge immediatamente despuesque la otra parte incumplio su deber, sin necesidad de una declaracion previa de los Tribunales. (Sent. of the Tr. Sup. of Spain, of 10 April 1929; 106 Jur. Civ. 897).

Segun reiterada doctrina de esta Sala, el Art. 1124 regula la resolucioncomo una "facultad" atribuida a la parte perjudicada por el incumplimiento del contrato, la cual tiene derecho do opcion entre exigir el cumplimientoo la resolucion de lo convenido, que puede ejercitarse, ya en la via judicial, ya fuera de ella, por declaracion del acreedor, a reserva, claro es, que si la declaracion de resolucion hecha por una de las partes se impugna por la otra, queda aquella sometida el examen y sancion de los Tribunale, que habran de declarar, en definitiva, bien hecha la resolucion o por el contrario, no ajustada a Derecho. (Sent. TS of Spain, 16 November 1956; Jurisp. Aranzadi, 3, 447).

La resolucion de los contratos sinalagmaticos, fundada en el incumplimiento por una de las partes de su respectiva prestacion, puedetener lugar con eficacia" 1. o Por la declaracion de voluntad de la otra hecha extraprocesalmente, si no es impugnada en juicio luego con exito. y 2. 0 Por la demanda de la perjudicada, cuando no opta por el cumplimientocon la indemnizacion de danos y perjuicios realmente causados, siempre quese acredite, ademas, una actitud o conducta persistente y rebelde de laadversa o la satisfaccion de lo pactado, a un hecho obstativo que de un modoabsoluto, definitivo o irreformable lo impida, segun el art. 1.124, interpretado por la jurisprudencia de esta Sala, contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre otras, inspiradas por el principio del Derecho intermedio, recogido del Canonico, por el cual fragenti fidem, fides non est servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.) (Emphasis supplied).

In the light of the foregoing principles, and considering that the complaint of petitioner University made out aprima facie case of breach of contract and defaults in payment by respondent ALUMCO, to the extent that the court below issued a writ of preliminary injunction stopping ALUMCO's logging operations, and repeatedly denied its motions to lift the injunction; that it is not denied that the respondent company had profited from its operations previous to the agreement of 5 December 1964 ("Acknowledgment of Debt and Proposed Manner of Payment"); that the excuses offered in the second amended answer, such as the misconduct of its former manager Cesar Guy, and the rotten condition of the logs in private respondent's pond, which said respondent was in a better position to know when it executed the acknowledgment of indebtedness, do not constitute on their face sufficient excuse for non-payment; and considering that whatever prejudice may be suffered by

respondent ALUMCO is susceptibility of compensation in damages, it becomes plain that the acts of the court a quo in enjoining petitioner's measures to protect its interest without first receiving evidence on the issues tendered by the parties, and in subsequently refusing to dissolve the injunction, were in grave abuse of discretion, correctible by certiorari, since appeal was not available or adequate. Such injunction, therefore, must be set aside.

For the reason that the order finding the petitioner UP in contempt of court has open appealed to the Court of Appeals, and the case is pending therein, this Court abstains from making any pronouncement thereon.

WHEREFORE, the writ of certiorari applied for is granted, and the order of the respondent court of 25 February 1966, granting the Associated Lumber Company's petition for injunction, is hereby set aside. Let the records be remanded for further proceedings conformably to this opinion.

G.R. No. L-56076 September 21, 1983

PALAY, INC. and ALBERT ONSTOTT, petitioner, vs.JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL HOUSING AUTHORITY and NAZARIO DUMPIT respondents.

Santos, Calcetas-Santos & Geronimo Law Office for petitioner.

Wilfredo E. Dizon for private respondent.


MELENCIO-HERRERA, J.:

The Resolution, dated May 2, 1980, issued by Presidential Executive Assistant Jacobo Clave in O.P. Case No. 1459, directing petitioners Palay, Inc. and Alberto Onstott jointly and severally, to refund to private respondent, Nazario Dumpit, the amount of P13,722.50 with 12% interest per annum, as resolved by the National Housing Authority in its Resolution of July 10, 1979 in Case No. 2167, as well as the Resolution of October 28, 1980 denying petitioners' Motion for Reconsideration of said Resolution of May 2, 1980, are being assailed in this petition.

On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square meters, - covered by TCT No. 90454, and owned by said corporation. The sale price was P23,300.00 with 9% interest per annum, payable with a downpayment of P4,660.00 and monthly installments of P246.42 until fully paid. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid.

Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on December 5, 1967 for installments up to September 1967.

On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. He followed this up with another letter dated June 20, 1973 reiterating the same request. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold.

Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund (Case No. 2167). In a Resolution, dated July 10, 1979, the NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immediately to Nazario Dumpit the amount of P13,722.50 with 12% interest from the filing of the complaint on November 8, 1974. Petitioners' Motion for Reconsideration of said Resolution was denied by the NHA in its Order dated October 23, 1979. 1

On appeal to the Office of the President, upon the allegation that the NHA Resolution was contrary to law (O.P. Case No. 1459), respondent Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration

sought by petitioners was denied for lack of merit. Thus, the present petition wherein the following issues are raised:

I

Whether notice or demand is not mandatory under the circumstances and, therefore, may be dispensed with by stipulation in a contract to sell.

II

Whether petitioners may be held liable for the refund of the installment payments made by respondent Nazario M. Dumpit.

III

Whether the doctrine of piercing the veil of corporate fiction has application to the case at bar.

IV

Whether respondent Presidential Executive Assistant committed grave abuse of discretion in upholding the decision of respondent NHA holding petitioners solidarily liable for the refund of the installment payments made by respondent Nazario M. Dumpit thereby denying substantial justice to the petitioners, particularly petitioner Onstott

We issued a Temporary Restraining Order on Feb 11, 1981 enjoining the enforcement of the questioned Resolutions and of the Writ of Execution that had been issued on December 2, 1980. On October 28, 1981, we dismissed the petition but upon petitioners' motion, reconsidered the dismissal and gave due course to the petition on March 15, 1982.

On the first issue, petitioners maintain that it was justified in cancelling the contract to sell without prior notice or demand upon respondent in view of paragraph 6 thereof which provides-

6. That in case the BUYER falls to satisfy any monthly installment or any other payments herein agreed upon, the BUYER shall be granted a month of grace within which to make the payment of the t in arrears together with the one corresponding to the said month of grace. -It shall be understood, however, that should the month of grace herein granted to the BUYER expire, without the payment & corresponding to both months having been satisfied, an interest of


ten (10%) per cent per annum shall be charged on the amounts the BUYER should have paid; it is understood further, that should a period of NINETY (90) DAYS elapse to begin from the expiration of the month of grace hereinbefore mentioned, and the BUYER shall not have paid all the amounts that the BUYER should have paid with the corresponding interest up to the date, the SELLER shall have the right to declare this contract cancelled and of no effect without notice, and as a consequence thereof, the SELLER may dispose of the lot/lots covered by this Contract in favor of other persons, as if this contract had never been entered into. In case of such cancellation of this Contract, all the amounts which may have been paid by the BUYER in accordance with the agreement, together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the above mentioned premises and for liquidated damages suffered by virtue of the failure of the BUYER to fulfill his part of this agreement : and the BUYER hereby renounces his right to demand or reclaim the return of the same and further obligates peacefully to vacate the premises and deliver the same to the SELLER.

Well settled is the rule, as held in previous jurisprudence, 2 that judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. However, even in the cited cases, there was at least a written notice sent to the defaulter informing him of the rescission. As stressed in University of the Philippines vs. Walfrido de los Angeles 3 the act of a party in treating a contract as cancelled should be made known to the other. We quote the pertinent excerpt:

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved in account of infractions by the other contracting party must be made known to the other and is always provisional being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.

Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).

We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation (Ocejo Perez & Co., vs. International Banking Corp., 37 Phil. 631; Republic vs. Hospital de San Juan De Dios, et al., 84 Phil 820) since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action win be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation unless attack thereon should become barred by acquiescense, estoppel or prescription.

Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render nugatory the general rule requiring judicial action (v. Footnote, Padilla Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit, instead of the rescinder (Emphasis supplied).

Of similar import is the ruling in Nera vs. Vacante 4, reading:

A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex propio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and determination.

This was reiterated in Zulueta vs. Mariano 5 where we held that extrajudicial rescission has legal effect where the other party does not oppose it. 6 Where it is objected to, a judicial determination of the issue is still necessary.

In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court. If the debtor impugns the declaration, it shall be subject to judicial determination. 7

In this case, private respondent has denied that rescission is justified and has resorted to judicial action. It is now for the Court to determine whether resolution of the contract by petitioners was warranted.


We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution, as held in the U.P. vs. Angeles case, supra

Petitioner relies on Torralba vs. De los Angeles 8 where it was held that "there was no contract to rescind in court because from the moment the petitioner defaulted in the timely payment of the installments, the contract between the parties was deemed ipso facto rescinded." However, it should be noted that even in that case notice in writing was made to the vendee of the cancellation and annulment of the contract although the contract entitled the seller to immediate repossessing of the land upon default by the buyer.

The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No. 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments." which took effect on September 14, 1972, when it specifically provided:

Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. (Emphasis supplied).

The contention that private respondent had waived his right to be notified under paragraph 6 of the contract is neither meritorious because it was a contract of adhesion, a standard form of petitioner corporation, and private respondent had no freedom to stipulate. A waiver must be certain and unequivocal, and intelligently made; such waiver follows only where liberty of choice has been fully accorded. 9 Moreover, it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments.

Regarding the second issue on refund of the installment payments made by private respondent. Article 1385 of the Civil Code provides:

ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

Neither sham rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot. However, considering that the property had already been sold to a third person and there is no evidence on record that other lots are still available, private respondent is entitled to the refund of installments paid plus interest at the legal rate of 12% computed from the date of the institution of the action. 10 It would be most inequitable if petitioners were to be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the second sale to another.

We come now to the third and fourth issues regarding the personal liability of petitioner Onstott who was made jointly and severally liable with petitioner corporation for refund to private respondent of the total amount the latter had paid to petitioner company. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as wen as from that of any other legal entity to which it may be related. 11 As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice 12 ; or for purposes that could not have been intended by the law that created it 13 ; or to defeat public convenience, justify wrong, protect fraud, or defend crime. 14 ; or to perpetuate fraud or confuse legitimate issues 15 ; or to circumvent the law or perpetuate deception 16 ; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders. 17

We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6 (supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person.

In this case, petitioner Onstott was made liable because he was then the President of the corporation and he a to be the controlling stockholder. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. 18 In this respect then, a modification of the Resolution under review is called for.

WHEREFORE, the questioned Resolution of respondent public official, dated May 2, 1980, is hereby modified. Petitioner Palay, Inc. is directed to refund to respondent Nazario M. Dumpit the amount of P13,722.50, with interest at twelve (12%) percent per annum from November 8, 1974, the date of the filing of the Complaint. The temporary Restraining Order heretofore issued is hereby lifted.

No costs.


SO ORDERED.

G.R. No. 137552 June 16, 2000

ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, petitioners, vs.ALONZO MACHUCA, respondent.

GONZAGA-REYES, J.:

This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals 1 in CA G.R. CV No. 147457 entitled "ALONZO MACHUCA versus ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-LAFORTEZA, MICHAEL Z. LAFORTEZA, and DENNIS Z. LAFORTEZA".

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

http://www.lawphil.net/judjuris/juri2000/jun2000/gr_137552_2000.html#fnt1


The property involved consists of a house and lot located at No. 7757 Sherwood Street, Marcelo Green Village, Parañaque, Metro Manila, covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of the Registered of Deeds of Parañaque (Exhibit "D", Plaintiff, record, pp. 331-332). The subject property is registered in the name of the late Francisco Q. Laforteza, although it is conjugal in nature (Exhibit "8", Defendants, record pp. 331-386).

On August 2, 1988, defendant Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact authorizing them jointly to sell the subject property and sign any document for the settlement of the estate of the late Francisco Q. Laforteza (Exh. "A", Plaintiff, record, pp. 323-325).

Likewise on the same day, defendant Michael Z. Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise, granting the same authority (Exh. "B", record, pp. 326-328) Both agency instruments contained a provision that in any document or paper to exercise authority granted, the signature of both attorneys- in-fact must be affixed.

On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power of Attorney in favor of defendant Roberto Z. Laforteza for the purpose of selling the subject property (Exh. "C", Plaintiff, record, pp. 329-330). A year later, on October 30, 1989, Dennis Z. Laforteza executed another Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the purpose of selling the subject property and signing any document for the settlement of the estate of the late Francisco Q. Laforteza. The subsequent agency instrument (Exh, "2", record, pp. 371-373) contained similar provisions that both attorneys-in-fact should sign any document or paper executed in the exercise of their authority.1âwphi1.nêt

In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with the plaintiff 2 over the subject property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as follows:

(a) P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale is not effected due to the fault of the plaintiff;

(b) P600,000.00 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza and upon execution of an

extra-judicial settlement of the decedent's estate with sale in favor of the plaintiff (Par. 2, Exh. "E", record, pp. 335-336).

Significantly, the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated January 20, 1989 (Exh. "E", supra.) contained a provision as follows:

. . . . Upon issuance by the proper Court of the new title, the BUYER-LESSEE shall be notified in writing and said BUYER-LESSEE shall have thirty (30) days to produce the balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale.

On January 20, 1989, plaintiff paid the earnest money of THIRTY THOUSAND PESOS (P30,000.00), plus rentals for the subject property (Exh. "F", Plaintiff, record, p. 339).

On September 18, 1998 3, defendant heirs, through their counsel wrote a letter (Exh. 1, Defendants, record, p. 370) to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property, advising him that he had thirty (3) days to produce the balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the Memorandum of Agreement which plaintiff received on the same date.

On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the THIRTY (30) DAYS deadline up to November 15, 1989 within which to produce the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-342). Defendant Roberto Z. Laforteza, assisted by his counsel Atty. Romeo L. Gutierrez, signed his conformity to the plaintiff's letter request (Exh. "G-1 and "G-2", Plaintiff, record, p. 342). The extension, however, does not appear to have been approved by Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity does not appear to have been secured.

On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that he already had the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) covered by United Coconut Planters Bank Manager's Check No. 000814 dated November 15, 1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344; "M", records p. 350; and "N", record, p. 351). However, the defendants, refused to accept the balance (TSN, August 24, 1992, p. 14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record, p. 351). Defendant Roberto Z. Laforteza had told him that the subject property was no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record, p. 347).




On November 20, 1998 4, defendants informed plaintiff that they were canceling the Memorandum of Agreement (Contract to Sell) in view of the plaintiff's failure to comply with his contractual obligations (Exh. "3").

Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00). Defendants, however, insisted on the rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific performance. The lower court rendered judgment on July 6, 1994 in favor of the plaintiff, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff Alonzo Machuca and against the defendant heirs of the late Francisco Q. Laforteza, ordering the said defendants.

(a) To accept the balance of P600,000.00 as full payment of the consideration for the purchase of the house and lot located at No. 7757 Sherwood Street, Marcelo Green Village, Parañaque, Metro Manila, covered by Transfer Certificate of Title No. (220656) 8941 of the Registry of Deeds of Rizal Parañaque, Branch;

(b) To execute a registrable deed of absolute sale over the subject property in favor of the plaintiff;

(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as attorney's fees plus cost of suit.

SO ORDERED. (Rollo, pp. 74-75). 5

Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower court; the dispositive portion of the Decision reads:

WHEREFORE, the questioned decision of the lower court is hereby AFFIRMED with the MODIFICATION that defendant heirs Lea Zulueta-Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza and Roberto Z. Laforteza including Gonzalo Z. Laforteza, Jr. are hereby ordered to pay jointly and severally the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages.

SO ORDERED. 6

Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z. Laforteza, Jr. from liability for the payment of moral

damages. 7 Hence this petition wherein the petitioners raise the following issues:

I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY CONSTRUED THE MEMORANDUM OF AGREEMENT AS IMPOSING RECIPROCAL OBLIGATIONS.

II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT RESCISSION WILL NOT LIE IN THE INSTANT CASE.

III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER OF ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS LAFORTEZA.

IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS, WHETHER THE PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A JUDICIAL CONSIGNATION OF THE PURCHASE PRICE?

V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM LIABLE FOR MORAL DAMAGES? 8

The petitioners contend that the Memorandum of Agreement is merely a lease agreement with "option to purchase". As it was merely an option, it only gave the respondent a right to purchase the subject property within a limited period without imposing upon them any obligation to purchase it. Since the respondent's tender of payment was made after the lapse of the option agreement, his tender did not give rise to the perfection of a contract of sale.

It is further maintained by the petitioners that the Court of Appeals erred in ruling that rescission of the contract was already out of the question. Rescission implies that a contract of sale was perfected unlike the Memorandum of Agreement in question which as previously stated is allegedly only an option contract.

Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere contract to sell, as indicated in its title. The obligation of the petitioners to sell the property to the respondent was conditioned upon the issuance of a new certificate of title and the execution of the extrajudicial partition with sale and payment of the P600,000.00. This is why possession of the subject property was not delivered to the respondent as the owner of the property but only as the lessee thereof. And the failure of the respondent







to pay the purchase price in full prevented the petitioners' obligation to convey title from acquiring obligatory force.

Petitioners also allege that assuming for the sake of argument that a contract of sale was indeed perfected, the Court of Appeals still erred in holding that respondent's failure to pay the purchase price of P600,000.00 was only a "slight or casual breach".

The petitioners also claim that the Court of Appeals erred in ruling that they were not ready to comply with their obligation to execute the extrajudicial settlement. The Power of Attorney to execute a Deed of Sale made by Dennis Z. Laforteza was sufficient and necessarily included the power to execute an extrajudicial settlement. At any rate, the respondent is estopped from claiming that the petitioners were not ready to comply with their obligation for he acknowledged the petitioners' ability to do so when he requested for an extension of time within which to pay the purchase price. Had he truly believed that the petitioners were not ready, he would not have needed to ask for said extension.

Finally, the petitioners allege that the respondent's uncorroborated testimony that third persons offered a higher price for the property is hearsay and should not be given any evidentiary weight. Thus, the order of the lower court awarding moral damages was without any legal basis.

The appeal is bereft of merit.

A perusal of the Memorandum Agreement shows that the transaction between the petitioners and the respondent was one of sale and lease. The terms of the agreement read:

1. For and in consideration of the sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) payable in a manner herein below indicated, SELLER-LESSOR hereby agree to sell unto BUYER-LESSEE the property described in the first WHEREAS of this Agreement within six (6) months from the execution date hereof, or upon issuance by the Court of a new owner's certificate of title and the execution of extrajudicial partition with sale of the estate of Francisco Laforteza, whichever is earlier;

2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) shall be paid in the following manner:

P30,000.00 — as earnest money and as consideration for this Agreement, which amount shall be forfeited in favor of SELLER-LESSORS if the sale is not effected because of the fault or option of BUYER-LESSEE;

P600,000.00 — upon the issuance of the new certificate of title in the name of the late Francisco Laforteza and upon the execution of an Extrajudicial Settlement of his estate with sale in favor of BUYER-LESSEE free from lien or any encumbrances.

3. Parties reasonably estimate that the issuance of a new title in place of the lost one, as well as the execution of extrajudicial settlement of estate with sale to herein BUYER-LESSEE will be completed within six (6) months from the execution of this Agreement. It is therefore agreed that during the six months period, BUYER-LESSEE will be leasing the subject property for six months period at the monthly rate of PESOS: THREE THOUSAND FIVE HUNDRED (P3,500.00). Provided however, that if the issuance of new title and the execution of Extrajudicial Partition is completed prior to the expiration of the six months period, BUYER-LESSEE shall only be liable for rentals for the corresponding period commencing from his occupancy of the premises to the execution and completion of the Extrajudicial Settlement of the estate, provided further that if after the expiration of six (6) months, the lost title is not yet replaced and the extra judicial partition is not executed, BUYER-LESSEE shall no longer be required to pay rentals and shall continue to occupy, and use the premises until subject condition is complied by SELLER-LESSOR;

4. It is hereby agreed that within reasonable time from the execution of this Agreement and the payment by BUYER-LESSEE of the amount of P30,000.00 as herein above provided, SELLER-LESSORS shall immediately file the corresponding petition for the issuance of a new title in lieu of the lost one in the proper Courts. Upon issuance by the proper Courts of the new title, the BUYER-LESSEE shall have thirty (30) days to produce the balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale. 9

A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. 10 From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts. 11The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject matter and (3) price certain money or its equivalent. 12

In the case at bench, there was a perfected agreement between the petitioners and the respondent whereby the petitioners obligated themselves to transfer the ownership of and deliver the house and lot located at 7757 Sherwood St., Marcelo Green Village, Parañaque and the respondent to pay






the price amounting to six hundred thousand pesos (P600,000.00). All the elements of a contract of sale were thus present. However, the balance of the purchase price was to be paid only upon the issuance of the new certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon the execution of an extrajudicial settlement of his estate. Prior to the issuance of the "reconstituted" title, the respondent was already placed in possession of the house and lot as lessee thereof for six months at a monthly rate of three thousand five hundred pesos (P3,500.00). It was stipulated that should the issuance of the new title and the execution of the extrajudicial settlement be completed prior to expiration of the six-month period, the respondent would be liable only for the rentals pertaining to the period commencing from the date of the execution of the agreement up to the execution of the extrajudicial settlement. It was also expressly stipulated that if after the expiration of the six month period, the lost title was not yet replaced and the extrajudicial partition was not yet executed, the respondent would no longer be required to pay rentals and would continue to occupy and use the premises until the subject condition was complied with the petitioners.

The six-month period during which the respondent would be in possession of the property as lessee, was clearly not a period within which to exercise an option. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. An option contract is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. 13 An option must be supported by consideration.14 An option contract is governed by the second paragraph of Article 1479 of the Civil Code 15, which reads:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

In the present case, the six-month period merely delayed the demandability of the contract of sale and did not determine its perfection for after the expiration of the six-month period, there was an absolute obligation on the part of the petitioners and the respondent to comply with the terms of the sale. The parties made a "reasonable estimate" that the reconstitution the lost title of the house and lot would take approximately six months and thus presumed that after six months, both parties would be able to comply with what was reciprocally incumbent upon them. The fact that after the expiration of the six-month period, the respondent would retain possession of the house and lot without need of paying rentals for the use therefor, clearly indicated that the parties contemplated that ownership over the property would already be transferred by that time.

The issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of an extrajudicial settlement of his estate was not a condition which determined the perfection of the contract of sale. Petitioners' contention that since the condition was not met, they no longer had an obligation to proceed with the sale of the house and lot is unconvincing. The petitioners fail to distinguish between a condition imposed upon the perfection of the contract and a condition imposed on the performance of an obligation. Failure to comply with the first condition results in the failure of a contract, while the failure to comply with the second condition only gives the other party the option either to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil Code states:

Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty.

Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing. 16

In the case at bar, there was already a perfected contract. The condition was imposed only on the performance of the obligations contained therein. Considering however that the title was eventually "reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of their father's estate, the respondent had a right to demand fulfillment of the petitioners' obligation to deliver and transfer ownership of the house and lot.

What further militates against petitioners' argument that they did not enter into a contract or sale is the fact that the respondent paid thirty thousand pesos (P30,000.00) as earnest money. Earnest money is something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain.17 Whenever earnest money is given in a contract of sale, it is considered as part of the purchase price and proof of the perfection of the contract. 18

We do not subscribe to the petitioners' view that the Memorandum Agreement was a contract to sell. There is nothing contained in the Memorandum Agreement from which it can reasonably be deduced that the parties intended to enter into a contract to sell, i.e. one whereby the prospective seller would explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the full payment of the price, such payment being a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation from acquiring any obligatory force. 19 There is clearly









no express reservation of title made by the petitioners over the property, or any provision which would impose non-payment of the price as a condition for the contract's entering into force. Although the memorandum agreement was also denominated as a "Contract to Sell", we hold that the parties contemplated a contract of sale. A deed of sale is absolute in nature although denominated a conditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the purchase price. 20 In such cases, ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. 21 The mere fact that the obligation of the respondent to pay the balance of the purchase price was made subject to the condition that the petitioners first deliver the reconstituted title of the house and lot does not make the contract a contract to sell for such condition is not inconsistent with a contract of sale. 22

The next issue to be addressed is whether the failure of the respondent to pay the balance of the purchase price within the period allowed is fatal to his right to enforce the agreement.

We rule in the negative.

Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the respondent by Roberto Z. Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was correctly found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as required by the Special Powers of Attorney. 23 However, the evidence reveals that after the expiration of the six-month period provided for in the contract, the petitioners were not ready to comply with what was incumbent upon them,i.e. the delivery of the reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight months after the execution of the Memorandum of Agreement when the petitioners informed the respondent that they already had a copy of the reconstituted title and demanded the payment of the balance of the purchase price. The respondent could not therefore be considered in delay for in reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what was incumbent upon him. 24

Even assuming for the sake of argument that the petitioners were ready to comply with their obligation, we find that rescission of the contract will still not prosper. The rescission of a sale of an immovable property is specifically governed by Article 1592 of the New Civil Code, which reads:

In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. 25

It is not disputed that the petitioners did not make a judicial or notarial demand for rescission.1avvphi1 The November 20, 1989 letter of the petitioners informing the respondent of the automatic rescission of the agreement did not amount to a demand for rescission, as it was not notarized. 26 It was also made five days after the respondent's attempt to make the payment of the purchase price. This offer to pay prior to the demand for rescission is sufficient to defeat the petitioners' right under article 1592 of the Civil Code. 27 Besides, the Memorandum Agreement between the parties did not contain a clause expressly authorizing the automatic cancellation of the contract without court intervention in the event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a contract or sale where there is no express stipulation authorizing him to extrajudicially rescind. 28 Neither was there a judicial demand for the rescission thereof. Thus, when the respondent filed his complaint for specific performance, the agreement was still in force inasmuch as the contract was not yet rescinded. At any rate, considering that the six-month period was merely an approximation of the time if would take to reconstitute the lost title and was not a condition imposed on the perfection of the contract and considering further that the delay in payment was only thirty days which was caused by the respondents justified but mistaken belief that an extension to pay was granted to him, we agree with the Court of Appeals that the delay of one month in payment was a mere casual breach that would not entitle the respondents to rescind the contract. Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreemant. 29

Petitioners' insistence that the respondent should have consignated the amount is not determinative of whether respondent's action for specific performance will lie. Petitioners themselves point out that the effect of cansignation is to extinguish the obligation. It releases the debtor from responsibility therefor. 30 The failure of the respondent to consignate the P600,000.00 is not tantamount to a breach of the contract for by the fact of tendering payment, he was willing and able to comply with his obligation.

The Court of Appeals correctly found the petitioners guilty of bad faith and awarded moral damages to the respondent. As found by the said Court, the petitioners refused to comply with, their obligation for the reason that they were offered a higher price therefor and the respondent was even offered P100,000.00 by the petitioners' lawyer, Attorney Gutierrez, to relinquish his rights over the property. The award of moral damages is in accordance with Article 1191 31 of the Civil Code pursuant to Article 2220 which provides that moral damages may be awarded in case of breach of contract where the defendant acted in bad faith. The amount awarded depends on the discretion of the court based on the circumstances of eachcase. 32 Under the circumstances, the award given by the Court of Appeals amounting to P50,000.00 appears to us to be fair and reasonable.

ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is AFFIRMED and the instant petition is hereby DENIED.
















SO ORDERED.

G.R. No. 119777 October 23, 1997

THE HEIRS OF PEDRO ESCANLAR, FRANCISCO HOLGADO and the SPOUSES DR. EDWIN A. JAYME and ELISA TAN-JAYME, petitioners, vs.THE HON. COURT OF APPEALS, GENEROSA MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA CARI-AN, for herself and as guardian ad litem of her minor son, LEONELL C. CARI-AN, FREDISMINDA CARI-AN, the SPOUSES PAQUITO CHUA and NEY SARROSA-CHUA and THE REGISTER OF DEEDS OF NEGROS OCCIDENTAL, respondents.

G.R. No. 120690 October 23, 1997

FRANCISCO HOLGADO and HRS. OF PEDRO ESCANLAR, namely BERNARDO, FELY, SONIA, LILY, DYESEBEL and NOEMI all surnamed


ESCANLAR, petitioners, vs.HON. COURT OF APPEALS, GENEROSA MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA CARI-AN, for herself and as guardian ad litem of her minor son, LEONELL C. CARI-AN, and SP. PAQUITO CHUA and NEY SARROSA CHUA and REGISTER OF DEEDS OF NEGROS OCCIDENTAL, respondents.

ROMERO, J.:

Before us are consolidated petitions for review of the decision of the Court of Appeals in CA-G.R. CV No. 39975 which affirmed the trial court's pronouncement that the deed of sale of rights, interests and participation in favor of petitioners is null and void.

The case arose from the following facts:

Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924 and 1938, respectively. Nombre's heirs include his nephews and grandnephews. Victoriana Cari-an was succeeded by her late brother's son, Gregorio Cari-an. The latter was declared as Victoriana's heir in the estate proceedings for Nombre and his wife (Special Proceeding No. 7-7279). 1 After Gregorio died in 1971, his wife, Generosa Martinez, and children, Rodolfo, Carmen, Leonardo and Fredisminda, all surnamed Cari-an, were also adjudged as heirs by representation to Victoriana's estate. 2 Leonardo Cari-an passed away, leaving his widow, Nelly Chua vda. de Cari-an and minor son Leonell, as his heirs.

Two parcels of land, denominated as Lot No. 1616 and 1617 of the Kabankalan Cadastre with an area of 29,350 square meters and 460,948 square meters, respectively, formed part of the estate of Nombre and Cari-an.

On September 15, 1978, Gregorio Cari-an's heirs, herein collectively referred to as private respondents Cari-an, executed the Deed of Sale of Rights, Interests and Participation worded as follows:

NOW, THEREFORE, for and in consideration of the sum of TWO HUNDRED SEVENTY-FIVE THOUSAND (P275,000.00) Pesos, Philippine Currency, to be paid by the VENDEES to the VENDORS, except the share of the minor child of Leonardo Cari-an, which should be deposited with the Municipal Treasurer of Himamaylan, Province of Negros Occidental, by the order of the Court of First Instance of Negros Occidental, Branch VI, Himamaylan, by those presents, do hereby SELL, CEDE, TRANSFER and CONVEY by way of ABSOLUTE SALE, all the RIGHTS, INTERESTS and PARTICIPATION of the Vendors as to the one-half (1/2) portion pro-indiviso of Lots Nos. 1616 and 1617 (Fishpond), of the Kabankalan Cadastre,

pertaining to the one-half (1/2) portion pro-indiviso of late Victoriana Cari-an unto and in favor of the Vendees, their heirs, successors and assigns;

xxx xxx xxx

That this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court of First Instance of Negros Occidental, Branch VI- Himamayla. (Emphasis supplied.)

Pedro Escanlar and Francisco Holgado, the vendees, were concurrently the lessees of the lots referred to above.3 They stipulated that the balance of the purchase price (P225,000.00) shall be paid on or before May 1979 in a Deed of Agreement executed by the parties on the same day:

WHEREAS, at the time of the signing of the Contract, VENDEES has (sic) only FIFTY THOUSAND (P50,000.00) Pesos available thereof, and was not able to secure the entire amount;

WHEREAS, the Vendors and one of the Vendees by the name of Pedro Escanlar are relatives, and absolute faith and trust exist between them, wherein during economic crisis, has not failed to give monetary succor to the Vendors;

WHEREAS, Vendors herein understood the present scarcity of securing available each (sic) in the amount stated in the contract;

NOW THEREFORE, for and in consideration of the sum of FIFTY THOUSAND (P50,000.00) Pesos, Philippine Currency, the balance of TWO HUNDRED TWENTY FIVE THOUSAND (P25,000.00) Pesos to be paid by the Vendees on or before May, 1979, the Vendors herein, by these Presents, do hereby CONFIRM and AFFIRM the Deed of Sale of the Rights, Interests and Participation dated September 15, 1978, over Lots Nos. 1616 and 1617 (fishpond) of the Kabankalan Cadastre in favor of the VENDEES, their heirs and assigns.

That pending the complete payment thereof, Vendees shall not assign, sell, lease, nor mortgage the lights, interests and participation thereof;

That in the event the Vendees fail and/or omit to pay the balance of said purchase price on May 31, 1979 and the cancellation of said Contract of Sale is made thereby, the sum of FIFTY THOUSAND (P50,000.00) Pesos shall be deemed as damages thereof to Vendors. (Emphasis supplied). 4

Petitioners were unable to pay the Cari-an heirs' individual shares, amounting to P55,000.00 each, by the due date. However, said heirs received at least 12 installments from petitioners after May 1979. 5 Rodolfo Cari-an was fully paid by June


21, 1979. Generosa Martinez, Carmen Cari-an and Fredisminda Cari-an were likewise fully compensated for their individual shares, per receipts given in evidence. 6 The minor Leonell's share was deposited with the Regional Trial Court on September 7, 1982. 7

Being former lessees, petitioners continued in possession of Lot Nos. 1616 and 1617. Interestingly, they continued to pay rent based on their lease contract. On September 10, 1981, petitioners moved to intervene in the probate proceedings of Nombre and Cari-an as the buyers of private respondent Cari-an's share in Lot Nos. 1616 and 1617. Petitioners' motion for approval of the September 15, 1978 sale before the same court, filed on November 10, 1981, was opposed by private respondents Cari-an on January 5, 1982. 8

On September 16, 1982, the probate court approved a motion filed by the heirs of Cari-an and Nombre to sell their respective shares in the estate. On September 21, 1982, private respondents Cari-an, in addition to some heirs of Guillermo Nombre, 9 sold their shares in eight parcels of land including Lot Nos. 1616 and 1617 to the spouses Ney Sarrosa Chua and Paquito Chua for P1,850,000.00. One week later, the vendor-heirs, including private respondents Cari-an, filed a motion for approval of sale of hereditary rights, i.e. the sale made on September 21, 1982 to the Chuas.

Private respondents Cari-an instituted this case for cancellation of sale against petitioners (Escanlar and Holgado) on November 3, 1982. 10 They complained of petitioners' failure to pay the balance of the purchase price by May 31, 1979 and alleged that they only received a total of P132,551.00 in cash and goods. Petitioners replied that the Cari-ans, having been paid, had no right to resell the subject lots; that the Chuas were purchasers in bad faith; and that the court approval of the sale to the Chuas was subject to their existing claim over said properties.

On April 20, 1983, petitioners also sold their rights and interests in the subject parcels of land (Lot Nos. 1616 and 1617) to Edwin Jayme for P735,000.00 11 and turned over possession of both lots to the latter. The Jaymes in turn, were included in the civil case as fourth-party defendants.

On December 3, 1984, the probate court approved the September 21, 1982 sale "without prejudice to whatever rights, claims and interests over any of those properties of the estate which cannot be properly and legally ventilated and resolved by the court in the same intestate proceedings." 12 The certificates of title over the eight lots sold by the heirs of Nombre and Cari-an were later issued in the name of respondents Ney Sarrosa Chua and Paquito Chua.

The trial court allowed a third-party complaint against the third-party defendants Paquito and Ney Chua on January 7, 1986 where Escanlar and Holgado alleged that the Cari-ans conspired with the Chuas when they executed the second sale on September 21, 1982 and that the latter sale is illegal and of no effect. Respondents

Chua countered that they did not know of the earlier sale of one-half portion of the subject lots to Escanlar and Holgado. Both parties claimed damages. 13

On April 28, 1988, the trial court approved the Chuas' motion to file a fourth-party complaint against the spouses Jayme. Respondents Chua alleged that the Jaymes refused to vacate said lots despite repeated demands; and that by reason of the illegal occupation of Lot Nos. 1616 and 1617 by the Jaymes, they suffered materially from uncollected rentals.

Meanwhile, the Regional Trial Court of Himamaylan which took cognizance of Special Proceeding No. 7-7279 (Intestate Estate of Guillermo Nombre and Victoriana Cari-an) had rendered its decision on October 30,1987. 14 The probate court concluded that since all the properties of the estate were disposed of or sold by the declared heirs of both spouses, the case is considered terminated and the intestate estate of Guillermo Nombre and Victoriana Cari-an is closed. The court held:

As regards the various incidents of this case, the Court finds no cogent reason to resolve them since the very object of the various incidents in this case is no longer m existence, that is to say, the properties of the estate of Guillermo Nombre and Victoriana Cari-an had long been disposed of by the rightful heirs of Guillermo Nombre and Victoriana Cari-an. In this respect, there is no need to resolve the Motion for Subrogation of Movants Pedro Escanlar and Francisco Holgado to be subrogated to the rights of the heirs of Victoriana Cari-an since all the properties of the estate had been transferred and titled to in the name of spouses Ney S. Chua and Dr. Paquito Chua. Since the nature of the proceedings in this case is summary, this Court, being a Probate Court, has no jurisdiction to pass upon the validity or invalidity of the sale of rights of the declared heirs of Guillermo Nombre and Victoriana Cari-an to third Parties. This issue must be raised in another action where it can be properly ventilated and resolved. . . . Having determined, after exhausted (sic) and lengthy hearings, the rightful heirs of Guillermo Nombre and Victoriana Cari-an, the Court found out that the second issue has become moot and academic considering that there are no more properties left to be partitioned among the declared heirs as that had long ago been disposed of by the declared heirs . . . . (Emphasis supplied).

The seminal case at bar was resolved by the trial court on December 18, 1991 in favor of cancellation of the September 15, 1978 sale. Said transaction was nullified because it was not approved by the probate court as required by the contested deed of sale of rights, interests and participation and because the Cari-ans were not fully paid. Consequently, the Deed of Sale executed by the heirs of Nombre and Cari-an in favor of Paquito and Ney Chua, which was approved by the probate court, was upheld. The dispositive portion of the lower court's decision reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:


1) Declaring the following contracts null and void and of no effect:

a) The Deed of Sale, dated Sept. 15, 1978, executed by the plaintiffs in favor of the defendants Pedro Escanlar and Francisco Holgado (Exh. "A," Plaintiffs)

b) The Deed of Agreement, dated Sept. 15, 1978, executed by the plaintiffs in favor of the defendants, Pedro Escanlar and Francisco Holgado (Exh. "A," Plaintiffs)

c) The Deed of Sale, dated April 20, 1983, executed by the defendants in favor of the fourth-party defendants, Dr. Edwin Jayme and Elisa Tan Jayme

d) The sale of leasehold rights executed by the defendants in favor of the fourth-party defendants

2) Declaring the amount of Fifty Thousand Pesos (P50,000.00) paid by the defendants to the plaintiffs in connection with the Sept. 15, 1978 deed of sale, as forfeited in favor of the plaintiffs, but ordering the plaintiffs to return to the defendants whatever amounts they have received from the latter after May 3, 1979 and the amount of Thirty Five Thousand Two Hundred Eighteen & 75/100 (P35,218.75) 15 deposited with the Treasurer of Himamaylan, Negros Occidental, for the minor Leonell C. Cari-an —

3) Declaring the deed of sale, dated September 23, 1982, executed by Lasaro Nombre, Victorio Madalag, Domingo Campillanos, Sofronio Campillanos, Generosa Vda. de Martinez, Carmen Cari-an, Rodolfo Cari-an, Nelly Chua Vda. de Cari-an, for herself and as guardian ad litem of the minor Leonell C. Cari-an, and Fredisminda Cari-an in favor of the third-party defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa Chua (Exh. "2"-Chua) as legal, valid and enforceable provided that the properties covered by the said deed of sale are subject of the burdens of the estate, if the same have not been paid yet.

4) Ordering the defendants Francisco Holgado and Pedro Escanlar and the fourth-party defendants, spouses Dr. Edwin Jayme and Elisa Tan Jayme, to pay jointly and severally the amount of One Hundred Thousand Pesos (P100,000.00 as moral damages and the further sum of Thirty Thousand Pesos (P30,000.00) as attorney's fees to the third-party defendant spouses, Dr. Paquito Chua and Ney Sarrosa-Chua.

5) Ordering the fourth-party defendant spouses, Dr. Edwin Jayme and Elisa Tan Jayme, to pay to the third-party defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa-Chua, the sum of One Hundred Fifty Seven Thousand Pesos (P157,000.00) as rentals for the riceland and

Three Million Two Hundred Thousand Pesos (P3,200,000.00) as rentals for the fishpond from October, 1985 to July 24, 1989 plus the rentals from the latter date until the property shall have been delivered to the spouses Dr. Paquito Chua and Ney Sarrosa-Chua;

6) Ordering the defendants and the fourth-party defendants to immediately vacate Lots Nos. 1616 and 1617, Kabankalan Cadastre;

7) Ordering the defendants and the fourth-party defendants to pay costs.

SO ORDERED. 16

Petitioners raised the case to the Court of Appeals. 17 Respondent court affirmed the decision of the trial court on February 17, 1995 and held that the questioned deed of sale of rights, interests and participation is a contract to sell because it shall become effective only upon approval by the probate court and upon full payment of the purchase price. 18

Petitioners' motion for reconsideration was denied by respondent court on April 3, 1995. 19 Hence, these petitions.20

1. We disagree with the Court of Appeals' conclusion that the September 15, 1978 Deed of Sale of Rights, Interests and Participation is a contract to sell and not one of sale.

The distinction between contracts of sale and contracts to sell with reserved title has been recognized by this Court in repeated decisions, according to Justice J.B.L. Reyes in Luzon Brokerage Co. Inc. v. Maritime Building Co., Inc., 21 upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse the conveyance, and retain the sums of installments already received where such rights are expressly provided for.

In contracts to sell, ownership is retained by the seller and is not to pass until the full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. 22 To illustrate, although a deed of conditional sale is denominated as such, absent a proviso that title to the property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period, by its nature, it shall be declared a deed of absolute sale. 23

The September 15, 1978 sale of rights, interests and participation as to 1/2 portion pro indiviso of the two subject lots is a contract of sale for the following reasons: First, private respondents as sellers did not reserve unto themselves the


ownership of the property until full payment of the unpaid balance of P225,000.00. Second, there is no stipulation giving the sellers the right to unilaterally rescind the contract the moment the buyer fails to pay within the fixed period. 24 Prior to the sale, petitioners were in possession of the subject property as lessees. Upon sale to them of the rights, interests and participation as to the 1/2 portion pro indiviso, they remained in possession, not in concept of lessees anymore but as owners now through symbolic delivery known as traditio brevi manu. 25 Under Article 1477 of the Civil Code, the ownership of the thing sold is acquired by the vendee upon actual or constructive delivery thereof. 26

In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission. 27

2. Next to be discussed is the stipulation in the disputed September 15, 1978 Deed of Sale of Rights, Interests and Participation which reads: "(t)his Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court of First Instance of Negros Occidental, Branch VI-Himamaylan." Notably, the trial court and the Court of Appeals both held that the deed of sale is null and void for not having been approved by the probate court.

There has arisen here a confusion in the concepts of validity and the efficacy of a contract. Under Art. 1318 of the Civil Code, the essential requisites of a contract are: consent of the contracting parties; object certain which is the subject matter of the contract and cause of the obligation which is established. Absent one of the above, no contract can arise. Conversely, where all are present, the result is a valid contract. However, some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of the contract.

In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a valid one. However, it did not bear the stamp of approval of the court. This notwithstanding, the contract's validity was not affected for in the words of the stipulation, " . . . this Contract of Sale of rights, interests and participations shall become effectiveonly upon the approval by the Honorable Court . . ." In other words, only the effectivity and not the validity of the contract is affected.

Then, too, petitioners are correct in saying that the need for approval by the probate court exists only where specific properties of the estate are sold and not when only ideal and indivisible shares of an heir are disposed of.

In the case of Dillena v. Court of Appeals, 28 the Court declared that it is within the jurisdiction of the probate court to approve the sale of properties of a deceased person by his prospective heirs before final adjudication. 29 It is settled that court approval is necessary for the validity of any disposition of the decedent's estate. However, reference to judicial approval cannot adversely affect the substantive rights of the heirs to dispose of their ideal share in the co-heirship and/or co-ownership

among the heirs. 30 It must be recalled that during the period of indivision of a decedent's estate, each heir, being a co-owner, has full ownership of his part and may therefore alienate it. 31 But the effect of the alienation with respect to the co-owners shall be limited to the portion which may be allotted to him in the division upon the termination of theco-ownership. 32

From the foregoing, it is clear that hereditary rights in an estate can be validly sold without need of court approval and that when private respondents Cari-an sold their rights, interests and participation in Lot Nos. 1616 and 1617, they could legally sell the same without the approval of the probate court.

As a general rule, the pertinent contractual stipulation (requiring court approval) should be considered as the law between the parties. However, the presence of two factors militate against this conclusion. First, the evident intention of the parties appears to be contrary to the mandatory character of said stipulation. 33 Whoever crafted the document of conveyance, must have been of the belief that the controversial stipulation was a legal requirement for the validity of the sale. But the contemporaneous and subsequent acts of the parties reveal that the original objective of the parties was to give effect to the deed of sale even without court approval. 34 Receipt and acceptance of the numerous installments on the balance of the purchase price by the Cari-ans and leaving petitioners in possession of Lot Nos. 1616 and 1617 reveal their intention to effect the mutual transmission of rights and obligations. It was only after private respondents Cari-an sold their shares in the subject lots again to the spouses Chua, in September 1982, that these same heirs filed the case at bar for the cancellation of the September 1978 conveyance. Worth considering too is the fact that although the period to pay the balance of the purchase price expired in May 1979, the heirs continued to accept payments until late 1979 and did not seek judicial relief until late 1982 or three years later.

Second, we hold that the requisite approval was virtually rendered impossible by the Cari-ans because they opposed the motion for approval of the sale filed by petitioners 35 and sued the latter for the cancellation of that sale. The probate court explained:

(e) While it is true that Escanlar and Holgado filed a similar motion for the approval of Deed of Sale executed by some of the heirs in their favor concerning the one-half (1/2) portions of Lots 1616 and 1617 as early as November 10, 1981, yet the Court could not have favorably acted upon it, because there exists a pending case for the rescission of that contract, instituted by the vendors therein against Pedro Escanlar and Francisco Holgado and filed before another branch of this Court. Until now, this case, which attacks the very source of whatever rights or interests Holgado and Escanlar may have acquired over one-half (1/2) portions of Lots Nos. 1616 and 1617, is pending resolution by another court. Otherwise, if this Court meddles on these issues raised in that ordinary civil action seeking for the rescission of an existing contract, then, the act of this Court would be totally ineffective, as the same would be in excess of its jurisdiction. 36


Having provided the obstacle and the justification for the stipulated approval not to be granted, private respondents Cari-an should not be allowed to cancel their first transaction with petitioners because of lack of approval by the probate court, which lack is of their own making.

3. With respect to rescission of a sale of real property, Article 1592 of the Civil Code governs:

In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act . After the demand, the court may not grant him a new term. (Emphasis added)

In the instant case, the sellers gave the buyers until May 1979 to pay the balance of the purchase price. After the latter failed to pay installments due, the former made no judicial demand for rescission of the contract nor did they execute any notarial act demanding the same, as required under Article 1592. Consequently, the buyers could lawfully make payments even after the May 1979 deadline, as in fact they paid several installments to the sellers which the latter accepted. Thus, upon the expiration of the period to pay, the sellers made no move to rescind but continued accepting late payments, an act which cannot but be construed as a waiver of the right to rescind. When the sellers, instead of availing of their right to rescind, accepted and received delayed payments of installments beyond the period stipulated, and the buyers were in arrears, the sellers in effect waived and are now estopped from exercising said right to rescind. 37

4. The matter of full payment is another issue taken up by petitioners. An exhaustive review of the records of this case impels us to arrive at a conclusion at variance with that of both the trial and the appellate courts.

The sole witness in the cancellation of sale case was private respondent herein Fredisminda Cari-an Bustamante. She initially testified that after several installments, she signed a receipt for the full payment of her share in December 1979 but denied having actually received the P5,000.00 intended to complete her share. She claims that Escanlar and Holgado made her sign the receipt late in the afternoon and promised to give the money to her the following morning when the banks opened. She also claimed that while her brother RodolfoCari-an's share had already been fully paid, her mother Generosa Martinez only received P28,334.00 and her sister-in-law Nelly Chua vda. de Cari-an received only P11,334.00. Fredisminda also summed up all the installments and came up with the total of P132,551.00 from the long list on a sheet of a calendar which was transferred from a small brown notebook. She later admitted that her list may not have been complete for she gave the receipts for installments to petitioners Escanlar and Holgado. She thus claimed that they were defrauded because petitioners are wealthy and private respondents are poor.

However, despite all her claims, Fredisminda's testimony fails to convince this Court that they were not fully compensated by petitioners. Fredisminda admits that her mother and her sister signed their individual receipts of full payment on their own and not in her presence. 38 The receipts presented in evidence show that Generosa Martinez was paid P45,625.00; Carmen Cari-an , P45,625.00; Rodolfo Cari-an , P47,500.00 on June 21, 1979; Nelly Chua vda. de Cari-an, P11,334.00 and the sum of P34,218.00 was consigned in court for the minor Leonell Cari-an. 39 Fredisminda insists that she signed a receipt for full payment without receiving the money therefor and admits that she did not object to the computation. We find it incredible that a mature woman like Fredisminda Cari-an, would sign a receipt for money she did not receive. Furthermore, her claims regarding the actual amount of the installments paid to her and her kin are quite vague and unsupported by competent evidence. She even admits that all the receipts were taken by petitioner Escanlar. 40 Worth noting too is the absence of supporting testimony from her co-heirs and siblings Carmen Cari-an, Rodolfo Cari-an and Nelly Chua vda. de Cari-an.

The trial court reasoned out that petitioners, in continuing to pay the rent for the parcels of land they allegedly bought, admit not having fully paid the Cari-ans. Petitioners' response, that they paid rent until 1986 in compliance with their lease contract, only proves that they respected this contract and did not take undue advantage of the heirs of Nombre and Cari-an who benefited from the lease. Moreover, it is to be stressed that petitioners purchased the hereditary shares solely of the Cari-ans and not the entire lot.

The foregoing discussion ineluctably leads us to conclude that theCari-ans were indeed paid the balance of the purchase price, despite having accepted installments therefor belatedly. There is thus no ground to rescind the contract of sale because of non-payment.

5. Recapitulating, we have held that the September 15, 1978 deed of sale of rights, interests and participations is valid and that the sellers-private respondents Cari-an were fully paid the contract price. However, it must be emphasized that what was sold only the Cari-an's hereditary shares in Lot Nos. 1616 and 1617 being held pro indiviso by them and is thus a valid conveyance only of said ideal shares. Specific or designated portions of land were not involved.

Consequently, the subsequent sale of 8 parcels of land, including Lot Nos. 1616 and 1617, to the spouses Chua is valid except to the extent of what was sold to petitioners in the September 15, 1978 conveyance. It must be noted however, that the probate court in Special Proceeding No. 7-7279 desisted from awarding the individual shares of each heir because all the properties belonging to the estate had already been sold. 41 Thus it is not certain how much private respondents Cari-an were entitled to with respect to the two lots, or if they were even going to be awarded shares in said lots.


The proceedings surrounding the estate of Nombre and Cari-an having attained finality for nearly a decade now, the same cannot be re-opened. The protracted proceedings which have undoubtedly left the property under a cloud and the parties involved in a state of uncertainty compels us to resolve it definitively.

The decision of the probate court declares private respondents Cari-an as the sole heirs by representation of Victoriana Cari-an who was indisputably entitled to half of the estate. 42 There being no exact apportionment of the shares of each heir and no competent proof that the heirs received unequal shares in the disposition of the estate, it can be assumed that the heirs of Victoriana Cari-an collectively are entitled to half of each property in the estate. More particularly, private respondents Cari-an are entitled to half of Lot Nos. 1616 and 1617, i.e. 14,675 square meters of Lot No. 1616 and 230,474 square meters of Lot No. 1617. Consequently, petitioners, as their successors-in-interest, own said half of the subject lots and ought to deliver the possession of the other half, as well as pay rents thereon, to the private respondents Ney Sarrosa Chua and Paquito Chua but only if the former (petitioners) remained in possession thereof.

The rate of rental payments to be made were given in evidence by Ney Sarrosa Chua in her unrebutted testimony on July 24, 1989: For the fishpond (Lot No. 1617) — From 1982 up to 1986, rental payment of P3,000.00 per hectare; from 1986-1989 (and succeeding years), rental payment of P10,000.00 per hectare. For the riceland (Lot No. 1616) — 15 cavans per hectare per year; from 1982 to 1986, P125.00 per cavan; 1987-1988, P175.00 per cavan; and 1989 and succeeding years, P200.00 per cavan. 43

WHEREFORE, the petitions are hereby GRANTED. The decision of the Court of Appeals under review is hereby REVERSED AND SET ASIDE. The case is REMANDED to the Regional Trial Court of Negros Occidental, Branch 61 for petitioners and private respondents Cari-an or their successors-in-interest to determine exactly which 1/2 portion of Lot Nos. 1616 and 1617 will be owned by each party, at the option of petitioners. The trial court is DIRECTED to order the issuance of the corresponding certificates of title in the name of the respective parties and to resolve the matter of rental payments of the land not delivered to the Chua spouses subject to the rates specified above with legal interest from date of demand.

SO ORDERED.

G.R. No. 119745 June 20, 1997

POWER COMMERCIAL AND INDUSTRIAL CORPORATION, petitioner, vs.COURT OF APPEALS, SPOUSES REYNALDO and ANGELITA R. QUIAMBAO and PHILIPPINE NATIONAL BANK, respondents.

PANGANIBAN, J.:

Is the seller's failure to eject the lessees from a lot that is the subject of a contract of sale with assumption of mortgage a ground (1) for rescission of such contract and (2) for a return by the mortgagee of the amortization payments made by the buyer who assumed such mortgage?


Petitioner posits an affirmative answer to such question in this petition for review on certiorari of the March 27, 1995 Decision 1 of the Court of Appeals, Eighth Division, in CA-G.R. CV Case No. 32298 upholding the validity of the contract of sale with assumption of mortgage and absolving the mortgagee from the liability of returning the mortgage payments already made. 2

The Facts

Petitioner Power Commercial & Industrial Development Corporation, an industrial asbestos manufacturer, needed a bigger office space and warehouse for its products. For this purpose, on January 31, 1979, it entered into a contract of sale with the spouses Reynaldo and Angelita R. Quiambao, herein private respondents. The contract involved a 612-sq. m. parcel of land covered by Transfer Certificate of Title No. S-6686 located at the corner of Bagtican and St. Paul Streets, San Antonio Village, Makati City. The parties agreed that petitioner would pay private respondents P108,000.00 as down payment, and the balance of P295,000.00 upon the execution of the deed of transfer of the title over the property. Further, petitioner assumed, as part of the purchase price, the existing mortgage on the land. In full satisfaction thereof, he paid P79,145.77 to Respondent Philippine National Bank ("PNB" for brevity).

On June 1, 1979, respondent spouses mortgaged again said land to PNB to guarantee a loan of P145,000.00, P80,000.00 of which was paid to respondent spouses. Petitioner agreed to assume payment of the loan.

On June 26, 1979, the parties executed a Deed of Absolute Sale With Assumption of Mortgage which contained the following terms and conditions: 3

That for and in consideration of the sum of Two Hundred Ninety-Five Thousand Pesos (P295,000.00) Philippine Currency, to us in hand paid in cash, and which we hereby acknowledge to be payment in full and received to our entire satisfaction, by POWER COMMERCIAL AND INDUSTRIAL DEVELOPMENT CORPORATION, a 100% Filipino Corporation, organized and existing under and by virtue of Philippine Laws with offices located at 252-C Vito Cruz Extension, we hereby by these presents SELL, TRANSFER and CONVEY by way of absolute sale the above described property with all the improvements existing thereon unto the said Power Commercial and Industrial Development Corporation, its successors and assigns, free from all liens and encumbrances.

We hereby certify that the aforesaid property is not subject to nor covered by the provisions of the Land Reform Code — the same having no agricultural lessee and/or tenant.

We hereby also warrant that we are the lawful and absolute owners of the above described property, free from any lien and/or encumbrance, and we hereby agree and warrant to defend its title and peaceful possession thereof in favor of the said Power Commercial and Industrial Development Corporation, its successors and assigns, against any claims whatsoever of any and all third persons; subject, however, to the provisions hereunder provided to wit:

That the above described property is mortgaged to the Philippine National Bank, Cubao, Branch, Quezon City for the amount of one hundred forty-five thousand pesos, Philippine, evidenced by document No. 163, found on page No. 34 of Book No. XV, Series of 1979 of Notary Public HeritaL. Altamirano registered with the Register of Deeds of Pasig (Makati), Rizal . . . ;

That the said Power Commercial and Industrial Development Corporation assumes to pay in full the entire amount of the said mortgage above described plus interest and bank charges, to the said mortgagee bank, thus holding the herein vendor free from all claims by the said bank;

That both parties herein agree to seek and secure the agreement and approval of the said Philippine National Bank to the herein sale of this property, hereby agreeing to abide by any and all requirements of the said bank, agreeing that failure to do so shall give to the bank first lieu (sic) over the herein described property.

On the same date, Mrs. C.D. Constantino, then General Manager of petitioner-corporation, submitted to PNB said deed with a formal application for assumption of mortgage. 4

On February 15, 1980, PNB informed respondent spouses that, for petitioner's failure to submit the papers necessary for approval pursuant to the former's letter dated January 15, 1980, the application for assumption of mortgage was considered withdrawn; that the outstanding balance of P145,000.00 was deemed fully due and demandable; and that said loan was to be paid in full within fifteen (15) days from notice. 5

Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on December 23, 1980, payments which were to be applied to the outstanding loan. On December 23, 1980, PNB received a letter from petitioner which reads: 6

With regard to the presence of the people who are currently in physical occupancy of the (l)ot . . . it is our desire as buyers and new owners of this lot to make use of this lot for our own purpose,


which is why it is our desire and intention that all the people who are currently physically present and in occupation of said lot should be removed immediately.

For this purpose we respectfully request that . . . our assumption of mortgage be given favorable consideration, and that the mortgage and title be transferred to our name so that we may undertake the necessary procedures to make use of this lot ourselves.

It was our understanding that this lot was free and clear of problems of this nature, and that the previous owner would be responsible for the removal of the people who were there. Inasmuch as the previous owner has not been able to keep his commitment, it will be necessary for us to take legal possession of this lot inorder (sic) to take physical possession.

On February 19, 1982, PNB sent petitioner a letter as follows: 7

(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was assumed by you on June 4, 1979 for P101,500.00. It was last renewed on December 24, 1980 to mature on June 4, 1981.

A review of our records show that it has been past due from last maturity with interest arrearages amounting to P25,826.08 as of February 19, 1982. The last payment received by us was on December 24, 1980 for P20,283. 14. In order to place your account in current form, we request you to remit payments to cover interest, charges, and at least part of the principal.

On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent spouses for rescission and damages before the Regional Trial Court of Pasig, Branch 159. Then, in its reply to PNB's letter of February 19, 1982, petitioner demanded the return of the payments it made on the ground that its assumption of mortgage was never approved. On May 31, 1983, 8 while this case was pending, the mortgage was foreclosed. The property was subsequently bought by PNB during the public auction. Thus, an amended complaint was filed impleading PNB as party defendant.

On July 12, 1990, the trial court 9 ruled that the failure of respondent spouses to deliver actual possession to petitioner entitled the latter to rescind the sale, and in view of such failure and of the denial of the latter's assumption of mortgage, PNB was obliged to return the payments made by the latter. The dispositive portion of said decision states: 10

IN VIEW OF ALL THE FOREGOING, the Court hereby renders judgment in favor of plaintiff and against defendants:

(1) Declaring the rescission of the Deed of Sale with Assumption of Mortgage executed between plaintiff and defendants Spouses Quiambao, dated June 26, 1979;

(2) Ordering defendants Spouses Quiambao to return to plaintiff the amount of P187,144.77 (P108,000.00 plus P79,145.77) with legal interest of 12% per annum from date of filing of herein complaint, that is, March 17, 1982 until the same is fully paid;

(3) Ordering defendant PNB to return to plaintiff the amount of P62,163.59 (P41,880.45 and P20,283.14) with 12% interest thereon from date of herein judgment until the same is fully paid.

No award of other damages and attorney's fees, the same not being warranted under the facts and circumstances of the case.

The counterclaim of both defendants spouses Quiambao and PNB are dismissed for lack of merit.


SO ORDERED.

On appeal by respondent-spouses and PNB, Respondent Court of Appeals reversed the trial court. In the assailed Decision, it held that the deed of sale between respondent spouses and petitioner did not obligate the former to eject the lessees from the land in question as a condition of the sale, nor was the occupation thereof by said lessees a violation of the warranty against eviction. Hence, there was no substantial breach to justify the rescission of said contract or the return of the payments made. The dispositive portion of said Decision reads: 11

WHEREFORE, the Decision appealed from is hereby REVERSED and the complaint filed by Power Commercial and Industrial Development Corporation against the spouses Reynaldo and Angelita Quiambao and the Philippine National Bank is DISMISSED. No costs.

Hence, the recourse to this Court.

Issues

Petitioner contends that: (1) there was a substantial breach of the contract between the parties warranting rescission; and (2) there was a "mistake in payment" made by petitioner, obligating PNB to return such payments. In its Memorandum, it specifically assigns the following errors of law on the part of Respondent Court: 12


A. Respondent Court of Appeals gravely erred in failing to consider in its decision that a breach of implied warranty under Article 1547 in relation to Article 1545 of the Civil Code applies in the case-at-bar.

B. Respondent Court of Appeals gravely erred in failing to consider in its decision that a mistake in payment giving rise to a situation where the principle of solutio indebiti applies is obtaining in the case-at-bar.

The Court's Ruling

The petition is devoid of merit. It fails to appreciate the difference between a condition and a warranty and the consequences of such distinction.

Conspicuous Absence of an Imposed Condition

The alleged "failure" of respondent spouses to eject the lessees from the lot in question and to deliver actual and physical possession thereof cannot be considered a substantial breach of a condition for two reasons: first, such "failure" was not stipulated as a condition — whether resolutory or suspensive — in the contract; and second, its effects and consequences were not specified either. 13

The provision adverted to by petitioner does not impose a condition or an obligation to eject the lessees from the lot. The deed of sale provides in part: 14

We hereby also warrant that we are the lawful and absolute owners of the above described property, free from any lien and/or encumbrance, and we hereby agree and warrant to defend its title and peaceful possession thereof in favor of the said Power Commercial and Industrial Development Corporation, its successors and assigns, against any claims whatsoever of any and all third persons; subject, however, to the provisions hereunder provided to wit:

By his own admission, Anthony Powers, General Manager of petitioner-corporation, did not ask the corporation's lawyers to stipulate in the contract that Respondent Reynaldo was guaranteeing the ejectment of the occupants, because there was already a proviso in said deed of sale that the sellers were guaranteeing the peaceful possession by the buyer of the land in question. 15 Any obscurity in a contract, if the above-quoted provision can be so described, must be construed against the party who caused it. 16 Petitioner itself caused the obscurity because it omitted this alleged condition when its lawyer drafted said contract.

If the parties intended to impose on respondent spouses the obligation to eject the tenants from the lot sold, it should have included in the contract a provision similar to

that referred to in Romero vs. Court of Appeals, 17where the ejectment of the occupants of the lot sold by private respondent was the operative act which set into motion the period of petitioner's compliance with his own obligation, i.e., to pay the balance of the purchase price. Failure to remove the squatters within the stipulated period gave the other party the right to either refuse to proceed with the agreement or to waive that condition of ejectment in consonance with Article 1545 of the Civil Code. In the case cited, the contract specifically stipulated that the ejectment was a condition to be fulfilled; otherwise, the obligation to pay the balance would not arise. This is not so in the case at bar.

Absent a stipulation therefor, we cannot say that the parties intended to make its nonfulfillment a ground for rescission. If they did intend this, their contract should have expressly stipulated so. In Ang vs. C.A., 18 rescission was sought on the ground that the petitioners had failed to fulfill their obligation "to remove and clear" the lot sold, the performance of which would have given rise to the payment of the consideration by private respondent. Rescission was not allowed, however, because the breach was not substantial and fundamental to the fulfillment by the petitioners of the obligation to sell.

As stated, the provision adverted to in the contract pertains to the usual warranty against eviction, and not to a condition that was not met.

The terms of the contract are so clear as to leave no room for any other interpretation. 19

Furthermore, petitioner was well aware of the presence of the tenants at the time it entered into the sales transaction. As testified to by Reynaldo, 20 petitioner's counsel during the sales negotiation even undertook the job of ejecting the squatters. In fact, petitioner actually filed suit to eject the occupants. Finally, petitioner in its letter to PNB of December 23, 1980 admitted that it was the "buyer(s) and new owner(s) of this lot."

Effective Symbolic Delivery

The Court disagrees with petitioner's allegation that the respondent spouses failed to deliver the lot sold. Petitioner asserts that the legal fiction of symbolic delivery yielded to the truth that, at the execution of the deed of sale, transfer of possession of said lot was impossible due to the presence of occupants on the lot sold. We find this misleading.


Although most authorities consider transfer of ownership as the primary purpose of sale, delivery remains an indispensable requisite as our law does not admit the doctrine of transfer of property by mere consent. 21 The Civil Code provides that delivery can either be (1) actual (Article 1497) or (2) constructive (Articles 1498-1501). Symbolic delivery (Article 1498), as a species of constructive delivery, effects the transfer of ownership through the execution of a public document. Its efficacy can, however, be prevented if the vendor does not possess control over the thing sold, 22 in which case this legal fiction must yield to reality.

The key word is control, not possession, of the land as petitioner would like us to believe. The Court has consistently held that: 23

. . . (I)n order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that . . . its material delivery could have 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 whatever to 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 and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality — the delivery has not been effected.

Considering that the deed of sale between the parties did not stipulate or infer otherwise, delivery was effected through the execution of said deed. The lot sold had been placed under the control of petitioner; thus, the filing of the ejectment suit was subsequently done. It signified that its new owner intended to obtain for itself and to terminate said occupants' actual possession thereof. Prior physical delivery or possession is not legally required and the execution of the deed of sale is deemed equivalent to delivery. 24 This deed operates as a formal or symbolic delivery of the property sold and authorizes the buyer to use the document as proof of ownership. Nothing more is required.

Requisites of Breach of Warranty Against Eviction

Obvious to us in the ambivalent stance of petitioner is its failure to establish any breach of the warranty against eviction. Despite its protestation that its acquisition of the lot was to enable it to set up a warehouse for its asbestos products and that failure to deliver actual possession thereof defeated this purpose, still no breach of warranty against eviction can be appreciated because the facts of the case do not show that the requisites for such breach have been satisfied. A breach of this warranty requires the concurrence of the following circumstances:

(1) The purchaser has been deprived of the whole or part of the thing sold;

(2) This eviction is by a final judgment;

(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and

(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee.25

In the absence of these requisites, a breach of the warranty against eviction under Article 1547 cannot be declared.

Petitioner argues in its memorandum that it has not yet ejected the occupants of said lot, and not that it has been evicted therefrom. As correctly pointed out by Respondent Court, the presence of lessees does not constitute an encumbrance of the land, 26 nor does it deprive petitioner of its control thereof.

We note, however, that petitioner's deprivation of ownership and control finally occurred when it failed and/or discontinued paying the amortizations on the mortgage, causing the lot to be foreclosed and sold at public auction. But this deprivation is due to petitioner's fault, and not to any act attributable to the vendor-spouses.

Because petitioner failed to impugn its integrity, the contract is presumed, under the law, to be valid and subsisting.

Absence of Mistake In Payment

Contrary to the contention of petitioner that a return of the payments it made to PNB is warranted under Article 2154 of the Code, solutio indebiti does not apply in this case. This doctrine applies where: (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment, and (2) the payment is made through mistake, and not through liberality or some other cause. 27

In this case, petitioner was under obligation to pay the amortizations on the mortgage under the contract of sale and the deed of real estate mortgage. Under the deed of sale (Exh. "2"), 28 both parties agreed to abide by any and all the requirements of PNB in connection with the real estate mortgage. Petitioner was aware that the deed of mortgage (Exh. "C") made it solidarily and, therefore, primarily 29 liable for the mortgage obligation: 30

(e) The Mortgagor shall neither lease the mortgaged property. . . nor sell or dispose of the same in any manner, without the written consent of the Mortgagee. However, if not withstanding this stipulation and during the existence of this mortgage, the property


herein mortgaged, or any portion thereof, is . . . sold, it shall be the obligation of the Mortgagor to impose as a condition of the sale, alienation or encumbrance that the vendee, or the party in whose favor the alienation or encumbrance is to be made, should take the property subject to the obligation of this mortgage in the same terms and condition under which it is constituted, it being understood that the Mortgagor is not in any manner relieved of his obligation to the Mortgagee under this mortgage by such sale, alienation or encumbrance; on the contrary both the vendor and the vendee, or the party in whose favor the alienation or encumbrance is made shall be jointly and severally liable for said mortgage obligations. . . .

Therefore, it cannot be said that it did not have a duty to pay to PNB the amortization on the mortgage.

Also, petitioner insists that its payment of the amortization was a mistake because PNB disapproved its assumption of mortgage after it failed to submit the necessary papers for the approval of such assumption.

But even if petitioner was a third party in regard to the mortgage of the land purchased, the payment of the loan by petitioner was a condition clearly imposed by the contract of sale. This fact alone disproves petitioner's insistence that there was a "mistake" in payment. On the contrary, such payments were necessary to protect its interest as a "the buyer(s) and new owner(s) of the lot."

The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of another. 31 But as shown earlier, the payment of the mortgage was an obligation petitioner assumed under the contract of sale. There is no unjust enrichment where the transaction, as in this case, is quid pro quo, value for value.

All told, respondent Court did not commit any reversible error which would warrant the reversal of the assailed Decision.

WHEREFORE, the petition is hereby DENIED, and the assailed Decision is AFFIRMED.

SO ORDERED.

G.R. No. 152219 October 25, 2004

NUTRIMIX FEEDS CORPORATION, petitioner, vs.COURT OF APPEALS and SPOUSES EFREN AND MAURA EVANGELISTA, respondents.

D E C I S I O N

CALLEJO, SR., J.:

For review on certiorari is the Decision1 of the Court of Appeals in CA-G.R. CV No. 59615 modifying, on appeal, the Joint Decision2 of the Regional Trial Court of Malolos, Bulacan, Branch 9, in Civil Case No. 1026-M-933 for sum of money and damages with prayer for issuance of writ of preliminary attachment, and Civil Case


No. 49-M-944 for damages. The trial court dismissed the complaint of the respondents, ordering them to pay the petitioner the unpaid value of the assorted animal feeds delivered to the former by the latter, with legal interest thereon from the filing of the complaint, including attorney’s fees.

The Factual Antecedents

On April 5, 1993, the Spouses Efren and Maura Evangelista, the respondents herein, started to directly procure various kinds of animal feeds from petitioner Nutrimix Feeds Corporation. The petitioner gave the respondents a credit period of thirty to forty-five days to postdate checks to be issued in payment for the delivery of the feeds. The accommodation was made apparently because of the company president’s close friendship with Eugenio Evangelista, the brother of respondent Efren Evangelista. The various animal feeds were paid and covered by checks with due dates from July 1993 to September 1993. Initially, the respondents were good paying customers. In some instances, however, they failed to issue checks despite the deliveries of animal feeds which were appropriately covered by sales invoices. Consequently, the

Sales Invoice Number

Date Amount

21334 June 23, 1993 P 7,260.00

21420 June 26, 1993 6,990.00

21437 June 28, 1993 41,510.00

21722 July 12, 1993 45,185.00

22048 July 26, 1993 44,540.00

22054 July 27, 1993 45,246.00

22186 August 2, 1993 84,900.00

Total: P275,631.00===========

respondents incurred an aggregate unsettled account with the petitioner in the amount of P766,151.00. The breakdown of the unpaid obligation is as follows:

BankCheck Number

Due Date Amount

United Coconut Planters Bank

BTS052084 July 30, 1993 P 47,760.00

-do- BTS052087 July 30, 1993 131,340.00

-do- BTS052091 July 30, 1993 59,700.00

-do- BTS062721 August 4, 1993 47,860.00

-do- BTS062720 August 5, 1993 43,780.00

-do- BTS062774 August 6, 1993 15,000.00

-do- BTS062748September 11, 1993

47,180.00


48,440.00


49,460.00

Total: P490,520.00==========

When the above-mentioned checks were deposited at the petitioner’s depository bank, the same were, consequently, dishonored because respondent Maura Evangelista had already closed her account. The petitioner made several demands for the respondents to settle their unpaid obligation, but the latter failed and refused to pay their remaining balance with the petitioner.

On December 15, 1993, the petitioner filed with the Regional Trial Court of Malolos, Bulacan, a complaint, docketed as Civil Case No. 1026-M-93, against the respondents for sum of money and damages with a prayer for issuance of writ of preliminary attachment. In their answer with counterclaim, the respondents admitted their unpaid obligation but impugned their liability to the petitioner. They asserted that the nine checks issued by respondent Maura Evangelista were made to guarantee the payment of the purchases, which was previously determined to be procured from the expected proceeds in the sale of their broilers and hogs. They contended that inasmuch as the sudden and massive death of their animals was caused by the contaminated products of the petitioner, the nonpayment of their obligation was based on a just and legal ground.

On January 19, 1994, the respondents also lodged a complaint for damages against the petitioner, docketed as Civil Case No. 49-M-94, for the untimely and unforeseen death of their animals supposedly effected by the adulterated animal feeds the petitioner sold to them. Within the period to file an answer, the petitioner moved to dismiss the respondents’ complaint on the ground of litis pendentia. The trial court denied the same in a Resolution5 dated April 26, 1994, and ordered the consolidation of the case with Civil Case No. 1026-M-93. On May 13, 1994, the petitioner filed its Answer with Counterclaim, alleging that the death of the respondents’ animals was


due to the widespread pestilence in their farm. The petitioner, likewise, maintained that it received information that the respondents were in an unstable financial condition and even sold their animals to settle their obligations from other enraged and insistent creditors. It, moreover, theorized that it was the respondents who mixed poison to its feeds to make it appear that the feeds were contaminated.

A joint trial thereafter ensued.

During the hearing, the petitioner presented Rufino Arenas, Nutrimix Assistant Manager, as its lone witness. He testified that on the first week of August 1993, Nutrimix President Efren Bartolome met the respondents to discuss the possible settlement of their unpaid account. The said respondents still pleaded to the petitioner to continue to supply them with animal feeds because their livestock were supposedly suffering from a disease.6

For her part, respondent Maura Evangelista testified that as direct buyers of animal feeds from the petitioner, Mr. Bartolome, the company president, gave them a discount of P12.00 per bag and a credit term of forty-five to seventy-five days.7 For the operation of the respondents’ poultry and piggery farm, the assorted animal feeds sold by the petitioner were delivered in their residence and stored in an adjacent bodega made of concrete wall and galvanized iron sheet roofing with monolithic flooring.8

It appears that in the morning of July 26, 1993, three various kinds of animal feeds, numbering 130 bags, were delivered to the residence of the respondents in Sta. Rosa, Marilao, Bulacan. The deliveries came at about 10:00 a.m. and were fed to the animals at approximately 1:30 p.m. at the respondents’ farm in Balasing, Sta. Maria, Bulacan. At about 8:30 p.m., respondent Maura Evangelista received a radio message from a worker in her farm, warning her that the chickens were dying at rapid intervals. When the respondents arrived at their farm, they witnessed the death of 18,000 broilers, averaging 1.7 kilos in weight, approximately forty-one to forty-five days old. The broilers then had a prevailing market price of P46.00 per kilo.9

On July 27, 1993, the respondents received another delivery of 160 bags of animal feeds from the petitioner, some of which were distributed to the contract growers of the respondents. At that time, respondent Maura Evangelista requested the representative of the petitioner to notify Mr. Bartolome of the fact that their broilers died after having been fed with the animal feeds delivered by the petitioner the previous day. She, likewise, asked that a technician or veterinarian be sent to oversee the untoward occurrence. Nevertheless, the various feeds delivered on that day were still fed to the animals. On July 27, 1993, the witness recounted that all of the chickens and hogs died.10 Efren Evangelista suffered from a heart attack and was hospitalized as a consequence of the massive death of their animals in the farm. On August 2, 1993, another set of animal feeds were delivered to the respondents, but the same were not returned as the latter were not yet cognizant of the fact that the cause of the death of their animals was the polluted feeds of the petitioner.11

When respondent Maura Evangelista eventually met with Mr. Bartolome on an undisclosed date, she attributed the improbable incident to the animal feeds supplied by the petitioner, and asked Mr. Bartolome for indemnity for the massive death of her livestock. Mr. Bartolome disavowed liability thereon and, thereafter, filed a case against the respondents.12

After the meeting with Mr. Bartolome, respondent Maura Evangelista requested Dr. Rolando Sanchez, a veterinarian, to conduct an inspection in the respondents’ poultry. On October 20, 1993, the respondents took ample amounts remaining from the feeds sold by the petitioner and furnished the same to various government agencies for laboratory examination.

Dr. Juliana G. Garcia, a doctor of veterinary medicine and the Supervising Agriculturist of the Bureau of Animal Industry, testified that on October 20, 1993, sample feeds for chickens contained in a pail were presented to her for examination by respondent Efren Evangelista and a certain veterinarian.13 The Clinical Laboratory Report revealed that the feeds were negative of salmonella14 and that the very high aflatoxin level15 found therein would not cause instantaneous death if taken orally by birds.

Dr. Rodrigo Diaz, the veterinarian who accompanied Efren at the Bureau of Animal Industry, testified that sometime in October 1993, Efren sought for his advice regarding the death of the respondents’ chickens. He suggested that the remaining feeds from their warehouse be brought to a laboratory for examination. The witness claimed that the feeds brought to the laboratory came from one bag of sealed Nutrimix feeds which was covered with a sack.

Dr. Florencio Isagani S. Medina III, Chief Scientist Research Specialist of the Philippine Nuclear Research Institute, informed the trial court that respondent Maura Evangelista and Dr. Garcia brought sample feeds and four live and healthy chickens to him for laboratory examination. In his Cytogenetic Analysis,16 Dr. Medina reported that he divided the chickens into two categories, which he separately fed at 6:00 a.m. with the animal feeds of a different commercial brand and with the sample feeds supposedly supplied by the petitioner. At noon of the same day, one of the chickens which had been fed with the Nutrimix feeds died, and a second chicken died at 5:45 p.m. of the same day. Samples of blood and bone marrow were taken for chromosome analysis, which showed pulverized chromosomes both from bone marrow and blood chromosomes. On cross-examination, the witness admitted that the feeds brought to him were merely placed in a small unmarked plastic bag and that he had no way of ascertaining whether the feeds were indeed manufactured by the petitioner.

Another witness for the respondents, Aida Viloria Magsipoc, Forensic Chemist III of the Forensic Chemist Division of the National Bureau of Investigation, affirmed that she performed a chemical analysis17 of the animal feeds, submitted to her by respondent Maura Evangelista and Dr. Garcia in a sealed plastic bag, to determine the presence of poison in the said specimen. The witness verified that the sample


feeds yielded positive results to the tests for COUMATETRALYL Compound,18 the active component of RACUMIN, a brand name for a commercially known rat poison.19 According to the witness, the presence of the compound in the chicken feeds would be fatal to internal organs of the chickens, as it would give a delayed blood clotting effect and eventually lead to internal hemorrhage, culminating in their inevitable death.

Paz Austria, the Chief of the Pesticide Analytical Section of the Bureau of Plants Industry, conducted a laboratory examination to determine the presence of pesticide residue in the animal feeds submitted by respondent Maura Evangelista and Dr. Garcia. The tests disclosed that no pesticide residue was detected in the samples received20but it was discovered that the animal feeds were positive for Warfarin, a rodenticide (anticoagulant), which is the chemical family of Coumarin.21

After due consideration of the evidence presented, the trial court ruled in favor of the petitioner. The dispositive portion of the decision reads:

WHEREFORE, in light of the evidence on record and the laws/jurisprudence applicable thereon, judgment is hereby rendered:

1) in Civil Case No. 1026-M-93, ordering defendant spouses Efren and Maura Evangelista to pay unto plaintiff Nutrimix Feeds Corporation the amount of P766,151.00 representing the unpaid value of assorted animal feeds delivered by the latter to and received by the former, with legal interest thereon from the filing of the complaint on December 15, 1993 until the same shall have been paid in full, and the amount of P50,000.00 as attorney’s fees. Costs against the aforenamed defendants; and

2) dismissing the complaint as well as counterclaims in Civil Case No. 49-M-94 for inadequacy of evidence to sustain the same. No pronouncement as to costs.

SO ORDERED.22

In finding for the petitioner, the trial court ratiocinated as follows:

On the strength of the foregoing disquisition, the Court cannot sustain the Evangelistas’ contention that Nutrimix is liable under Articles 1561 and 1566 of the Civil Code governing "hidden defects" of commodities sold. As already explained, the Court is predisposed to believe that the subject feeds were contaminated sometime between their storage at the bodega of the Evangelistas and their consumption by the poultry and hogs fed therewith, and that the contamination was perpetrated by unidentified or unidentifiable ill-meaning mischief-maker(s) over whom Nutrimix had no control in whichever way.

All told, the Court finds and so holds that for inadequacy of proof to the contrary, Nutrimix was not responsible at all for the contamination or poisoning of the feeds supplied by it to the Evangelistas which precipitated the mass death of the latter’s chickens and hogs. By no means and under no circumstance, therefore, may Nutrimix be held liable for the sundry damages prayed for by the Evangelistas in their complaint in Civil Case No. 49-M-94 and answer in Civil Case No. 1026-M-93. In fine, Civil Case No. 49-M-94 deserves dismissal.

Parenthetically, vis-à-vis the fulminations of the Evangelistas in this specific regard, the Court does not perceive any act or omission on the part of Nutrimix constitutive of "abuse of rights" as would render said corporation liable for damages under Arts. 19 and 21 of the Civil Code. The alleged "callous attitude and lack of concern of Nutrimix" have not been established with more definitiveness.

As regards Civil Case No. 1026-M-93, on the other hand, the Court is perfectly convinced that the deliveries of animal feeds by Nutrimix to the Evangelistas constituted a simple contract of sale, albeit on a continuing basis and on terms or installment payments.23

Undaunted, the respondents sought a review of the trial court’s decision to the Court of Appeals (CA), principally arguing that the trial court erred in holding that they failed to prove that their broilers and hogs died as a result of consuming the petitioner’s feeds.

On February 12, 2002, the CA modified the decision of the trial court. The fallo of the decision reads:

WHEREFORE, premises considered, the appealed decision is hereby MODIFIED such that the complaint in Civil Case No. 1026-M-93 is dismissed for lack of merit.

So ordered.24

In dismissing the complaint in Civil Case No. 1026-M-93, the CA ruled that the respondents were not obligated to pay their outstanding obligation to the petitioner in view of its breach of warranty against hidden defects. The CA gave much credence to the testimony of Dr. Rodrigo Diaz, who attested that the sample feeds distributed to the various governmental agencies for laboratory examination were taken from a sealed sack bearing the brand name Nutrimix. The CA further argued that the declarations of Dr. Diaz were not effectively impugned during cross-examination, nor was there any contrary evidence adduced to destroy his damning allegations.

On March 7, 2002, the petitioner filed with this Court the instant petition for review on the sole ground that –


THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CLAIMS OF HEREIN PETITIONER FOR COLLECTION OF SUM OF MONEY AGAINST PRIVATE RESPONDENTS MUST BE DENIED BECAUSE OF HIDDEN DEFECTS.

The Present Petition

The petitioner resolutely avers that the testimony of Dr. Diaz can hardly be considered as conclusive evidence of hidden defects that can be attributed to the petitioner. Parenthetically, the petitioner asserts, assuming that the sample feeds were taken from a sealed sack bearing the brand name Nutrimix, it cannot decisively be presumed that these were the same feeds brought to the respondents’ farm and given to their chickens and hogs for consumption.

It is the contention of the respondents that the appellate court correctly ordered the dismissal of the complaint in Civil Case No. 1026-M-93. They further add that there was sufficient basis for the CA to hold the petitioner guilty of breach of warranty thereby releasing the respondents from paying their outstanding obligation.

The Ruling of the Court

Oft repeated is the rule that the Supreme Court reviews only errors of law in petitions for review on certiorari under Rule 45. However, this rule is not absolute. The Court may review the factual findings of the CA should they be contrary to those of the trial court. Conformably, this Court may review findings of facts when the judgment of the CA is premised on a misapprehension of facts.25

The threshold issue is whether or not there is sufficient evidence to hold the petitioner guilty of breach of warranty due to hidden defects.

The petition is meritorious.

The provisions on warranty against hidden defects are found in Articles 1561 and 1566 of the New Civil Code of the Philippines, which read as follows:

Art. 1561. The vendor shall be responsible for warranty against hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold.

A hidden defect is one which is unknown or could not have been known to the vendee.26 Under the law, the requisites to recover on account of hidden defects are as follows:

(a) the defect must be hidden;

(b) the defect must exist at the time the sale was made;

(c) the defect must ordinarily have been excluded from the contract;

(d) the defect, must be important (renders thing UNFIT or considerably decreases FITNESS);

(e) the action must be instituted within the statute of limitations.27

In the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable to be used for the purpose which both parties contemplated.28 To be able to prove liability on the basis of breach of implied warranty, three things must be established by the respondents. The first is that they sustained injury because of the product; the second is that the injury occurred because the product was defective or unreasonably unsafe; and finally, the defect existed when the product left the hands of the petitioner.29 A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by the product in the absence of any proof that the product in question was defective.30 The defect must be present upon the delivery or manufacture of the product;31 or when the product left the seller’s or manufacturer’s control;32 or when the product was sold to the purchaser;33 or the product must have reached the user or consumer without substantial change in the condition it was sold. Tracing the defect to the petitioner requires some evidence that there was no tampering with, or changing of the animal feeds. The nature of the animal feeds makes it necessarily difficult for the respondents to prove that the defect was existing when the product left the premises of the petitioner.

A review of the facts of the case would reveal that the petitioner delivered the animal feeds, allegedly containing rat poison, on July 26, 1993; but it is astonishing that the respondents had the animal feeds examined only on October 20, 1993, or barely three months after their broilers and hogs had died. On cross-examination, respondent Maura Evangelista testified in this manner:

Atty. Cruz:

Q Madam Witness, you said in the last hearing that believing that the 250 bags of feeds delivered to (sic) the Nutrimix Feeds Corporation on August 2,


1993 were poison (sic), allegedly your husband Efren Evangelista burned the same with the chicken[s], is that right?

A Yes, Sir. Some, Sir.

Q And is it not a fact, Madam Witness, that you did not, as according to you, used (sic) any of these deliveries made on August 2, 1993?

A We were able to feed (sic) some of those deliveries because we did not know yet during that time that it is the cause of the death of our chicks (sic), Sir.

Q But according to you, the previous deliveries were not used by you because you believe (sic) that they were poison (sic)?

A Which previous deliveries, Sir[?]

Q Those delivered on July 26 and 22 (sic), 1993?

A Those were fed to the chickens, Sir. This is the cause of the death of the chickens.

Q And you stated that this last delivery on August 2 were poison (sic) also and you did not use them, is that right?

Atty. Roxas:

That is misleading.

Atty. Cruz:

She stated that.

Atty. Roxas:

She said some were fed because they did not know yet of the poisoning.

Court:

And when the chickens died, they stopped naturally feeding it to the chickens.

Atty. Cruz:

Q You mean to say, Madam Witness, that although you believe (sic) that the chickens were allegedly poisoned, you used the same for feeding your animals?

A We did not know yet during that time that the feeds contained poison, only during that time when we learned about the same after the analysis.

Q Therefore you have known only of the alleged poison in the Nutrimix Feeds only after you have caused the analysis of the same?

A Yes, Sir.

Q When was that, Madam Witness?

A I cannot be sure about the exact time but it is within the months of October to November, Sir.

Q So, before this analysis of about October and November, you were not aware that the feeds of Nutrimix Feeds Corporation were, according to you, with poison?

A We did not know yet that it contained poison but we were sure that the feeds were the cause of the death of our animals.34

We find it difficult to believe that the feeds delivered on July 26 and 27, 1993 and fed to the broilers and hogs contained poison at the time they reached the respondents. A difference of approximately three months enfeebles the respondents’ theory that the petitioner is guilty of breach of warranty by virtue of hidden defects. In a span of three months, the feeds could have already been contaminated by outside factors and subjected to many conditions unquestionably beyond the control of the petitioner. In fact, Dr. Garcia, one of the witnesses for the respondents, testified that the animal feeds submitted to her for laboratory examination contained very high level of aflatoxin, possibly caused by mold (aspergillus flavus).35 We agree with the contention of the petitioner that there is no evidence on record to prove that the animal feeds taken to the various governmental agencies for laboratory examination were the same animal feeds given to the respondents’ broilers and hogs for their consumption. Moreover, Dr. Diaz even admitted that the feeds that were submitted for analysis came from a sealed bag. There is simply no evidence to show that the feeds given to the animals on July 26 and 27, 1993 were identical to those submitted to the expert witnesses in October 1993.

It bears stressing, too, that the chickens brought to the Philippine Nuclear Research Institute for laboratory tests were healthy animals, and were not the ones that were ostensibly poisoned. There was even no attempt to have the dead fowls examined. Neither was there any analysis of the stomach of the dead chickens to determine whether the petitioner’s feeds really caused their sudden death. Mere sickness and


death of the chickens is not satisfactory evidence in itself to establish a prima facie case of breach of warranty.36

Likewise, there was evidence tending to show that the respondents combined different kinds of animal feeds and that the mixture was given to the animals. Respondent Maura Evangelista testified that it was common practice among chicken and hog raisers to mix animal feeds. The testimonies of respondent Maura Evangelista may be thus summarized:

Cross-Examination

Atty. Cruz:

Q Because, Madam Witness, you ordered chicken booster mash from Nutrimix Feeds Corporation because in July 1993 you were taking care of many chickens, as a matter of fact, majority of the chickens you were taking care [of] were chicks and not chickens which are marketable?

A What I can remember was that I ordered chicken booster mash on that month of July 1993 because we have some chicks which have to be fed with chicken booster mash and I now remember that on the particular month of July 1993 we ordered several bags of chicken booster mash for the consumption also of our chicken in our other poultry and at the same time they were also used to be mixed with the feeds that were given to the hogs.

Q You mean to say [that], as a practice, you are mixing chicken booster mash which is specifically made for chick feeds you are feeding the same to the hogs, is that what you want the Court to believe?

A Yes, Sir, because when you mix chicken booster mash in the feeds of hogs there is a better result, Sir, in raising hogs.37

…

Re-Direct Examination

Atty. Roxas:

Q Now, you mentioned that shortly before July 26 and 27, 1993, various types of Nutrimix feeds were delivered to you like chicks booster mash, broiler starter mash and hog finisher or hog grower mash. What is the reason for simultaneous deliveries of various types of feeds?

A Because we used to mix all those together in one feeding, Sir.

Q And what is the reason for mixing the chick booster mash with broiler starter mash?

A So that the chickens will get fat, Sir.

…

Re-Cross Examination

Atty. Cruz:

Q Madam Witness, is it not a fact that the mixing of these feeds by you is your own concuction (sic) and without the advice of a veterinarian expert to do so?

A That is common practice among raisers to mix two feeds, Sir.

Q By yourself, Madam Witness, who advised you to do the mixing of these two types of feeds for feeding your chickens?

A That is common practice of chicken raisers, Sir.38

Even more surprising is the fact that during the meeting with Nutrimix President Mr. Bartolome, the respondents claimed that their animals were plagued by disease, and that they needed more time to settle their obligations with the petitioner. It was only after a few months that the respondents changed their justification for not paying their unsettled accounts, claiming anew that their animals were poisoned with the animal feeds supplied by the petitioner. The volte-face of the respondents deserves scant consideration for having been conjured as a mere afterthought.

In essence, we hold that the respondents failed to prove that the petitioner is guilty of breach of warranty due to hidden defects. It is, likewise, rudimentary that common law places upon the buyer of the product the burden of proving that the seller of the product breached its warranty.39 The bevy of expert evidence adduced by the respondents is too shaky and utterly insufficient to prove that the Nutrimix feeds caused the death of their animals. For these reasons, the expert testimonies lack probative weight. The respondents’ case of breach of implied warranty was fundamentally based upon the circumstantial evidence that the chickens and hogs sickened, stunted, and died after eating Nutrimix feeds; but this was not enough to raise a reasonable supposition that the unwholesome feeds were the proximate cause of the death with that degree of certainty and probability required.40 The rule is well-settled that if there be no evidence, or if evidence be so slight as not reasonably to warrant inference of the fact in issue or furnish more than materials for a mere conjecture, the court will not hesitate to strike down the evidence and rule in favor of the other party.41 This rule is both fair and sound. Any other interpretation of the law would unloose the courts to meander aimlessly in the arena of speculation.42


It must be stressed, however, that the remedy against violations of warranty against hidden defects is either to withdraw from the contract (accion redhibitoria) or to demand a proportionate reduction of the price (accion quanti minoris), with damages in either case.43 In any case, the respondents have already admitted, both in their testimonies and pleadings submitted, that they are indeed indebted to the petitioner for the unpaid animal feeds delivered to them. For this reason alone, they should be held liable for their unsettled obligations to the petitioner.

WHEREFORE, in light of all the foregoing, the petition is GRANTED. The assailed Decision of the Court of Appeals, dated February 12, 2002, is REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Malolos, Bulacan, Branch 9, dated January 12, 1998, is REINSTATED. No costs.

SO ORDERED.

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Sales Sept. 24, 2015